Fair Market Rents
On August 31, 2023, the U.S. Department of Housing and Urban Development (HUD) published the Notice of Fiscal Year (FY) 2024 Fair Market Rents (FMRs) which is set to go into effect on October 1, 2023. Fair Market Rent is a calculation used by HUD and other agencies to determine payment amounts for the Housing Choice Voucher and other programs. These calculations estimate the cost of rent and utility expenses of rental housing units up to the 40th percentile of an area.
Nationally, FMRs will increase by an average of 12 percent, 2 percentage points higher than FY 23’s increase of 10 percent. In conjunction with this update, HUD has released a tool to see the FMR change for different metro areas. After the new FMRs go into effect on October 1, PHAs will have 90 days to integrate the new standards into payment processes.
HUD must adjust the FMR at least annually to account for changes in inflation, and the Department announced earlier this summer that they were changing the methodology for calculating FMR for the coming fiscal year. HUD uses a combination of seven calculations to determine Fair Market Rent, of which two have been altered. The two changes HUD made are:
- Revising “recent movers” back to pre-COVID definitions and
- Expanding the use of rent inflation factors using private sector data sources.
These changes allow for more accurate calculations of Fair Market Rents moving into FY 2024. Private data is used to account for micro-changes in the inflation of rent prices within a larger area. This data then uses weighted average changes of individual markets against the total area to prevent areas with a “lag” of inflation from lowering the overall adjustment.
Following the notice of methodology changes, the National Apartment Association (NAA) and a coalition of real estate industry organizations submitted a joint letter to the Department in July. This letter agrees with the definition changes of “recent movers” and return to pre-COVID data sources. The letter also cautions against the mandate of “3 sources” approach and instead recommends using at least two sources with a clear relationship as an arbitrary approach could lead to more significant gaps in geographic areas than it would close.
NSPIRE
On September 18, 2023, HUD released a notice that it is extending the period before certain housing programs must comply with its new inspections program, the National Standards for the Physical Inspection of Real Estate (NSPIRE). Now, jurisdictions, participants and grantees of Community Planning and Development (CPD) programs will have until October 1, 2024, to implement the standards. These programs include:
- HOME Investment Partnership (HOME)
- Housing Trust Fund (HTF)
- Housing Opportunities for Persons With AIDS (HOPWA)
- Emergency Solution Grants (ESG)
- Continuum of Care (CoC)
While recipients of these programs are not required to comply with the standards until 2024, they may choose to implement them sooner. This is also true for Public Housing Agencies (PHAs) that oversee the Housing Choice Voucher and Project-Based Voucher programs. A second notice from HUD details that PHAs have until October 1, 2024, to implement NSPIRE, but may choose to do so sooner.
This notice comes as a further stratification of a rollout that has come in waves. On July 1, 2023, HUD required all public housing to comply with NSPIRE and on October 1, 2023, all other HUD programs (except the CPD and voucher programs covered in the recent notices) must comply with NSPIRE.
Direct-To-Tenant Assistance
On September 5, 2023, HUD published a blog post describing a Direct Rental Assistance pilot program. Inspired by the pandemic-era payments that were given directly to households, HUD is interested in how a simplified housing assistance program would work.
Utilizing national and local philanthropy, “households selected from existing voucher waitlists would have the opportunity to receive either a traditional voucher (funded by HUD) or a monthly payment for the equivalent value of the voucher (funded by philanthropy).” HUD would then compare a variety of metrics like wait times, housing location, and other outcomes. The pilot program would run in areas with different vacancy rates, regulations, and geographies. A similar program in Philadelphia is already underway, where randomly-selected applicants on the waitlist received a prepaid debit card funded through public and philanthropic sources. Research about the participants’ experiences and outcomes is ongoing.
Currently, the Housing Choice Voucher program involves bureaucratic complications associated with rental housing providers signing a contract with a local public housing agency and with HUD, agreeing to their inspections processes and payment standards. Providing assistance directly to low-income households has the potential to massively enhance the efficiency of, and participation in, HUD’s rental assistance.
This announcement is welcome news to the National Apartment Association (NAA) and its members. According to NAA-sponsored research, transitioning the HCV Program to a direct-to-tenant subsidy would see federal administrative costs decrease by $407.6 million per year and reduce improper payments by $207.6 million per year. These cost savings could be reinvested into the housing assistance program, providing more direct support for households in need and administrative assistance to incentivize private housing provider participation.
NAA continues its federal advocacy in support of the Section 8 Housing Choice Voucher (HCV) program, promoting common-sense improvements to the program that improve voluntary housing provider participation and contribute to its success in serving millions of low-income renters and their families.
For more information about HUD programs, please reach out to Ben Harrold, Manager of Public Policy at NAA.