11870 Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 888

[Docket No. R–95–1764; FR–3694–P–01]

RIN 2501–AB76

Fair Market Rents for Section 8

Housing Assistance Payments

Program; Amendments to Method of

Calculating

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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 (§ 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 (§ 888.113(c))

In developing the base-year FMR

estimates, HUD uses the most accurate

and current data available. The
Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Proposed Rules 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 baseyear 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 statisticallyreliable, 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

(§ 888.113(e))

This rule also proposes to calculate

FMRs for manufactured home spaces as

a percentage of the FMR for twobedroom 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 (§ 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

(§ 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
11872 Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Proposed Rules

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 wellbeing. 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 § 888.111 would

be revised to read as follows:

§ 888.111 Fair market rents for existing

housing: Applicability.

The Fair Market Rents (FMRs) for

existing housing (see definition in

§ 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:

§ 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 marketwide 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 HUDdefined 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
Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Proposed Rules 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 rentchange 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 threebedroom 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 twobedroom 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 statisticallyvalid 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:

§ 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