`[Federal Register Volume 71, Number 187 (Wednesday, September 27, 2006)]
[Notices]
[Pages 56744-56804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-8273]



[[Page 56743]]

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Part V





Department of Housing and Urban Development





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 Final Fair Market Rents for the Housing Choice Voucher Program and 
Moderate Rehabilitation Single Room Occupancy Program for Fiscal Year 
2007; Notice

  Federal Register / Vol. 71, No. 187 / Wednesday, September 27, 2006 / 
Notices  

[[Page 56744]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5068-N-02]


Final Fair Market Rents for the Housing Choice Voucher Program 
and Moderate Rehabilitation Single Room Occupancy Program for Fiscal 
Year 2007

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of Final Fair Market Rents (FMRs) for Fiscal Year (FY) 
2007.

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SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937 
(USHA) requires the Secretary to publish FMRs periodically, but not 
less than annually, adjusted to be effective on October 1 of each year. 
The primary uses of FMRs are to determine payment standard amounts for 
the Housing Choice Voucher program, to determine initial renewal rents 
for some expiring project-based Section 8 contracts, to determine 
initial rents for housing assistance payment (HAP) contracts in the 
Moderate Rehabilitation Single Room Occupancy program (Mod Rehab), and 
to serve as a rent ceiling in the HOME rental assistance program. 
Today's notice provides final FY2007 FMRs for all areas that reflect 
the estimated 40th and 50th percentile rent levels trended to April 1, 
2007.

DATES: Effective Date: The FMRs published in this notice are effective 
on October 1, 2006.

FOR FURTHER INFORMATION CONTACT: For technical information on the 
methodology used to develop FMRs or a listing of all FMRs, please call 
the HUD USER information line at (800) 245-2691 or access the 
information on the HUD Web site at http://www.huduser.org/datasets/fmr.html. FMRs are listed at the 40th or 50th percentile in Schedule B. 
An asterisk before the FMR area name identifies a 50th percentile area. 
Any questions related to use of FMRs or voucher payment standards 
should be directed to the respective local HUD program staff. Questions 
on how to conduct FMR surveys or further requests for methodological 
explanations may be addressed to Marie L. Lihn or Lynn A. Rodgers, 
Economic and Market Analysis Division, Office of Economic Affairs, 
Office of Policy Development and Research, telephone (202) 708-0590. 
Questions about disaster-related FMR exceptions should be referred to 
the respective local HUD office. Persons with hearing or speech 
impairments may access this number through TTY by calling the toll-free 
Federal Information Relay Service at (800) 877-8339. (Other than the 
HUD USER information line and TTY numbers, telephone numbers are not 
toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Section 8 of the U.S. Housing Act of 1937 (USHA) (42 U.S.C. 1437f) 
authorizes housing assistance to aid lower-income families in renting 
safe and decent housing. Housing assistance payments are limited by 
FMRs established by HUD for different areas. In the Housing Choice 
Voucher program, the FMR is the basis for determining the ``payment 
standard amount'' used to calculate the maximum monthly subsidy for an 
assisted family (see 24 CFR 982.503). 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, and safe rental housing of 
a modest (non-luxury) nature with suitable amenities. In addition, all 
rents subsidized under the Housing Choice Voucher program must meet 
reasonable rent standards.
    Electronic Data Availability: This Federal Register notice is 
available electronically from the HUD news page at http://www.hudclips.org. Federal Register notices also are available 
electronically from the U.S. Government Printing Office Web site at 
http://www.gpoaccess.gov/fr/index.html. Information on how FMRs are 
determined, including detailed calculations, is available at http://www.huduser.org/fmr/fmr.html.

II. Procedures for the Development of FMRs

    Section 8(c) of the USHA requires the Secretary of HUD to publish 
FMRs periodically, but not less frequently than annually. Section 8(c) 
states in part as follows:

    Proposed fair market rentals for an area shall be published in 
the Federal Register with reasonable time for public comment and 
shall become effective upon the date of publication in final form in 
the Federal Register. Each fair market rental in effect under this 
subsection shall be adjusted to be effective on October 1 of each 
year to reflect changes, based on the most recent available data 
trended so the rentals will be current for the year to which they 
apply, of rents for existing or newly constructed rental dwelling 
units, as the case may be, of various sizes and types in this 
section.

    The Department's regulations at 24 CFR part 888 provide that HUD 
will develop proposed FMRs, publish them for public comment, provide a 
public comment period of at least 30 days, analyze the comments, and 
publish final FMRs. (See 24 CFR 888.115.) Final FY2007 FMRs are 
published on or before October 1, 2006, as required by section 8(c)(1) 
of the USHA.

III. Proposed FY2007 FMRs

    On June 15, 2006 (71 FR 34726), HUD published proposed FY2007 FMRs. 
As noted in the preamble to the proposed FMRs, the FMRs for FY2007 
reflect minor changes that allow further modifications of the core-
based statistical areas (CBSA), as defined by the Office of Management 
and Budget (OMB), based on median family income differences between the 
CBSA and the CBSA components defined by FY2005 FMRs. All proposed 
metropolitan FMR areas consist of areas within new OMB metropolitan 
areas. In general, any parts of old metropolitan areas, or formerly 
nonmetropolitan counties, that would have more than a 5 percent 
increase or decrease in their FMRs or median family incomes as a result 
of implementing the new OMB metropolitan definitions are defined as 
separate FMR and income limit areas (provided that there are enough 
recent mover renter household observations in the 2000 Census data).
    During the comment period, which ended August 1, 2006, HUD received 
25 public comments on the proposed FY2007 FMRs. Most of the public 
comments received lacked the data needed to support FMR changes. The 
comments received are discussed in more detail later in this notice.

IV. FMR Methodology

    The FY2007 FMRs are based on current OMB metropolitan area 
definitions that were first used in the FY2006 FMRs. These definitions 
have the advantages that they are based on more current (2000 Census) 
data, use a more relevant commuting interchange standard, and generally 
provide a better measure of current housing market relationships. HUD 
had three objectives in defining FMR areas for FY2006: (1) To 
incorporate new OMB metropolitan area definitions so the FMR estimation 
system can employ new data collected using those definitions; (2) to 
better reflect current housing markets; and (3) to minimize the number 
of large changes in FMRs due to use of the new OMB definitions. These 
objectives continue to apply to the proposed FY2007 FMRs, and area 
definitions were developed to achieve these objectives as follows:
     FMRs were calculated for each of the new OMB metropolitan 
areas using 2000 Census data.
     Subparts of any of the new areas that had separate FMRs 
under the old OMB definitions, and that had a

[[Page 56745]]

sufficiently large 2000 Census count of recent mover renter households 
in standard quality units, were identified, and 2000 Census Base Rents 
for these subparts were calculated. Only the subparts within the new 
OMB metropolitan area were included in this calculation (e.g., counties 
that had been excluded from the new OMB metropolitan area were not 
included).
     Metropolitan subparts of new areas that had previously had 
separate FMRs were assigned their own FMRs if their 2000 Census Base 
Rents differed by more than 5 percent from the new OMB area 2000 Census 
Base Rent.
     Formerly metropolitan counties removed from metropolitan 
areas get their own FMRs.
     For FY2007 FMRs, an additional comparison was made to 
determine if new sub-areas should be created. Metropolitan subparts of 
new areas that had previously had separate FMRs were assigned their own 
FMRs if their 2000 Census Median Family Income differed by more than 5 
percent from the new OMB area 2000 Census Median Family Income.

A. Data Sources

    FY2007 FMRs are based on 2000 Census data updated with more current 
survey data. At HUD's request, the Census Bureau prepared a special 
publicly releasable Census file that permits almost exact replication 
of HUD's 2000 Base Rent calculations, except for areas with few rental 
units. This data set is located on HUD's HUDUSER Web site at http://www.huduser.org/datasets/fmr/CensusRentData/. The area-specific data 
and computations used to calculate final FY2007 FMRs and FMR area 
definitions can be found at http://www.huduser.org/datasets/fmr/fmrs/.

B. FMR Updates From 2006 to 2007

    Local Consumer Price Index (CPI) data is used to move rents from 
the end of 2004 to the end of 2005 for Class A cities covered by local 
CPI data. Census region CPI data is used for Class B and C size cities 
and nonmetropolitan areas without local CPI update factors.

C. Additional Rent Surveys and Other Data

    The Department regularly obtains additional rent survey data to 
update the 2000 Census rent data in selected areas. Random Digit 
Dialing (RDD) telephone rent surveys meeting the Department's 
statistical criteria for updating FMRs covering 11 additional areas 
were conducted by HUD in the June-July 2006 period and completed in 
time for use in this publication. In addition, one public housing 
authority (PHA) survey was submitted. Table 1 identifies the areas 
surveyed and changes in the final FMR, if any, based on survey results. 
The first column of Table 1 identifies the RDD survey area. The second 
column shows the proposed FY2007 FMR as published on June 15, 2006. The 
third column shows the final FY2007 FMR. The fourth column summarizes 
the impact of the RDDs.

                                  Table 1.--Results of Recent RDD Rent Surveys
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                                                  Proposed      Final  FY2007
                Area surveyed                    FY2007 FMR          FMR                   RDD result
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Baltimore-Towson, MD MSA.....................             998             941  Decrease.
Beaumont-Port Arthur, TX.....................             593             593  No Change.
Dallas, TX...................................             798             798  No Change.
Hattiesburg, MS..............................             549             549  No Change 1
Houston, TX..................................             768             768  No Change.
Island County, WA............................             665             823  Increase.
Jackson, MS..................................             638             638  No Change.
Little Rock, AR..............................             614             614  No Change.
San Antonio, TX..............................             715             715  No Change.
San Francisco, CA............................            1551            1551  No Change.
Shreveport, LA...............................             586             586  No Change.
Clallam County, WA...........................             617             687  Increase.
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\1\ An RDD survey performed in Hattiesburg, MS, indicated that the two-bedroom FMR should be reduced to $513.
  Even though the RDD survey was modified to cover only movers since Hurricane Katrina in 2005, HUD has
  determined not to use the results, given the continuing uncertainty about the state of Gulf Coast housing
  markets as the pressures on the rental housing stock increase with the acceleration of rebuilding activity in
  Mississippi.

    HUD is directed by statute to use the most recent data available in 
its FMR publications. These RDD survey results are being implemented in 
this final notice FY2007 FMR publication consistent with that 
requirement.
    The RDD surveys conducted in the Gulf of Mexico areas (Beaumont-
Port Arthur, Dallas, Hattiesburg, Houston, Jackson, Little Rock, San 
Antonio, and Shreveport) used 6 months as the recent mover time period, 
instead of the normal 15 months. This shorter time period was used to 
determine with greater accuracy how the evacuees from the Katrina and 
Rita hurricanes impacted rental-housing markets in these areas. Because 
most of these areas had relatively soft rental markets before the 
hurricanes, the additional renters were absorbed without significant 
rental housing cost increases.
    HUD also used the shorter time period definition of recent mover 
for the Island County, WA survey in an attempt to measure the impact of 
the September 2005 addition of a naval air squadron on the local rental 
housing market. Again, a 6-month recent mover definition was used. This 
area received an increase in its FMR for FY2007.

D. FMRs by Bedroom Size

    FMR estimates are calculated for two-bedroom units. This is the 
most common type of rental unit and, therefore, the easiest to 
accurately survey and analyze. After each Decennial Census, rent ratios 
between two-bedroom units and other unit sizes are calculated. These 
ratios are then used to calculate FMRs in future years. This is done 
because obtaining accurate two-bedroom estimates and then using pre-
established cost relationships with other bedroom sizes to update those 
rent estimates is much easier than developing independent FMR estimates 
for each bedroom size. A publicly releasable version of the data file 
that permits derivations of rent ratios from the 2000 Census, as well 
as demonstrations of how the data are used, are available at http://www.huduser.org/datasets/fmr/CensusRentData/index.html.
    The rents for three-bedroom and larger units continue to reflect 
HUD's policy to set higher rents for these units than would result from 
using normal

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market rents. This adjustment is intended to increase the likelihood 
that the largest families, who have the most difficulty in leasing 
units, will be successful in finding eligible program units. The 
adjustment adds bonuses of 8.7 percent to the unadjusted three-bedroom 
FMR estimates and adds 7.7 percent to the unadjusted four-bedroom FMR 
estimates. The FMRs for unit sizes larger than four bedrooms are 
calculated by adding 15 percent to the four-bedroom FMR for each extra 
bedroom. For example, the FMR for a five-bedroom unit is 1.15 times the 
four-bedroom FMR, and the FMR for a six-bedroom unit is 1.30 times the 
four-bedroom FMR. FMRs for single-room occupancy units are 0.75 times 
the zero-bedroom (efficiency) FMR.
    A further adjustment is made for areas with local bedroom-size 
intervals above or below what are considered to be reasonable ranges or 
where sample sizes are inadequate to accurately measure bedroom rent 
differentials. Experience has shown that highly unusual bedroom ratios 
typically reflect inadequate sample sizes or peculiar local 
circumstances that HUD would not want to utilize in setting FMRs (e.g., 
luxury efficiency apartments that rent for more than typical one-
bedroom units). Bedroom interval ranges were established based on an 
analysis of the range of such intervals for all areas with large enough 
samples to permit accurate bedroom ratio determinations. The final 
ranges used were: efficiency units are constrained to fall between 0.65 
and 0.83 of the two-bedroom FMR, one-bedroom units must be between 0.76 
and 0.90 of the two-bedroom unit, three-bedroom units must be between 
1.10 and 1.34 of the two-bedroom unit, and four-bedroom units must be 
between 1.14 and 1.63 of the two-bedroom unit. Bedroom rents for a 
given FMR area were then adjusted if the differentials between bedroom-
size FMRs were inconsistent with normally observed patterns (e.g., 
efficiency rents were not allowed to be higher than one-bedroom rents 
and three-bedroom rents were not allowed to be higher than four-bedroom 
rents.) \2\
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    \2\ The preamble for the final FY2006 FMRs, the revised final 
FY2005 FMRs, and the final FY2005 FMRs erroneously stated that a 3 
percent differential between three-bedroom FMRs and four-bedroom 
FMRs was maintained. A 3 percent minimum differential has never been 
included in the estimated three-bedroom and four-bedroom FMRs.
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    For nonmetropolitan counties with few rental units and small Census 
recent-mover rent samples, Census-defined county group data were used 
in determining rents for each bedroom size. This adjustment was made to 
protect against unrealistically high or low FMRs due to insufficient 
sample sizes. The areas covered by this new estimation method had less 
than 200 two-bedroom Census-tabulated observations.

E. State Minimums

    In response to comments received on the FY2005 and the proposed 
FY2006 FMRs, a state minimum policy similar to that used prior to 
FY2005 has been implemented. The rationale for having a state minimum 
FMR is that some low-income, low-rent nonmetropolitan counties have 
Census-based FMR estimates that appear to be below long-term operating 
costs for standard quality rental units and raise concerns about 
housing quality. Housing quality problems are limited in most parts of 
the country and have little impact on FMR estimates. The exception to 
this generality within the continental United States occurs in some 
nonmetropolitan areas with unusually low rents. State minimum FMRs have 
been set at the respective state-wide median nonmetropolitan rent 
level, but are not allowed to exceed the U.S. median nonmetropolitan 
rent level. This change primarily affects small nonmetropolitan 
counties in the South with low rents.

V. Public Comments

    A total of 25 public comments were received on the proposed FY2007 
FMRs. Two comments, those from the National Association of Home 
Builders (NAHB) and the National Association of Housing and 
Redevelopment Officials (NAHRO), were broad in scope, addressing 
various aspects of the proposed methodology for establishing the FY2007 
FMRs. The remainder of the comments addressed the FMR levels proposed 
in specific FMR areas as being either too low or too high, or urged 
that specific FMR area definitions be modified.
    NAHB disagreed with the proposed requirement that an area must have 
a large enough sample of 2000 Census rents on which to base FMRs in 
order for the area to be treated as a sub-area within a CBSA. The 
proposed notice for the FY2007 FMRs created separate FMR areas for any 
parts of old metropolitan areas, or formerly nonmetropolitan counties 
that would have more than a 5 percent increase or decrease in their 
2000 Census base 40th percentile two-bedroom rent, or more than a 5 
percent increase or decrease in their 2000 Census base area median 
family income as a result of implementing the new OMB CBSA definitions, 
and have at least 200 recent mover cases in the 2000 Census rent data. 
NAHB urged the Department to drop the 200 recent mover threshold in the 
2000 Census data if the other criteria would qualify the area as a 
separate area. Since HUD's median family income and income limit 
estimates are defined for the same geographic areas as FMRs, the NAHB 
noted that the 200 recent mover criterion resulted in income limit 
decreases for some areas because they did not qualify to be treated as 
sub-areas.
    In response to this comment, the Department notes that FMRs are 
used in the estimation process for income limits; thus, the areas upon 
which both estimates are made must (except when required by statute) 
remain the same. Furthermore, HUD cannot determine FMRs without 
sufficient data, so these small areas must be incorporated into the 
larger metropolitan areas. The Department believes that the 200 recent 
mover threshold is reasonable and consistent with HUD's Final 
Information Quality Guidelines (67 FR 69642), and no change is being 
made to define additional FMR areas that fail to meet this criterion.
    NAHRO commented on several aspects of the proposed FY2007 FMRs. 
First, NAHRO recommended that the Department return to using the OMB 
metropolitan area definitions based on the 1990 Census data `` 
definitions that formed the basis for establishing FMR areas from 
FY1993 through FY2005. NAHRO states that the proposed CBSA-based areas 
cause ``dilution'' of metropolitan FMRs by including former 
nonmetropolitan counties in the new metropolitan area definitions, 
resulting in decreased rental assistance payments for in-place voucher-
assisted households. The Department finds it inappropriate to continue 
to use such old data (from the 1990 Census) for housing market 
determinations. To more accurately define today's housing markets, the 
final FY2007 FMRs follow the CBSA metropolitan area definitions, with 
modifications as appropriate, in light of these definitions being based 
on 2000 Census data as analyzed by OMB.
    NAHRO also disagreed with the proposed rule on including rental 
data from formerly nonmetropolitan counties established as separate FMR 
sub-areas when calculating the FMRs for the remainder of the CBSA, 
again arguing that this causes dilution of the FMR in the affected CBSA 
areas. The Department believes that inclusion of rental data from the 
entire CBSA, even when some formerly nonmetropolitan counties have been 
established as sub-areas due to greater than 5 percent changes in 2000 
Census based FMR or median family incomes, is appropriate

[[Page 56747]]

to smooth the transition for future FMR determinations that will cover 
the entire CBSA area. HUD intends to analyze CBSAs and sub-areas on an 
ongoing basis, and, as these rents converge, to reduce the number of 
sub-areas.\3\ The final FY2007 FMR does not change this calculation 
methodology.
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    \3\ Previously, for the area definitions used through FY2005, 
there was little opportunity to change the FMR data once the initial 
FMR areas were determined. In the future, there will be more 
opportunity to revise the FMR area definitions based on American 
Community Survey (ACS) data, and HUD expects to see the number of 
sub-areas reduced over time. The Department expects to use CBSA 
rents as the basis for FMRs whenever possible, because the strong 
relationships among counties in CBSAs suggests that in the long run 
CBSAs will generally be the best definition of rental housing 
markets. In the New England states, it will take longer for ACS data 
to become available because the areas that have to be evaluated are 
generally smaller, and no reduction in the number of sub-areas will 
occur without data.
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    NAHRO also objected to the proposed policy to modify the CBSA 
definitions by establishing sub-areas based on changes in 2000 Census 
base median family incomes of more than 5 percent. In some cases, the 
result of applying the median family income test has been for some CBSA 
sub-areas to receive lower FMRs than in the absence of the policy. The 
Department listed the areas so affected in a table in Section F of the 
proposed FY2007 FMR notice. NAHRO suggests that this outcome is 
inconsistent with the Department's primary area hold-harmless policy 
for income limits. In response to this comment, the Department 
reiterates that FMRs are used in the estimation process for income 
limits; thus, the area definition of both estimates must (except when 
required by statute) remain the same. Furthermore, HUD has a hold-
harmless policy for income limits because without such a policy, 
program rent revenues in subsidized rental projects with rents 
statutorily tied to income limits may fall, leading to the possibility 
of project default or departure from the program. HUD does not have a 
similar hold-harmless policy for FMRs because voucher program rules are 
designed to mitigate the effects of decreases in FMRs on individual 
tenants. In cases where FMRs decline and the PHAs reduce payment 
standards accordingly, voucher rents for existing tenants remaining in 
their units may be maintained in accordance with the previous higher 
payment standard until the second annual recertification of the 
tenants' income and rent subsidy after the payment standard declines. 
Thus, for existing voucher tenants who do not move, the rent level 
supported by their voucher will not decrease until up to 2 years after 
the payment standard decrease goes into effect.
    NAHRO disagreed with HUD's use of regional CPI data to update rents 
for Class B and C cities rather than using local CPI update factors. 
Until ACS data become available for this purpose, an available 
alternative to the use of regional CPI factors is to use regional RDDs. 
However, regional RDD update factors, instituted to improve rent 
estimations and requiring tremendous fiscal resources to produce, did 
not consistently provide better estimations than using regional CPI 
data. Regional RDD results showed that some areas were being 
overestimated and some underestimated. Therefore, the FY2007 FMRs for 
Class B and C cities continue to use the regional CPI update factors.
    NAHRO recommended that HUD consider additional analysis of the 
utility component of the gross rents comprising the FMR estimates, 
further suggesting that HUD consider publishing utility components of 
FMRs separately. The Department appreciates these recommendations, but 
notes that utilities are included in the FY2007 FMR estimates as 
required by statute, and that PHAs set utility allowances based on 
their utility schedules and the individual circumstances of each lease. 
In addition, HUD is conducting research to produce a utility schedule 
model for PHAs to use to improve the accuracy of their utility schedule 
estimates.
    NAHRO suggested that HUD exempt communities that have dealt with 
the impact of Hurricane Katrina and Rita evacuees from losing their 
50th percentile status. Baton Rouge and Dallas lost their 50th 
percentile status in a notice dated February 14, 2006, but Dallas 
regained it for the FY2007 FMRs, and Baton Rouge received market 
adjusted 40th-percentile FMRs effective March 6, 2006, that were higher 
than its former 50th percentile FMRs. The Department notes that the 
50th percentile FMR policy is not the correct mechanism to address the 
cost of disasters. HUD has a policy of allowing federal disaster areas 
to apply for regulatory suspension waivers and allowing payment 
standards to be set at up to 120 percent of the FMR.\4\ Furthermore, 
under section 982.503(c)(3), payment standards may even exceed 120 
percent of the FMR, based on a request by a PHA to the Assistant 
Secretary for Public and Indian Housing. So far, this administrative 
flexibility has allowed the Housing Choice Voucher program to continue 
operating effectively in these areas. HUD has also recently surveyed 
many FMR areas where the Gulf Coast hurricane evacuees were placed. No 
area had an increase in the FMR based on HUD's survey results.
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    \4\ See the October 3, 2005, Hurricane Katrina Notice (70 FR 
57716) and the November 1, 2005, Hurricane Rita Notice (70 FR 
66222).
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    Additional comments from NAHRO seem based on incorrect 
interpretations of the methodology for estimating the FY2007 FMR. For 
example, one criterion to determine if any parts of old metropolitan 
areas or formerly nonmetropolitan counties qualify as a sub-area under 
the new CBSA definitions is that the 2000 Census base 40th percentile, 
two-bedroom rent for the area is found to be more than 5 percent 
different than the comparable rent for the entire CBSA area. NAHRO 
erroneously suggests the 5 percent test is based on a comparison of the 
proposed FY2007 FMR with the final FY2006 FMR. Similarly, adjustments 
to the FMR areas based on median family income differentials are also 
based on 2000 Census data, not FY2006 data. The Department reminds all 
interested parties that a detailed description of the FY2007 FMR 
methodology is available to the public at http://www.huduser.org/datasets/fmr/fmrs/index.asp?data=fmr07.
    One comment requested higher FMRs for manufactured home space 
rentals in Sonoma County, California. The comment included data 
obtained from a survey conducted by the Sonoma County Housing Authority 
in support of an exception rent. The survey results provide Sonoma 
County with an exception rent for manufactured homes of $603, as listed 
in Schedule D.
    The Housing Authority for the City of Lafayette, Indiana, noted 
that the FMRs for its area are too high given its low funding levels 
and that the Department must press for greater funding for the voucher 
program. The Elkhart Housing Authority stated that the proposed 
increase in the FMRs would reduce the number of homes they could serve 
since the level of funding has been reduced. HUD has no evidence of a 
need to reduce the FMRs in these areas; however, housing authorities 
have the flexibility to set payment standards below 100 percent of the 
FMR \5\ and the obligation to use rent reasonableness in determining 
rents paid to owners accepting vouchers. PHAs that are concerned about 
costs in their voucher programs can set payment standards at 90 percent 
of the FMR, without any HUD approval. Moreover, PHAs may request HUD 
approval to set payment

[[Page 56748]]

standards below 90 percent of the FMR. Voucher program funding and 
funding formula allocations are outside the scope of this notice.
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    \5\ By statute, PHAs have the discretion to set their payment 
standards at any level within the interval of 90 percent to 110 
percent of the FMR.
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    The Housing Authority of Island County, Washington, noted that its 
FMR should be much higher than what is proposed for FY2007 and provided 
a report on ``asking rents'' in support of its comments. The report 
indicated that Island County rents were closer to Seattle rents than 
shown in the FY2007 proposed FMRs. In September 2005, the Department of 
Defense (DOD) moved a naval air squadron to Island County. HUD believed 
that the additional DOD personnel substantially changed the rental 
market on Island County from its FMR basis, the 2000 decennial Census, 
so a survey was conducted to determine the appropriate FMR level.
    Several comments were filed concerning the drop in the four-bedroom 
FMR for the New York City metropolitan area. It was noted that this 
decrease in the FMR would mostly affect the immigrant community. The 
New York City FMR area became a sub-area in FY2007, without Monmouth 
and Ocean counties in New Jersey, because its median income was well 
below the median income of the CBSA, see: http://www.huduser.org/datasets/fmr/fmrs/index.asp?data=fmr07. In FY2006, New York City used 
the two-bedroom FMR and the bedroom ratios of the CBSA instead of its 
sub-area amount because the 2000 sub-area FMR was within 5 percent of 
the CBSA 2000 FMR. Now that it has been established as a sub-area, New 
York City must use the sub-area rents to determine the 2000 two-bedroom 
FMR and bedroom intervals. The ratio between the two-bedroom FMR and 
the four-bedroom FMR is less for the sub-area than for the CBSA. 
According to the comments, this decrease due to a change in the area 
definition creates an undue hardship for larger family tenants in this 
area. While no data was filed with the comments, the 2005 New York City 
Vacancy Survey, conducted annually by the Bureau of the Census, was 
reviewed to determine if an adjustment could be made to the four-
bedroom FMR. Analysis of the data revealed a four-bedroom recent mover, 
standard quality, 40th percentile rent greater than HUD's published 
FY2005 four-bedroom FMR. HUD then trended this value forward from 2005 
to 2007 using HUD's FY2006 and FY2007 update factors, and the result 
has been incorporated in these final FY2007 FMRs.
    A law firm, representing the plaintiff in a discrimination 
settlement in Dallas, requested reinstatement of the FY2005 FMRs, and 
charged that all reductions since that time to the Dallas FMRs were 
discriminatory. The FMR decrease, since FY2005, is the result of an RDD 
survey conducted in early 2005. As discussed earlier, another survey 
conducted this summer confirmed the results of the 2005 survey, 
resulting in no change in the FMR. Dallas regains its 50th percentile 
FMR in FY2007, effective October 1, 2006, which it lost effective March 
1, 2006. Because the FY2007 FMR for Dallas represents the best data 
that are available, reverting to the FY2005 FMR is not appropriate.
    Two areas that specifically requested changes in their FMR areas 
are Santa Barbara County, California, and Dartmouth Town, 
Massachusetts. Santa Barbara would like to be split into North and 
South County housing markets with rents determined by apartment data. 
These data are not statistically valid and cannot be used to establish 
FMRs. The difference in the Santa Barbara County rents can be met by 
applying exception payment standards in the high-rent jurisdictions. 
Dartmouth is and has always been part of the New Bedford metropolitan 
area. The similarity in rents between Dartmouth and Providence is not 
justification for including it in the Providence metropolitan area. 
Again, exception payment standards can be requested to help Section 8 
voucher holders find units in this area.
    Several PHAs noted that their FMRs were too low. The Housing 
Authority of Lake Charles, Louisiana, stated that it is struggling to 
provide decent, safe, sanitary, and affordable housing under its 
Section 8 program. Landlords are facing increased repair and insurance 
costs as a result of the damage inflicted by Hurricane Rita. Lake 
Charles, like other areas designated as federal disaster areas, may 
apply for regulatory suspension waivers and set its payment standards 
at 120 percent of the FMR. The San Francisco Housing Authority stated 
that its rental market is tightening and was hopeful that the HUD 
survey would verify this result. The survey did not find higher rents; 
however, HUD will continue to follow this volatile rental market. The 
City of Casper, Wyoming, said it was conducting its own survey, but did 
not submit the results in time for this final notice. The Michigan 
State Housing Development Authority noted that the change in the 
geographic area definitions for Lenawee and Muskegon counties in 
Michigan has significantly reduced their FMRs and that these reductions 
have significantly affected the ability of tenants to use their 
vouchers. The PHA intends to conduct surveys of these areas, but the 
results will not be completed in time for this publication.
    Mora Housing Management, Inc., requested that the revisions made to 
FY2006 FMRs in Puerto Rico, effective June 2, 2006, be made retroactive 
to provide relief for Mod Rehab properties constrained by the lower 
FMRs in metropolitan areas that were in place from October 1, 2005, to 
June 1, 2006, since the lowest rent must be used in all cases. HUD 
cannot make the Puerto Rico FMR revisions retroactive in this notice. 
Any procedural changes that can be made for the affected Puerto Rico 
Mod Rehab units are outside the scope of this notice.

VI. Manufactured Home Space Surveys

    In general, the FMR used to establish payment standard amounts for 
the rental of manufactured home spaces in the Housing Choice Voucher 
program is 40 percent of the FMR for a two-bedroom unit. HUD modified 
manufactured home space FMRs for Santa Rosa-Petaluma, California 
(Sonoma County) based on survey data showing the 40th percentile 
manufactured home space rent (including the cost of utilities) for the 
entire FMR area. The new manufactured home space exception FMR is shown 
in Schedule D.
    All approved exceptions to these rents that were in effect in 
FY2006 were updated to the midpoint of FY2007 using the same data used 
to estimate the Housing Choice Voucher program FMRs. If the result of 
this computation was higher than 40 percent of the rebenchmarked two-
bedroom rent, the exception remains and is listed in Schedule D. The 
FMR area definitions used for the rental of manufactured home spaces 
are the same as the area definitions used for the other FMRs.

VII. HUD Rental Housing Survey Guides

    HUD recommends the use of professionally conducted RDD telephone 
surveys to test the accuracy of FMRs for areas where there is a 
sufficient number of Section 8 units to justify the survey cost of 
$40,000 to $50,000. Areas with 1,000 or more program units usually meet 
this criterion, and areas with fewer units may meet it if local rents 
are thought to be significantly different than the FMRs proposed by 
HUD. In addition, HUD has developed a simplified version of the RDD 
survey methodology for smaller, nonmetropolitan PHAs. This methodology 
is designed to be simple enough to be done by the PHA itself, rather 
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    PHAs in nonmetropolitan areas may, in certain circumstances, 
conduct surveys of groups of counties; all county-group surveys have to 
be approved in advance by HUD. PHAs are cautioned that the resulting 
FMRs will not be identical for the counties surveyed; each individual 
FMR area will have a separate FMR based on its relationship to the 
combined rent of the group of FMR areas. In these cases, HUD recommends 
following the Census county-group definitions as described in the 2000 
Census Base Rent section of the FY2007 Documentation System, which can 
be found at http://www.huduser.org/fmr/fmrs/index.html.
    PHAs that plan to use the RDD survey technique may obtain a copy of 
the appropriate survey guide by calling HUD USER at (800) 245-2691. 
Larger PHAs should request ``Random Digit Dialing Surveys; A Guide to 
Assist Larger Housing Agencies in Preparing Fair Market Rent 
Comments.'' Smaller PHAs should obtain ``Rental Housing Surveys; A 
Guide to Assist Smaller Housing Agencies in Preparing Fair Market Rent 
Comments.'' These guides are also available at http://www.huduser.org/datasets/fmr.html.
    HUD prefers, but does not mandate, the use of RDD telephone 
surveys, or the more traditional method described in the small PHA 
survey guide. Other survey methodologies are acceptable if they provide 
statistically reliable, unbiased estimates of the 40th percentile gross 
rent. Survey samples should preferably be randomly drawn from a 
complete list of rental units for the FMR area. If this is not 
feasible, the selected sample must be drawn to be statistically 
representative of the entire rental housing stock of the FMR area. In 
particular, surveys must include units of all rent levels and be 
representative by structure type (including single-family, duplex, and 
other small rental properties), age of housing unit, and geographic 
location. The decennial Census should be used as a starting point and 
means of verification used for determining whether the sample is 
representative of the FMR area's rental housing stock. All survey 
results must be fully documented.
    A PHA or contractor that cannot obtain the recommended number of 
sample responses after reasonable efforts should consult with HUD 
before abandoning its survey; in such situations, HUD may find it 
appropriate to relax normal sample size requirements.
    Accordingly, the FMR Schedules, which will not be codified in 24 
CFR part 888, are amended as follows:

    Dated: September 21, 2006.
Darlene F. Williams,
Assistant Secretary for Policy Development and Research.

Fair Market Rents for the Housing Choice Voucher Program

Schedules B and D--General Explanatory Notes

1. Geographic Coverage
    a. Metropolitan Areas--FMRs are market-wide rent estimates that are 
intended to provide housing opportunities throughout the geographic 
area in which rental-housing units are in direct competition. The 
FY2007 FMRs reflect a change in metropolitan area definition where HUD 
is using CBSAs which are made up of one or more counties, as defined by 
OMB, with some modifications. HUD is generally assigning separate FMRs 
to the component counties of CBSA micropolitan areas.
    b. Modifications to OMB Definitions--Following OMB guidance, the 
estimation procedure for the FY2007 FMRs incorporates the 2003 OMB 
definitions of metropolitan areas based on the new CBSA standards, as 
implemented with 2000 Census data, but makes adjustments to the 
definitions to separate subparts of these areas where FMRs or median 
family incomes would otherwise change significantly if the new area 
definitions were used without modification. In CBSAs where sub-areas 
are established, it is HUD's view that the geographic extent of the 
housing markets are not yet the same as the geographic extent of the 
CBSAs, but may become so as the social and economic integration of the 
CBSA component areas increases. Modifications to metropolitan CBSA 
definitions are made according to a formula as described below:
    Metropolitan area CBSAs (referred to as metropolitan statistical 
areas or MSAs) may be modified to allow for sub-area FMRs within MSAs 
based on the boundaries of old FMR areas (OFAs) within the boundaries 
of new MSAs. (OFAs are the FMR areas defined for the FY2005 FMRs. 
Collectively, they include old-definition MSAs/PMSAs, metropolitan 
counties deleted from old-definition MSAs/PMSAs by HUD for FMR 
purposes, and counties and county parts outside of old-definition MSAs/
PMSAs referred to as nonmetropolitan counties.) Sub-areas of MSAs are 
assigned their own FMRs when the sub-area 2000 Census Base Rent differs 
by at least 5 percent from (i.e., is at most 95 percent or at least 105 
percent of) the MSA 2000 Census Base Rent. Additionally, sub-areas of 
MSAs are assigned their own FMR when the sub-area 2000 median family 
income differs by at least 5 percent. MSA sub-areas, and the remaining 
portions of MSAs after sub-areas have been determined, are referred to 
as HUD metro FMR areas (HMFAs), to distinguish these areas from OMB's 
official definition of MSAs.
    The specific counties and New England towns and cities within each 
state in MSAs and HMFAs are listed in the FMR tables.
2. Bedroom Size Adjustments
    Schedule B shows the FMRs for zero-bedroom through four-bedroom 
units. The FMRs for unit sizes larger than four bedrooms are calculated 
by adding 15 percent to the four-bedroom FMR for each extra bedroom. 
For example, the FMR for a five-bedroom unit is 1.15 times the four-
bedroom FMR, and the FMR for a six-bedroom unit is 1.30 times the four-
bedroom FMR. FMRs for single-room-occupancy (SRO) units are 0.75 times 
the zero-bedroom FMR.
3. Arrangement of FMR Areas and Identification of Constituent Parts
    a. The FMR areas in Schedule B are listed alphabetically, first by 
metropolitan FMR area, then by nonmetropolitan county for each state. 
The exception FMRs for manufactured home spaces are listed 
alphabetically by state in Schedule D.
    b. The constituent counties (and New England towns and cities) 
included in each metropolitan FMR area are listed immediately following 
the listings of the FMR dollar amounts. A metropolitan FMR area that 
includes counties and towns from more than one state is listed under 
each applicable state.
    c. Two nonmetropolitan counties are listed alphabetically on each 
line of the nonmetropolitan county listings.
    d. The New England towns and cities included in a nonmetropolitan 
part of a county are listed immediately following the county name.
BILLING CODE 4210-67-P

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[FR Doc. 06-8273 Filed 9-26-06; 8:45 am]
BILLING CODE 4210-67-C`