Fair Market Rents for Section 8 Existing Housing; Amendments to Method of Calculating

SUMMARY: This final rule amends the Department's regulations at 24 CFR

part 888 governing the method of calculating Fair Market Rents (FMRs)

for Section 8 Existing housing programs including the Section 8 Rental

Certificate program (including space rentals by owners of manufactured

homes under that program); the Moderate Rehabilitation Single Room

Occupancy program; the Loan Management and Property Disposition

programs; payment standards for the Rental Voucher program; and any

other programs which use the Section 8 FMRs.

HUD is changing the definition from the 45th percentile of the

rental distribution of standard quality rental housing units to the

40th percentile as a cost saving measure. On average, FMRs will be 3.3

percent less than if they were set at the 45th percentile level. This

change will not significantly affect September 8 program operations.

Families will continue to have an adequate choice of good housing and

neighborhoods at the 40th percentile FMR.

EFFECTIVE DATE: September 14, 1995.

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Rental Assistance

Division, Office of Public and Indian Housing; telephone (202) 708-0477

or (202) 708-0850 (TDD for speech- or hearing-impaired), for questions

relating to the Section 8 Rental Certificate, Rental Voucher, and

Moderate Rehabilitation programs;

Barbara Hunter, Program Planning Division, Office of Multifamily

Housing Management; telephone (202) 708-3944 or (202) 708-4594 (TDD for

speech- or hearing-impaired), for questions relating to all other

Section 8 programs.

David Pollack, Office of Community Planning and Development;

telephone (202) 708-1234 or (202) 708-2565 (TDD for speech- or hearing-

impaired), for questions relating to Moderate Rehabilitation, Single

Room Occupancy (SRO).

Michael Allard, Office of Policy Development and Research, (202)

708-0577 or 708-1455 (TDD for speech- or hearing-impaired), for

questions relating to measurement of rent levels.

Mailing address for above persons: Department of Housing and Urban

Development, 451 Seventh Street SW., Washington, DC 20410. (Telephone

numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

Section 8 of the U. S. Housing Act of 1937 (the Act) (42 U.S.C.

1437f) authorizes housing assistance to aid low-income families in

renting decent, safe, and sanitary housing. Assistance payments are

limited by Fair Market Rents (FMRs) established by HUD, or by payment

standards based on the FMRs established by public housing agencies for

the Rental Voucher program. In general, the FMR for an area is the

amount that would be needed to pay the gross rent (shelter rent plus

utilities) of privately-owned, decent, safe, and sanitary rental

housing of a modest (non-luxury) nature with suitable amenities.

Under section 8(c) of the Act, the Secretary of HUD is directed to

establish FMRs periodically, but not less frequently than annually. HUD

publishes proposed FMRs each year, and after a period of public

comment, publishes the final FMRs. The method used to calculate FMRs is

described in 24 CFR part 888, subpart A. This rule amends the

regulations:

(1) To change the FMR rent standard from the 45th to 40th

percentile rent of the rent distribution of rental housing units;

(2) To authorize the Secretary to establish FMR areas that differ

from the OMB definitions of metropolitan areas where the OMB

definitions are determined by HUD to be larger than housing market

areas;

(3) To identify Random Digit Dialing (RDD) telephone surveys as a

data source used to establish FMRs for selected individual areas and to

develop rent-change factors for updating FMRs;

(4) To state the requirement that, in order to be considered as a

basis for revising the FMRs, public comments on proposed FMRs must

contain statistically valid rental housing survey data justifying the

requested changes; and

(5) To provide that the FMR for a manufactured home space in the

tenant-based certificate program is 30 percent of the FMR for a two-

bedroom housing unit.

The amendments to the method of calculating FMRs in this final rule

apply to the following Section 8 Housing Assistance Payments programs:

the Rental Certificate program, including space rentals by owners of

manufactured homes; the Moderate Rehabilitation SRO Program; the loan

management program for projects with HUD-insured or HUD-held mortgages,

as well as the Property Disposition program; and any other HUD programs

which use these FMRs (e.g., programs to assist the homeless). In

addition, the rule amends the regulations to reflect use of FMRs to

establish payment standards for the Rental Voucher program. The rule

applies to public housing agencies (PHAs) and Indian Housing

Authorities (IHAs), which are collectively referred to as housing

authorities (HAs).

II. Public Comments on Proposed Rule

On March 2, 1995 (60 FR 11626), HUD published its proposed rule

that would amend the Department's regulations at 24 CFR part 888

governing the method of calculating FMRs for the Section 8 Rental

Certificate Programs discussed above. The Department received 628

comments on the proposed regulation.

The following presents the major issues raised in the public

comments and HUD's responses to these issues.

1. Comment: Many commenters contended that the reduction to the

40th percentile rent standard would result in a shortage of units

available to the Section 8 program and that participants would be

limited in their housing choices and, therefore, trapped in poor

neighborhoods where units are of marginal quality. Some HAs are

claiming that the reduction will kill the program in rural areas.

Response: The proposed rule would have HUD set the FMR standard at

the 40th percentile rent level of the distribution of standard quality

rental housing units occupied by recent movers. Because the rents of

recent movers are almost always higher than the rents of stayers, more

than 40 percent of the standard quality rental housing units in each

FMR area have rents that would make them available to program

participants.

A HUD analysis of Census data shows that, contrary to the

perception of most of the commenters, rent-eligible units are actually

widely dispersed throughout FMR areas. An analysis of a representative

sample of 13 metropolitan areas revealed that, on average, 85 percent

of census tract neighborhoods with 10 or more two-bedroom rental units

had at least 30 percent of the two-bedroom units below the FMRs. The

variation among these areas was not great. All areas had high

[[Page 42223]]

percentages of neighborhoods with rent eligible units, ranging from 71

to 95 percent of the census tracts with 30 percent or more of the units

below the FMR. This is strongly suggestive that families will continue

to have an adequate choice of good housing and neighborhoods at the

40th percentile FMR.

A similar analysis was conducted and similar results found for a

number of nonmetropolitan counties, supporting the conclusion that

rural areas also will have an ample proportion of rental housing that

families with housing certificates can afford at the 40th percentile

FMR standard.

2. Comment: Many commenters were concerned that lower FMRs would

result in landlords dropping out of the Section 8 Existing program.

Response: Lowering the standard from the 45th to the 40th

percentile rent will reduce FMRs by a small amount, 3.3 percent on

average. While some participating landlords with units renting very

close to the current FMRs may choose to drop out of the program, the

vast majority of units now in the program will continue to be eligible

under the new 40th percentile standard. In addition, HUD will be able

to use the FMR exception authority available for submarkets of FMR

areas to mitigate this situation.

3. Comment: The proposed rule was viewed by commenters as an

attempt by OMB and HUD to reduce budgets at the expense of low-income

Americans.

Response: The reduction in the FMR standard is a cost savings

measure. The streamlined Section 8 program will save taxpayers money

while still assuring that low-income families participating in the

program will be able to improve their housing situations. HUD is

confident that providing Section 8 families access to 40 percent of the

standard quality rental housing stock in a housing market offers them

the opportunity to afford decent, safe, and sanitary housing. Further,

a lower FMR standard permits assistance for more families with

available funding.

4. Comment: Commenters thought that lower FMRs would result in more

program vacancies and therefore lower administrative fees to HAs

increasing their financial burden and impacting their ability to

operate the program.

Response: The fact that FMRs are lower does not mean there will be

a lower lease-up rate in the program. Lower FMRs are an issue only for

new families entering the program or for families that move. Families

in need of housing will find units that rent below the lower FMR rather

than give up their rental assistance. Current program participants

desiring to move will be less likely to move if they have difficulty

finding a unit.

HUD is in the process of decoupling the HA ongoing administrative

fees from the current FMR to the extent allowed by law. Under the

notice on administrative fees for the Section 8 Rental Voucher and

Rental Certificate Programs that was published in the Federal Register

on January 24, 1995 (59 FR 32492), the HA ongoing administrative fees

for the rental vouchers and certificates funded from pre-FY 1989

appropriations, representing more than one-half of the program units,

were decoupled from the current FMRs. HUD is seeking legislation to

decouple fees from the FMRs for rental vouchers and certificates funded

from FY 1989 and subsequent appropriations. Changes in the monthly per

unit fee amount would be based on changes in wage data or other

objectively measurable data, as determined by HUD, that reflect the

costs of administering the program.

5. Comment: Commenters objected that the proposed rule encourages

HAs to conduct RDD surveys which are too costly and are not as reliable

as local surveys of real estate agents, renters, and visual inspections

of rental units. RDD surveys do not account for substandard housing,

and households with telephones are not necessarily standard quality

units, especially in rural areas. HUD requires HAs to use statistically

valid surveys, implying the required use of the RDD approach. HUD

should allow a common sense, inexpensive approach to rental housing

surveys.

Response: HUD encourages HAs that believe their FMRs are too low to

conduct statistically valid surveys to test these numbers. HUD

recommends the use of RDD-type surveys, but these surveys are not

mandatory. Both the RDD and the traditional methods that HUD recommends

emphasize the need to obtain a complete list of the rental universe and

conduct the survey in an unbiased way. Very small samples, if carefully

drawn and surveyed, are more accurate than large samples drawn from

biased sources or surveyed in a biased manner. Regardless of how the

survey itself is conducted, the universe list must reflect the entire

rent distribution of the FMR area. HAs may continue to submit

traditional rental housing surveys and HUD will continue to evaluate

them in terms of their sample validity.

HUD provides extensive step-by-step guidance on how to conduct

statistically valid surveys, including sample selection (using either

the RDD or traditional method), questionnaire wording, follow-ups of

nonrespondents, and data processing. HUD is also willing to help HAs

that want to conduct their own surveys.

HUD's past analysis indicates that RDD surveys appropriately

reflect the rent levels of the standard quality housing stock. The

impact of substandard housing is offset by the use of samples of rental

housing units with telephones. The upward rent bias from surveying only

units with telephones is offset by the high proportion of non-telephone

units that would not meet quality standards.

HUD has always required the use of statistically valid housing

surveys in FMR comments and has stated the requirements for such

surveys in the preambles to the notices of proposed FMRs. In recent

years, HUD has also publicized the availability of its rental housing

survey guides and has conducted an outreach program to help HAs conduct

statistically valid surveys. These surveys need not be conducted by

professionals, and are cheap enough that most HAs can afford to conduct

them. Even very small HAs have been able to use these surveys by

joining their resources and conducting combined surveys.

6. Comment: The proposed change was particularly perplexing to

several commenters in view of the Section 8 NOFA selection criteria--

Efforts of HA to Provide Area-Wide Housing Opportunities for Families.

Response: Prior to issuing the proposed regulation, HUD considered

the impact of this change on efforts to encourage families to move from

high poverty neighborhoods. As discussed in the response to the first

comment, HUD is confident that rental housing units meeting the program

standards are available throughout FMR areas, and will favorably

consider requests for submarket exception rents in order to maintain

opportunities for families to rent units in non-poverty neighborhoods.

7. Comment: The reduction in the FMR standard would make it more

difficult to administer a program that mandates Family Self-Sufficiency

(FSS).

Response: HUD provided special funding in FY 1994 for HAs to hire a

service coordinator under the FSS program. The Notice of Funding

Availability for FY 1995 provides additional funding for HAs to hire

FSS service coordinators.

8. Comment: Several commenters stated that reduced FMRs were

insufficient to support new construction programs like the Low Income

Housing Tax Credit (LIHTC) or HOME program.

[[Page 42224]]

Response: The FMRs, set at the 40th percentile level of standard

quality recent mover rental units, would include approximately the

bottom half of an area's standard quality rental stock. It is not HUD's

intention to set the FMRs at a level high enough to support new

construction and only in very unusual situations would this occur. Over

the years, some production programs, such as the HOME and LIHTC

programs, have had program rents tied to the FMRs to ensure that the

end result was affordable housing. HOME participants can use the grant

money in a variety of ways ranging from leveraging production costs to

directly paying for them. Many of the HOME and LIHTC participants have

used other sources of funds to write down rents on these projects.

9. Comment: Commenters objected to the 30-day comment period as

being too short a time period to comment on the proposed changes.

As stated in the preamble to the proposed rule and repeated here,

HUD's position in providing a 30-day comment period, rather than 60

days, is that the public had already had ample notice that HUD was

considering this change. On June 23, 1994 (59 FR 32492), HUD published

a notice in the Federal Register containing two separate sets of FMRs--

one based on the 45th percentile rent levels and the other based on the

40th percentile rent levels. The notice explained that HUD was

considering a 40th percentile FMR standard. A reduction in the FMR

standard was also announced as a proposed cost savings measure in HUD's

FY 1995 budget presentation. The June 23, 1994 notice requested public

comment on the proposed FMRs at both the 40th and 45th percentiles.

Since the public had already had the opportunity to consider the

proposed change in the FMR standard and to comment on the actual

proposed FMRs at the 40th percentile level, HUD believes that a 60-day

comment period was unnecessary since the abbreviated comment period did

not adversely impact the public's ability to participate in this rule

making. In fact, HUD received and evaluated all comments received after

the 30-day comment period had ended.

10. Comment: Commenters contended that HUD's proposal to provide

for a 30-day comment period for the annual notice of proposed FMRs is

not enough time for HAs to do rental housing surveys. Some commenters

requested a comment period longer than the 60 days currently allowed.

Response: The regulation requires the Department to provide a

comment period of at least 30 days to identify areas where the FMRs are

believed to be too high or too low. HUD's practice has been, and will

continue to be, to allow interested parties 60 days to prepare their

comments. The 60-day comment period was adopted in recognition that the

additional time was needed for HAs to conduct rental housing surveys.

HUD reserves the right, however, to abbreviate the comment period in

the event that special circumstances should warrant such an action.

HUD cannot provide for a comment period longer than 60 days and

still be able to publish final FMRs on October 1 of each year. Because

of the time required to obtain the year-end data used to update and

process the FMR schedules each year, the earliest these estimates can

be published is in mid-April. The 60-day comment period, therefore,

ends in mid-June, and the remainder of that month is required to

process and distribute the comments to the respective HUD Field

offices. HUD reviews the comments for the next month and a half,

through mid-August. The remainder of the time is spent preparing the

revised FMRs for publication, clearing the publication, and submitting

them to the Federal Register.

11. Comment: Commenters objected to the proposal to give the

Secretary the discretion to make modifications to the FMR area

definitions of large metropolitan areas.

Response: HUD generally uses the OMB definitions of metropolitan

areas as FMR definitions because they are good approximations of

housing market area definitions--the criterion that HUD uses to define

FMR areas. OMB in its publication establishing these definitions (OMB

Bulletin NO. 93-17), however, directs agencies who use the definitions

for nonstatistical purposes to ensure that they are appropriate for the

specific program use. OMB recommends that the agency in such a

circumstance seek public comment on their appropriateness. The OMB

bulletin further states that an agency may deviate from the

definitions, but should identify the deviations and specify the program

for which they will apply. In establishing the FMR area definitions,

HUD followed the OMB procedures. First, HUD conducted an evaluation of

the revised OMB metropolitan area definitions and determined there were

seven metropolitan areas for which the OMB definitions were too large

to represent housing market area definitions. HUD then invited public

comment in the notice of proposed FMRs published on May 6, 1993 (58 FR

27062). HUD received only one public comment on this issue. After

reviewing the comment, HUD decided to make the modified definitions

effective, which it did in the October 1, 1993, Federal Register

publication of final FMRs (58 FR 51410). This rule merely codifies

HUD's existing policy of making exceptions to FMR definitions, as

warranted, in accordance with OMB's instructions.

12. Comment: Several commenters objected to HUD's rule to set

manufactured home space rents at the 30 percent of the FMRs for a two-

bedroom unit.

Response: HUD first announced in the May 6, 1993, notice of

proposed FMRs that it was considering other alternatives for

establishing manufactured home space FMRs. It was explained in the

notice that the data base used to estimate the FMRs for manufactured

home space rents was quite old, from a 1978 survey, and that no new

data sources were available. HUD did not consider the existing data

sufficiently accurate to continue using these estimates. Because there

is very limited use of the manufactured home space rents in the tenant-

based rental assistance programs, the expected cost of obtaining new

survey data was not justified.

HUD did not receive any comments on this proposal and, therefore,

on June 23, 1994, proposed that the manufactured home space FMR would

be 30 percent of the Section 8 two-bedroom FMR. The 30-percent ratio

was selected on the basis of an analysis which showed that the vast

majority of the manufactured home space FMRs were within a 20 to 30

percent range of the regular two-bedroom FMR. Recognizing that there

would be valid exceptions to this relationship, HUD informed the public

that it would accept local surveys of space rentals in manufactured

home parks as a basis for modifying the FMRs where the proposed new

standard was not adequate to operate the program. HUD also announced

that it was retaining all local surveys that had been accepted since

1990 as the basis for modifying the manufactured home space FMRs. On

September 28, 1994 (59 FR 49494), HUD published separately in Schedule

D, the manufactured home space FMRs for 13 areas that had recent local

surveys and established the FMRs for all other areas at 30 percent of

the two-bedroom FMR.

13. Comment: A commenter requested that HUD publish a contract rent

and a utility amount rather than a gross rent FMR estimate. The basis

for this request is the concern that the amount HUD is using for the

utility component is less than what is used at the local level.

[[Page 42225]]

Response: HUD FMRs are gross rent estimates, which means that they

include the cost of all utilities. HUD prefers using gross rent as a

basis because it accounts for the total costs to tenants and it

provides a consistent basis for comparison. There is no one contract

rent for an FMR area. Contract arrangements vary with regard to the

types of utilities paid by the landlord and those paid by the tenant.

HUD actually uses two methods to develop gross rent estimates. For the

base-year estimates of FMR areas using the 1990 Census and post-1990

American Housing Surveys, a series of detailed questions are asked to

determine what utilities the tenants pay and how much they pay. The

contract rent and tenant paid utilities are then combined on an

individual unit basis to derive the gross rent of each unit. For those

areas based on RDD surveys, the gross rents are determined by asking

the tenant to identify the utilities they pay themselves. HUD then uses

the approved HA utility allowances to determine the appropriate amount

of tenant paid utilities, which are added to the contract rent amount

to determine a gross rent. HUD has found no evidence to suggest there

is a downward bias introduced into the estimates using either method.

The RDD procedure uses the most current HA estimates of utilities,

while the Census surveys use tenant estimates of utilities. If

anything, the latter source may be somewhat overstated.

14. Comment: A commenter stated that HUD should not implement this

change without specific Congressional approval. They also stated that

Congressional opposition last year should have convinced HUD not to

take this action unless Congress specifically directs it to do so.

Response: The law does not specify the percentile standard used to

establish the FMRs and permits HUD to change the FMR standard from the

45th to the 40th percentile standard. Accordingly, HUD has the

authority to implement this change.

15. Comment: A commenter claimed that HUD's FMR calculations are

flawed because they do not include newly constructed units which would

allow for greater choice of locations and increase the number of units

passing HQS.

Response: HUD is authorized to provide assistance for existing

housing units and to determine FMRs for such units. Newly constructed

units--units built within the past 2 years--are excluded from the FMR

calculations. An objective of the Section 8 Housing Assistance Payments

program is to serve as many low-income families as possible by making

available standard quality rental housing units of modest (nonluxury)

quality. Newly constructed units generally have much higher initial

rent levels than other units. HUD, therefore, considers that such units

should be deleted from the data base used to calculate the Existing

Housing FMRs. Deletion of new units from the data base does not

significantly affect the number of units that would pass HQS. HUD also

calculates the FMRs by deleting substandard units from the Census

distributions of rental housing and making an additional adjustment to

factor out the affects of substandard housing on rents using the more

refined housing quality data available in the American Housing Survey

distributions.

16. Comment: A commenter, concerned that FMRs in nonmetropolitan

areas were too low, suggested HUD consider establishing minimum FMRs

based on State averages.

Response: HUD's use of the 1990 Census to re-benchmark the FMRs

significantly improved the accuracy of these estimates in

nonmetropolitan counties. For the first time, rent data were available

for all counties individually rather than for county groups as had been

the situation with previous Censuses. To protect against

unrealistically low FMRs being set as the result of insufficient sample

sizes, exceptions were made to the use of county level FMRs. The

exceptions involved the use of State-wide minimum rent estimates that

were applied to all FMR areas with fewer than 100 two-bedroom rental

unit cases in the Census and with FMRs below the State minimum

comparable rent of areas with 100 or more such cases. The base year FMR

estimates for these counties were set at the lower of the State-wide

minimum or the upper end of the confidence interval of the Census-based

rent. HUD is concerned about the continued number of inquiries on this

issue, however, and is currently reviewing its exception procedure to

determine if a further adjustment may be warranted for nonmetropolitan

counties with extremely low rents.

17. Comment: A commenter objected that comments should not be

restricted in any way. Requiring smaller housing authorities to submit

exhaustive statistics (from rental housing surveys) violated the

spirit, if not the letter of the law. The comment stated that nearly

all HAs have complete data for rental properties to establish rent

reasonableness and comparability and that the results of RDD surveys

pale to insignificance when compared to the actual day to day

experience of a local housing authority.

Response: As explained in the response to comment number 5, HUD

does not mandate the use of RDD surveys and continues to accept the

traditional type rental housing surveys as a basis for revising the

FMRs as long as the survey samples are not biased and are

representative of the rental housing stock of the entire FMR area. HUD

disagrees with the contention that local rent reasonableness data are a

better, or even an acceptable alternative, to an RDD survey or a

traditional survey conducted in accordance with HUD survey guidelines.

The rent reasonableness data base is a restricted source of information

that is collected for specific units being considered for participation

in the program, for limited parts of FMR areas, and at various points

in time. As such, the data are not likely to constitute a

representative sample. For many areas these data were collected for

units that entered the program prior to the re-benchmarking of the FMRs

and, therefore, include concentrations of units above the current FMRs.

18. Comment: Commenters suggested that if HUD insists on going to

the 40th percentile rent level, it should allow Certificate holders the

same flexibility to exceed the FMR as Voucher Holders.

Response: HUD is preparing the last part of the final rule to

implement the provisions of the National Affordable Housing Act of

1990, that would allow certificate holders to pay more than 30 percent

of their income toward rent. Under the provisions of law, up to 10

percent of the families renting units with assistance under the rental

certificate program could pay more than 30 percent of their income

toward rent. Similarly, under HUD's proposed Housing Certificate Fund,

90 percent of the participants would be allowed to pay up to 35 percent

of their income toward rent and 10 percent of the families could pay

more than 35 percent of their income for rent.

19. Comment: A commenter disputed the General Counsel's findings on

executive orders 12606, Family and 12611, Federalism.

Response: This rule will not restrict families to spatial

concentrations of poverty. HUD is still committed to providing

affordable housing to as many families as possible in today's market.

The establishment of FMRs at the 40th percentile level does not have

any substantial direct impact on States, on the relationship between

the Federal government and the States, or on the distribution of power

and responsibility among the various levels of government.

[[Page 42226]]

20. Comment: One commenter stated that the change from the 45th to

the 40th percentile FMR standard will cause still more families to be

unsuccessful in finding decent, safe, and sanitary housing. The comment

cited the nationwide success rate of 81 percent as evidence supporting

this claim.

Response: A recent HUD study found just the opposite situation. The

study, completed in 1994, found 80 percent of recipients in large

cities were successful in finding housing that qualified for the

program. Excluding New York City from the sample, the nationwide

success rate was even higher, 87 percent. The success rates in the

Section 8 program have been increasing over time, rising from about 50

percent in the late-1970's, to 65 percent in the mid-1980's, to the

current 80 percent rate. As pointed out in the response to comment

number 1, there is a more than adequate supply of housing in good

condition and in good neighborhoods available to program participants.

The Census data for the 13 selected metropolitan areas show that at the

40th percentile standard at least 40 percent of the two-bedroom rental

housing stock had rents at or below the FMRs. Five of these areas had

more than half of all two-bedroom units at or below the FMR, and most

of the other areas had from 45 to 50 percent of the two-bedroom units

at or below the FMR.

III. Other Matters

Executive Order 12866, Regulatory Planning and Review

This final rule was reviewed and approved by the Office of

Management and Budget as a significant rule, as that term is defined in

Executive Order 12866, which was signed by the President on September

30, 1993. Any changes to the final rule as a result of that review are

contained in the public file of the rule in the office of the

Department's Rules Docket Clerk.

Environmental Assessment

A Finding of No Significant Impact with respect to the environment

required by the National Environmental Policy Act (42 U.S.C. 4321-4374)

is unnecessary, since the establishment and review of fair market rents

is categorically excluded from the Department's regulations

implementing the National Environmental Policy Act at 24 CFR 50.20(l).

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this document before publication and by

approving it certifies that the proposed rule would not have a

significant economic impact on a substantial number of small entities,

because FMRs reflect the rents for similar quality units in the area.

Therefore, FMRs do not change the rent from that which would be charged

if the unit were not in the Section 8 program.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this proposed rule would

not have a significant impact on family formation, maintenance, or

well-being. The proposed rule would amend the method for calculating

Fair Market Rent for various Section 8 assisted housing programs, and

would not affect the amount of rent a family receiving rental

assistance pays, which is based on a percentage of the family's income.

Executive Order 12611, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12611, Federalism, has determined that this proposal

would not involve the preemption of State law by Federal statute or

regulation and would not have Federalism implications. The

establishment of FMRs does not have any substantial direct impact on

States, on the relationship between the Federal government and the

States, or on the distribution of power and responsibility among the

various levels of government.

Semiannual Regulatory Agenda

This rule was listed as sequence number 1727 in the Department's

Semiannual Regulatory Agenda published on May 8, 1995 (60 FR 23368,

23377) under Executive Order 12866 and the Regulatory Flexibility Act.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance program number is

14.156, Lower-Income Housing Assistance Program (Section 8).

List of Subjects in 24 CFR Part 888

Grant programs--housing and community development, Rent subsidies.

Accordingly, part 888 of title 24 of the Code of Federal

Regulations would be amended as follows:

PART 888--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--FAIR

MARKET RENTS AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS

1. The authority citation for part 888 is revised to read as

follows:

Authority: 42 U.S.C. 1437c, 1437f, and 3535(d).

2. Sections 888.101 and 888.105 are removed and Sec. 888.111 is

revised to read as follows:

Sec. 888.111 Fair market rents for existing housing: Applicability.

The Fair Market Rents (FMRs) for existing housing (see definition

in Sec. 882.102 of this chapter) are determined by the Department of

Housing and Urban Development (HUD) and apply to the Section 8

Certificate Program, including space rentals by owners of manufactured

homes under the Section 8 Certificate Program, the Section 8 Moderate

Rehabilitation Program, Section 8 existing housing project-based

assistance, and Section 8 existing housing assisted under part 886 of

this chapter. FMRs are also used to determine payment standard

schedules in the Rental Voucher program.

3. Section 888.113 is revised to read as follows:

Sec. 888.113 Fair market rents for existing housing: Methodology.

(a) Basis for setting fair market rents. Fair Market Rents (FMRs)

are estimates of rent plus the cost of utilities, except telephone.

They are housing market-wide estimates of rents that provide

opportunities to rent standard quality housing throughout the

geographic area in which rental housing units are in competition. The

level at which FMRs are set is expressed as a percentile point within

the rent distribution of standard quality rental housing units in the

FMR area. FMRs are set at the 40th percentile rent--the dollar amount

below which 40 percent of standard quality rental housing units rent.

The 40th percentile rent is drawn from the distribution of rents of all

units that are occupied by recent movers. Adjustments are made to

exclude public housing units, newly built units and substandard units.

(b) FMR Areas. FMR areas are metropolitan areas and nonmetropolitan

counties (nonmetropolitan parts of counties in the New England States).

With several exceptions, the most current Office of Management and

Budget (OMB) metropolitan area definitions of Metropolitan Statistical

Areas (MSAs) and Primary Metropolitan Statistical Areas (PMSAs) are

used because of their generally close correspondence with housing

market area definitions. HUD may make exceptions to OMB definitions if

the MSAs or PMSAs encompass areas that are larger than housing market

areas. The counties deleted from the HUD-defined FMR areas in those

cases are established as separate metropolitan county FMR areas. FMRs

are established for all areas in the United States, the

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District of Columbia, Puerto Rico, the Virgin Islands, and the Pacific

Islands.

(c) Data sources. (1) HUD uses the most accurate and current data

available to develop the FMR estimates and may add other data sources

as they are discovered and determined to be statistically valid. The

following sources of survey data are used to develop the base-year FMR

estimates:

(i) The most recent decennial Census, which provides statistically

reliable rent data.

(ii) The American Housing Survey (AHS) data, conducted by the

Bureau of the Census for HUD. AHS's have comparable accuracy to the

decennial Census, and are used to develop between-census revisions for

the largest metropolitan areas on a four-year revolving schedule.

(iii) Random Digit Dialing (RDD) telephone survey data, based on a

sampling procedure that uses computers to select statistically random

samples of rental housing.

(iv) Statistically valid information, as determined by HUD,

presented to HUD during the public comment and review period.

(2) Base-year FMRs are updated and trended to the midpoint of the

program year they are to be effective using Consumer Price Index (CPI)

data for rents and for utilities or using rent-change factors obtained

from the RDD regional surveys. The RDD rent-change factors are

developed annually for the metropolitan and nonmetropolitan parts of

the HUD-specified geographic regions not covered by CPI surveys, and

are used to update the base-year FMR estimates within these regions.

(d) Bedroom size adjustments. (1) For most areas the ratios

developed from the most recent decennial Census are applied to the two-

bedroom FMR estimates to derive FMRs for other bedroom sizes.

Exceptions to this procedure may be made for areas with local bedroom

intervals below an acceptable range. To help the largest most difficult

to house families find units, higher ratios than the actual market

ratios may be used for three-bedroom and larger-size units.

(2) The FMR for single room occupancy housing is 75 percent of the

FMR for a zero bedroom unit.

(e) Manufactured home space. The FMR for a manufactured home space

is 30 percent of the FMR for a two-bedroom unit, or, where approved by

HUD on the basis of survey data submitted in public comments, the 40th

percentile of the rental distribution of manufactured home spaces for

the FMR area. HUD accepts public comments requesting revision of the

proposed manufactured home space FMRs for areas where space rentals are

thought to differ from the 30 percent standard. To be considered for

approval, the comments must contain statistically-valid survey data

that show the 40th percentile manufactured home space rent (excluding

the cost of utilities) for the FMR area. Once approved, the revised

manufactured home space FMRs establish new base-year estimates that

will be updated annually using the same data used to update the Rental

Certificate program FMRs.

4. Section 888.115 is revised to read as follows:

Sec. 888.115 Fair market rents for existing housing: Manner of

publication.

FMRs will be published at least annually in the Federal Register.

The Department will propose FMRs and provide a comment period of at

least 30 days for the purpose of identifying areas where the FMRs are

believed to be too high or too low. To be considered for FMR revisions,

public comments must include statistically valid rental housing survey

data that justify the requested changes. After the comments have been

considered, the Department will publish a final notice announcing FMRs

to be effective on October 1 each year.

Dated: August 4, 1995.

Henry G. Cisneros,

Secretary.

[FR Doc. 95-19834 Filed 8-14-95; 8:45 am]

BILLING CODE 4210-32-P