HUD Proposes Changes to FMR Calculation Methodology

Earlier today, HUD published in the Federal Register proposed changes to the methodology for calculating fair market rents (FMRs). The notice is titled “Proposed Changes to the Methodology Used for Calculating Fair Market Rents.” Fair market rents are used to determine payment standards for the Housing Choice Voucher (HCV) program and also impact certain other federal programs.

Currently, HUD calculates FMRs through a seven-step process. First, HUD establishes a two-bedroom base rent from American Community Survey (ACS) 5-year data. HUD then updates this base rent with a “recent mover adjustment factor” based on one-year ACS data. This adjusted data is then inflated by a “gross rent adjustment factor” and then trended forward through the use of a “trend factor.” HUD then adjusts the rents for other unit sizes by applying “bedroom ratios” calculated from the relationships between different size units in the five-year ACS data. There is also a regulatory limit to how much HUD will allow an FMR to decline from one year to the next (i.e., an FMR cannot fall below this percentage “floor” in the span of one year). Finally, HUD also calculates minimum FMRs for each state based on the median FMR for non-metropolitan portions of each state.

The Department is proposing certain changes to the calculation of FMRs—primarily the use of private sector data in two steps during the calculation process in certain instances. First, due to the pandemic, there is a lack of ACS 1-year data. To correct for this, there is a special tabulation of the five-year ACS data for 2020 of rents paid by people who moved in 2020 or 2019. This special tabulation will be updated by private data sources in certain situations where the data sources are accurate and there are three private data sources. HUD would like to estimate the “recent mover adjustment factor” from these sources. When one-year ACS data becomes available again, HUD would like to use it again, while still considering augmenting it with private sector data. Second, HUD would like to use private data sources along with its standard Consumer Price Index (CPI) data in calculating the average gross rent inflation factor in certain instances. These changes would impact the calculation of Small Area FMRs also.

The Department is seeking comment on the appropriateness of using these private sector data sources. Additionally, HUD is seeking comment on whether HUD should continue to use these private rent data sources for FMR calculation after fiscal year 2023.

Comments are due Aug. 12, 2022.

The full Federal Register notice can be found here.