[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Notices]
[Pages 41739-41742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14913]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6334-N-01]


Proposed Changes to the Methodology Used for Calculating Fair 
Market Rents

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, HUD.

ACTION: Notice of proposed changes for calculating Fair Market Rents 
(FMRs).

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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 standards for the 
Housing Choice Voucher (HCV) program, to determine initial renewal 
rents for some expiring project-based Section 8 contracts, to determine 
initial rents for housing assistance payment contracts in the Moderate 
Rehabilitation Single Room Occupancy Program, and to serve as rent 
ceilings for rental units in both the HOME Investment Partnerships 
Program and the Emergency Solutions Grants Program and a primary rent 
standard option for the Housing for Opportunities for Persons With AIDS 
(HOPWA) program. HUD also uses FMRs in the calculation of maximum award 
amounts for Continuum of Care grantees and in the calculation of flat 
rents for Public Housing units. In furtherance of that effort, HUD 
proposes changes in how FMRs are calculated in this notice and seeks 
public comment on the proposed changes.

DATES: Comment Due Date: August 12, 2022.

ADDRESSES: HUD invites interested persons to submit comments regarding 
the proposed changes to the calculation of the FMRs to the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0001. 
Communications must refer to the above docket number and title and 
should contain the information specified in the ``Request for 
Comments'' section.
    There are two methods for submitting public comments.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Due to security measures at all Federal 
agencies, however, submission of comments by mail often results in 
delayed delivery. To ensure timely receipt of comments, HUD recommends 
that comments submitted by mail be submitted at least two weeks in 
advance of the public comment deadline.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov website can be viewed by other commenters 
and interested members of the public. Commenters should follow 
instructions provided on that site to submit comments electronically.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the notice.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications regarding this notice submitted to HUD will 
be available for public inspection and copying between 8 a.m. and 5 
p.m. weekdays at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at 202-
708-3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number through TTY by calling the 
Federal Relay Service at 800-877-8339 (toll-free number). Copies of all 
comments submitted are available for inspection and downloading at 
http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Questions on this notice may be 
addressed to Adam Bibler, Director, Program Parameters and Research 
Division, Office of Economic Affairs, Office of Policy Development and 
Research, HUD Headquarters, 451 7th Street SW, Room 8208, Washington, 
DC 20410, telephone number (202)-402-6057; or via email at 
<a href="/cdn-cgi/l/email-protection#1666666472567e637238717960"><span class="__cf_email__" data-cfemail="1363636177537b66773d747c65">[email protected]</span></a>. Persons with hearing or speech impairments may access HUD 
numbers through TTY by calling the Federal Relay Service at 800-877-
8339 (toll-free number). This Federal Register notice will be available 
electronically from the HUD User page at https://www.huduser.gov/portal/datasets/fmr.html. Federal Register notices also are available 
electronically from https://www.federalregister.gov.

I. Background

    Section 8 of the 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

[[Page 41740]]

FMRs established by HUD for different geographic areas. In the Housing 
Choice Voucher (HCV) 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. HUD also uses the 
FMRs to determine initial renewal rents for some expiring project-based 
Section 8 contracts, initial rents for housing assistance payment 
contracts in the Moderate Rehabilitation Single Room Occupancy program, 
rent ceilings for rental units in both the HOME Investment Partnerships 
program and the Emergency Solution Grants program, the primary rent 
standard for the HOPWA program, calculation of maximum award amounts 
for Continuum of Care recipients and the maximum amount of rent a 
recipient may pay for property leased with Continuum of Care funds, and 
calculation of flat rents in Public Housing units. In general, the FMR 
for an area is the amount that a tenant would need 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. 
HUD's FMR calculations represent HUD's best effort to estimate the 40th 
percentile gross rent \1\ paid by recent movers into standard quality 
units in each FMR area. In addition, all rents subsidized under the HCV 
program must meet reasonable rent standards.
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    \1\ HUD also calculates and posts 50th percentile rent estimates 
for the purposes of Success Rate Payment Standards as defined at 24 
CFR 982.503(e) (estimates available at: https://www.huduser.gov/portal/datasets/50per.html).
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    Since FY 2008, HUD has used data from the Census Bureau's 1-year 
American Community Survey as the source for estimates of 40th 
percentile gross rents paid by recent movers, which is often the most 
accurate and comprehensive reflection of rents available at the local 
level. On July 29, 2021, the Census Bureau announced that it would not 
release standard 1-year estimates from the 2020 American Community 
Survey (ACS) because of the impacts of the COVID-19 pandemic on data 
collection.\2\ Given this exceptional circumstance, HUD is 
reconsidering its data sources used to estimate Fair Market Rents, 
which are required to be statistically valid, and balance timeliness, 
accuracy, transparency and soundness of approach. According to numerous 
private-sector rent sources,\3\ rents have been rising rapidly in many 
markets since 2020. The methods used to estimate rent inflation in the 
CPI result in delayed measurement of rent increases among recent 
movers, and local CPI data are only available for 21 large metropolitan 
areas, so HUD relies on Regional CPI data. While private rent data 
provides more timely and more geographically specific updates of rent 
trends than does CPI, the nature of the proprietary data does not allow 
HUD the same level of visibility into its soundness of methodology and 
samples as CPI. This Notice describes proposed changes in HUD's 
methodology for calculating Fair Market Rents that HUD is considering 
in response to the change in 2020 ACS data availability and local rent 
increases that are not fully captured by Regional CPI data. Both of 
these changes will apply only to FY 2023 FMRs.
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    \2\ See: https://www.census.gov/newsroom/press-releases/2021/changes-2020-acs-1-year.html.
    \3\ Private sources examined by HUD are: RealPage (formerly 
Axiometrics) average effective rent per unit, Moody's Analytics REIS 
average gross revenue per unit, CoStar Group average effective rent, 
CoreLogic, Inc. single-family combined 3-bedroom rent index, 
ApartmentList Rent Estimates, and Zillow Observed Rent Index.
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II. FMR Calculation Methodology Changes

A. Current Methodology

    HUD's current methodology for calculating FMRs consists of several 
steps (see: https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2022_code/select_Geography.odn for the calculations underlying each 
FY 2022 FMR).
    1. Base Rent. First, HUD establishes a ``base rent'' for two-
bedroom units from the 5-year 40th percentile estimates of gross rent 
from the ACS.
    2. Recent Mover Adjustments. HUD then adjusts the base rent using a 
``recent mover adjustment factor'' that is based on the ratio of the 
estimate of gross rent paid by recent movers from the 1-year ACS to the 
estimate of gross rent paid by all renters from the 5-year ACS for the 
smallest level of geography containing the FMR area that contains 
statistically reliable 1-year data.
    The results of these two steps are estimates of 40th percentile 
rents for recent movers in two-bedroom units that are ``as of'' the 
current ACS year.
    3. Inflation. HUD then accounts for inflation from the ACS year by 
applying a ``gross rent adjustment factor'' which is calculated from 
the Consumer Price Index (CPI) as produced by the Bureau of Labor 
Statistics (BLS).
    4. Trend Factor. Because it calculates FMRs ahead of each fiscal 
year, HUD provides a further inflation adjustment in the form of a 
``trend factor.'' The trend factor represents the expected future level 
of the gross rent CPI for the upcoming fiscal year compared to the most 
recent actual gross rent CPI.
    5. State minimum FMRS. Additionally, HUD calculates state minimum 
FMRs based on the median FMR for non-metropolitan portions of each 
state.
    6. Bedroom Ratios. HUD calculates FMRs for unit sizes other than 
two bedrooms by applying ``bedroom ratios'' calculated from the 
relationships between rents for units of different sizes according to 
the 5-year ACS.
    7. Limit on Decreases. Finally, HUD does not allow an area's FMR to 
decline by more than 10 percent.
    Under its current methodology, HUD would calculate FY 2023 FMRs 
based on data from the 2020 American Community Survey. On July 29, 2021 
the Census Bureau announced that it would not release standard 1-year 
estimates from the 2020 ACS because of the impacts of the COVID-19 
pandemic on data collection. The Census Bureau found that the standard 
2020 ACS 1-year estimates did not meet the Census Bureau's Statistical 
Data Quality Standards designed to ensure the utility, objectivity and 
integrity of the statistical information. Without the 1-year ACS 
estimates, HUD cannot calculate the ``recent mover adjustment factors'' 
in an identical manner as described above.

B. Proposed Changes

    HUD is proposing two material changes to the calculation of FMRs 
for FY 2023 to: (1) deal with the temporary lack of availability of 
2020 ACS 1-year data; and (2) provide additional local rent inflation 
data that better conform FMR estimates to changes in rental markets in 
the wake of the COVID-19 pandemic. Both proposed changes could narrowly 
introduce private sector rental data from multiple sources into the FMR 
calculation process in limited and statistically valid situations where 
private sector rental data have demonstrated that they more accurately 
estimate changes in rental markets. These changes would apply only to 
FY 2023 FMRs.
    While these private sector data sources do not cover the entire 
U.S., may not be individually representative of the rental market, and 
cannot be used to directly compute FMRs, they may be useful for 
discrete components of the calculation to inflate ACS data from the 
collection timeframe to the applicable period of FMRs. For FY 2023 
FMRs, HUD is proposing the use of up to 6 private sector rent data 
sources (RealPage (formerly Axiometrics) average effective rent per 
unit, Moody's Analytics REIS average gross revenue

[[Page 41741]]

per unit, CoStar Group average effective rent, CoreLogic, Inc. single-
family combined 3-bedroom rent index, ApartmentList Rent Estimates, and 
Zillow Observed Rent Index.) where available and would only use private 
sector rent data where there are at least 3 sources covering the FMR 
area. The specific private data sources HUD uses in estimating each 
fiscal year's FMRs would be published as part of the notice announcing 
availability of the FMRs and in HUD's FMR documentation system.

C. Replacing 2020 ACS 1-Year Data

    To replace missing 2020 ACS 1-year rent data, HUD proposes a 4-
prong approach. While Census will not provide 1-year tabulations of 
2020 ACS data at the FMR-area level, Census does provide a special 
tabulation of the 5-year ACS data for 2020 of the rents paid for 
standard quality units by persons who moved into their units in 2019 
and 2020 and responded to the 2019 or 2020 ACS surveys. This differs 
from the usual recent mover tabulation of 1-year ACS data as in the 
regular tabulation, in which all respondents come from a single ACS 
year and are included if they had moved into their unit during the 
prior 2 years. While the 40th percentile rents estimated from these 2 
samples are similar, the estimates from the 5-year ACS sample tend to 
be slightly lower than those from the usual 1-year tabulations.
    To correct for the tendency for the recent mover estimate derived 
from ACS 5-year data to be lower than that derived from ACS one-year 
data, as well as any error that may be introduced by relying heavily on 
the part of the 5-year ACS collected in 2020, HUD may incorporate 
private data sources into the methodology in limited situations. For 
example, in areas where private sources of rental data provide 
sufficient coverage (3 or more sources) and where the private sources 
more accurately track changes in certain types of rental markets than 
CPI, HUD proposes to estimate recent mover rents by taking an average 
of 2019 ACS recent mover rent inflated by 2019-2020 gross rent change, 
as calculated from private sources of rent data, and 2020 5-year ACS 
recent mover rent.\4\ For areas without private data coverage, HUD 
proposes to use an average of 2019 ACS recent mover rent inflated by 
the 2019-2020 gross rent CPI change and 2020 ACS recent mover rent. HUD 
welcomes public comment on proposals and related analysis to modify 
available ACS and CPI with private data to replace the 2020 ACS 1-year 
recent mover rent.
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    \4\ In evaluating the ACS 2020 5-year recent mover estimates, 
HUD will continue to use the same measure of statistical reliability 
that it has used in the past--namely, that the ACS estimate must be 
based on at least 100 unweighted survey cases and have a margin of 
error that is less than half the size of the estimate. For areas 
that had a useable 2019 recent mover rent at the ``local'' level--
either a HUD metropolitan fair market rent area or metropolitan 
statistical area--HUD will use the inflated local 2019 recent mover 
estimate rather than a state-based 2020 ACS recent mover estimate.
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    HUD would revert to past practice of using recent mover rent 
estimates from 1-year ACS tabulations when they are once again made 
available by the Census Bureau.

D. Using Private Sector Rent Data To Update Rent Estimates

    HUD ordinarily updates the latest ACS-based rent estimates with one 
year of gross rent inflation measured with the 24 local and 4 regional 
CPI components rent of primary residence and household fuels and 
utilities depending on the location of the FMR area. The proposed 
change augments the CPI methodology by including available private data 
sources along with CPI data in calculating an average gross rent 
inflation factor in limited situations. For example, in areas without 
BLS metro CPI data, but a sufficient number of private sector data 
sources (at least 3), the calculation of the average gross rent 
inflation factor would include the average change in private rent data 
along with regional CPI data. In areas covered by BLS metropolitan CPI 
data, HUD proposes to implement one of the two following possibilities 
and seeks public comment on each: (1) keeping the actual inflation 
adjustment unchanged from FY 2022 (i.e., based on metropolitan CPI 
data), or (2) calculating the inflation adjustment as the average of 
changes in rents from all available private data sources for the area 
and the change in rents measured by the metropolitan CPI. In places 
without sufficient private rent data sources, the actual inflation 
adjustment process using regional CPI data is unchanged from FY 2022 
and prior FMR vintages. In all cases, rent change information is 
blended with CPI fuels and utilities changes to estimate changes in 
gross rents.
    This proposed change would provide more measures of local rent 
inflation than are possible using the BLS regional CPI data, while 
better conforming FMR estimates to changes in rental markets in the 
wake of the COVID-19 pandemic. As with the proposed replacement of the 
2020 ACS 1-year data, HUD welcomes public comment on proposals and 
related analysis to modify available ACS data and CPI data with private 
data and use of private data in FMR areas covered by metropolitan CPI 
data.

E. Aspects of FMR Methodology Not Proposed To Be Changed by This Notice

    HUD is not proposing any additional changes to the FMR calculation, 
meaning it would still use the 5-year ACS data to establish the base 
rent, and use forecasts of gross rent CPI as the trend factor. 
Similarly, the ``bedroom ratio'' methodology used to produce FMRs for 
unit sizes other than two bedrooms would remain unchanged.

F. Small Area Fair Market Rents

    HUD calculates FMRs for metropolitan areas, which comprise one or 
more counties (or towns, in the case of New England), and single, non-
metropolitan counties. Within metropolitan areas, HUD also publishes 
Small Area FMRs, which are delineated by ZIP code and are required for 
use in the Housing Choice Voucher program in certain metropolitan 
areas. The proposed changes to FMR calculation would affect Small Area 
Fair Market Rents (SAFMRs) as well.
    Under its current SAFMR methodology, HUD calculates the SAFMR for 
areas with a statistically reliable ZIP Code-level base rent for 1-, 2-
, or 3-bedroom units by adjusting the base rent with the recent mover 
adjustment factor and gross rent adjustment factor. Therefore, changes 
to those factors as described above would apply to SAFMRs as well. For 
areas without statistically reliable 1-, 2-, or 3-bedroom rent 
estimates, HUD calculates the SAFMR using the ratio of the all-bedroom 
ZIP Code median rent (or the median rent for the larger county 
containing the ZIP Code) to the median rent for the FMR area, then 
multiplies this ratio by the metropolitan area FMR. The proposed 
changes, by affecting the metropolitan FMR, would affect this step as 
well.

III. Request for Public Comment on Changes

    HUD is requesting public comment on the proposed changes to the FMR 
calculation methodology. HUD seeks comment on the general 
appropriateness of using private sector data in the computation of FMRs 
as well as comments on the appropriateness of each of the specific data 
sources HUD is proposing to include (RealPage (formerly Axiometrics) 
average effective rent per unit, Moody's Analytics REIS average gross 
revenue per unit, CoStar Group average effective rent, CoreLogic, Inc. 
single-family combined 3-bedroom rent index, ApartmentList Rent

[[Page 41742]]

Estimates, and Zillow Observed Rent Index). HUD also seeks comments 
about any other data sources that may be appropriate for use in 
computing FMRs. Commenters are asked to consider that the change in 
inflation adjustment described in Section D above would mean that FMRs 
may be higher in areas with faster rent growth than their respective 
regions, but lower in other areas where this is not the case. 
Additionally, commenters should consider that the private sources of 
rent data may introduce more volatility in year-to-year changes in FMRs 
and the extent to which this could impact HUD program operations. The 
public is also asked to comment on whether HUD should continue use of 
private rent data in FMRs after FY 2023.

IV. Environmental Impact

    This notice proposes changes in the way FMRs are calculated. The 
establishment and review of Fair Market Rent schedules does not 
constitute a development decision affecting the physical condition of 
specific project areas or building sites. Accordingly, under 24 CFR 
50.19(c)(6), this notice is categorically excluded from environmental 
review under the National Environmental Policy Act of 1969 (42 U.S.C. 
4321).

Todd M. Richardson,
General Deputy Assistant Secretary, Office of Policy Development and 
Research.
[FR Doc. 2022-14913 Filed 7-12-22; 8:45 am]
BILLING CODE 4210-67-P


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