Fair Market Rents for Section 8 Housing Assistance Payments Program; Amendments to Method of Calculating

SUMMARY: This rule proposes amendments to the Department's regulations

at 24 CFR part 888 governing the method of calculating Fair Market

Rents (FMRs) for the Section 8 Rental Certificate program (including

space rentals by owners of manufactured homes under that program); the

Moderate Rehabilitation program (including Single Room Occupancy);

housing assisted under the Loan Management and Property Disposition

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

other programs whose regulations specify the use of such FMRs.

DATES: Comments due date: April 3, 1995.

ADDRESSES: Interested persons are invited to submit comments on this

rule to the Office of the General Counsel, Rules Docket Clerk, Room

10276, Department of Housing and Urban Development, 451 Seventh Street

SW, Washington, DC 20410. Communications must refer to the above docket

number and title. A copy of each communication submitted will be

available for public inspection and copying during regular business

hours (7:30 a.m.-5:30 p.m. Eastern Time) at the above address.

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

Division, Office of Public and Indian Housing, (202) 708-0477 (TDD:

(202) 708-0850), 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, (202) 708-3944 (TDD: (202) 708-4594), for questions

relating to all other Section 8 programs.

David Pollack, Office of Community Planning and Development, (202)

(708-1234) (TDD: (202) 708-2565), for questions relating to Moderate

Rehabilitation, Single Room Occupancy (SRO).

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

(708-0577) (TDD: 708-1455), 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. Introduction and Applicability

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 for the Rental

Certificate program, or by payment standards established by local

housing authorities for the Rental Voucher program based on the FMRs.

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. (The amount of rent payable by a

resident of assisted housing is based on income, not the FMR.)

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 for the next fiscal year.

The method used to calculate FMRs is described in 24 CFR part 888,

subpart A. With this publication HUD is updating that regulation to

specify the most current information being used. This rule would amend

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 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;

(3) To provide that FMRs for manufactured home spaces are set at 30

percent of the FMR for a two-bedroom housing unit;

(4) 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; and

(5) 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.

The amendments to the method of calculating FMRs proposed in this

rule would 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 program and

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 whose

regulations provide for the use of these FMRs (e.g., programs to assist

the homeless). In addition, the rule would amend the regulations to

reflect use of FMRs to establish payment standards for the Rental

Voucher program.

II. Discussion of Amendments

Change in Percentile (Sec. 888.113(a))

FMRs are gross rent estimates; they include shelter rent and the

cost of utilities, except telephone. HUD sets FMRs to assure that a

sufficient supply of rental housing is available to program

participants. To accomplish this objective, FMRs must be both high

enough to permit a selection of units and neighborhoods and low enough

to serve as many families as possible. The level at which FMRs are set

is expressed as a percentile point within the rent distribution of

standard quality rental housing units. The current definition used is

the 45th percentile rent, the dollar amount below which 45 percent of

the standard quality rental housing units rent.

This rule would change the definition to the 40th percentile rent

of the rent distribution of standard quality rental housing units. The

impact of this proposal is that FMRs on average will be 3.3 percent

less than if they were set at the 45th percentile level. The current

FMR standard is believed to be higher than necessary for successful

operation of the affected programs. HUD believes that the change in the

FMR standard will not significantly alter the amount, or quality, of

rental housing available to program participants. The sample data used

to calculate FMRs will continue to exclude substandard units and public

housing units, and the FMR standard will continue to be based on only

units occupied by recent movers.

Added Data Source (Sec. 888.113(c))

In developing the base-year FMR estimates, HUD uses the most

accurate and current data available. The [[Page 11871]] regulations

currently provide for two sources of survey data: (1) The decennial

Census and (2) post-Census American Housing Surveys (AHSs). The

regulations also currently provide for base-year FMRs to be updated

each year using Consumer Price Index (CPI) data for rents and for

utilities. This rule would amend the regulations to include Random

Digit Dialing (RDD) telephone surveys as a third data source for base-

year estimates and for rent-change factors for updating rents in FMR

areas without a local CPI survey. The RDD telephone survey technique is

based on a sampling procedure that uses computers to select random

samples of telephone numbers. Each sampled number is phoned to

establish eligibility for the survey and, if eligible, the respondent

is asked about the unit's rent and utility usage.

Three types of RDD surveys are used, the first two on behalf of

HUD, and the third by individual PHAs. Under contract with HUD, a

professional survey firm does large-scale RDD surveys to establish

base-year FMRs for areas where HUD suspects FMRs might not correspond

well with current market conditions. About 60 areas are chosen to be

surveyed each year. In addition, the same firm also does 20 RDD surveys

to establish rent-change factors in the metropolitan and

nonmetropolitan parts of each of the ten HUD geographic regions.

Finally, individual PHAs are encouraged to sponsor or conduct

various levels of RDD surveys if they wish to comment on proposed FMRs.

The larger PHAs are encouraged to contract with professional survey

firms to do large-scale RDD surveys. Smaller PHAs are allowed to use a

simplified version of the RDD survey that makes it possible for them to

do their own RDD surveys. (PHAs and other commenters are not required

to use RDD surveys as long as they provide statistically-reliable,

unbiased estimates of the 40th percentile gross rent.)

All of the RDD survey techniques involve drawing random samples of

renter units. All exclude public housing units and other subsidized

housing where the respondent does not know the full market rent. The

surveys also exclude newly-built units and units for which no cash rent

is paid. They do not exclude substandard units because there is no

practical way to determine housing quality from telephone interviews.

However, a HUD analysis conducted specifically to address this issue

has shown that the slight downward bias caused by including some rental

units that are in substandard condition is almost exactly offset by the

slight upward bias that results from surveying only units with

telephones.

Tests in areas where Census, AHS, and CPI data on rents are

available have shown that professionally-conducted RDD surveys have a

high degree of statistical accuracy. In those tests, HUD concluded that

there was a 95 percent likelihood that the rent estimates developed

using this approach were within 3 to 4 percent of the actual rent value

and that virtually all were within 5 percent. The PHA-conducted surveys

using the modified RDD technique are less precise but are still within

acceptable ranges of accuracy.

FMRs for Manufactured Home Spaces (Sec. 888.113(e))

This rule also proposes to calculate FMRs for manufactured home

spaces as a percentage of the FMR for two-bedroom units. The base

estimates used to calculate the FMRs for manufactured home spaces were

not revised in FY 1994 because no data were available in the 1990

Census on manufactured home space rentals, and no other source of

reliable data was found that could be used for this purpose.

Originally the FMRs for rental of manufactured home spaces were

established using AHS data (no longer available) for the

nonmetropolitan parts of states and HUD Field Office surveys of the

metropolitan areas. Over the years the FMRs for additional individual

areas were established on the basis of local surveys submitted as

public comments.

Because the FMRs for manufactured home spaces are based on old

survey data, and there is no current data source to update these

estimates, HUD does not consider them to be sufficiently accurate for

continued use. Further, the very limited use of this part of the

Certificate program does not justify the cost of obtaining the

necessary survey data to re-benchmark the FMRs. HUD is proposing,

therefore, to amend this rule to establish FMRs for manufactured home

spaces at 30 percent of the applicable Section 8 two-bedroom FMR for

the Rental Certificate program. HUD arrived at the 30 percent standard

after analyzing the existing manufactured home space FMRs and

concluding that the substantial majority of the FMRs were within a 20

to 30 percent range of the two-bedroom FMRs.

HUD will continue to accept public comments requesting modification

of the proposed manufactured home space FMRs for those 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. This program uses

the same FMR area definitions as the Rental Certificate program. In

addition HUD is proposing to retain the manufactured home space FMR

revisions approved since 1990. The reason for continuing to use the

revised FMRs is that they are based on recent survey data that HUD

determined to be valid. 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.

FMR Areas (Sec. 888.113(b)

Section 888.113(b) would be amended to authorize the Secretary to

make exceptions to the use of the Office of Management and Budget

definitions of Metropolitan Statistical Areas (MSAs) and Primary

Metropolitan Statistical Areas (PMSAs) as FMR areas where HUD

determines that use of an MSA or PMSA would encompass an area that is

larger than a housing market area.

Public Comments On Proposed FMRs (Sec. 888.115)

The proposed rule states the requirement that, in order to be

considered for approval, public comments on proposed FMRs must contain

statistically-valid rental housing survey data justifying the requested

revision. Each year, the Department receives, in response to its

request for public comments on proposed FMRs, comments that merely

object to the proposed FMRs for the area, but do not contain any

documentation to support the assertion that the FMRs are inaccurate.

The Notice announcing proposed FMRs has always stipulated that such

documentation be included in the comment. This rule would make the

regulations for the program clear that adequate supporting rental

housing survey data are necessary to justify a requested change.

III. Justification for Reduced Comment Period

HUD's general policy is to provide a 60-day public comment period.

For this proposed rule, however, HUD is providing only a 30-day comment

period. The reduced comment period is justified because the public has

had ample notice that HUD was contemplating the 40th percentile Fair

Market Rent (FMR) standard.

On June 23, 1994 (59 FR 32492), HUD published a notice in the

Federal Register containing two separate sets of proposed FMRs--one

based on the 45th [[Page 11872]] percentile rental distribution of

standard quality rental housing units, and the other based on the 40th

percentile rent of the same rental housing distributions. The published

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 45th and 40th percentiles. Since the public has

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, an abbreviated comment period on the same idea will

not have an adverse impact on the ability of the public to participate

in this rulemaking.

The Department believes this abbreviated comment period is

justified in order to speed the publication of a final rule which will

allow more low income families to receive housing assistance.

IV. Other Matters

Executive Order 12866, Regulatory Planning and Review

This proposed 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 proposed 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 Environment 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 Fair Market Rents 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.

Semi-Annual Regulatory Agenda

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

Semiannual Regulatory Agenda published on November 14, 1994 (59 FR

57632, 57641) 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, 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 would continue to read as

follows:

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

2. Sections 888.101 and 888.105 would be removed, and Sec. 888.111

would be 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.

FMRs are also used to determine payment standard schedules in the

Rental Voucher program.

3. Section 888.113, would be 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 and newly built 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 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 [[Page 11873]] 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 would be 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: January 30, 1995.

Henry G. Cisneros,

Secretary.

[FR Doc. 95-5094 Filed 3-1-95; 8:45 am]

BILLING CODE 4210-32-P