Interim Evaluation Illustrates Why Small Area FMRs Should be Voluntary

In mid-August, HUD published an interim evaluation which showed mixed results for the efficacy of Small Area Fair Market Rents (FMRs). Fair Market Rents are calculated by HUD on the county or metropolitan area level. HUD states that the FMR is the amount of money that would be needed to pay the gross rent (shelter rent plus utilities) of privately owned, decent, and safe rental housing of a modest nature. Fair Market Rents help determine the amount of rent covered by the voucher (i.e., the higher the FMR, the higher the potential value of the voucher). Small Area FMRs are FMRs calculated by zip code. The intended effect of Small Area FMRs is to decrease subsidies in low-opportunity (low-rent) neighborhoods and increase subsidies in high-opportunity (high-rent) neighborhoods to incentivize families to move from low-opportunity neighborhoods to high-opportunity neighborhoods.

In 2012, HUD began the Small Area FMR Demonstration (though the Demonstration uses PHAs which have been using Small Area FMRs since before 2012) which tested, among other things, the mobility incentive of Small Area FMRs across seven public housing agencies (PHAs) with varied and diverse characteristics. This new HUD interim evaluation titled “Small Area Fair Market Rent Demonstration Evaluation Interim Report” shows that Small Area FMRs have a mixed impact. Among other findings, the report has four key takeaways about the use of Small Area FMRs: 1) different housing markets are impacted differently; 2) there are more families moving into areas of opportunity; 3) there is a loss of affordable units; and 4) there is an aggregate higher cost burden for families. Understanding these findings illustrates why Small Area FMRs have both benefits and costs.

Different Housing Markets Are Impacted Differently – The Small Area FMR Demonstration impacted different areas in different ways. For example, the study found that household contributions for housing increased under Small Area FMRs. In low-rent zip codes, Housing Choice Voucher (HCV) program contributions to rent increased by 38 percent in Dallas, TX and 24 percent in Chattanooga, TN, while they actually decreased in Laredo, TX. This shows that the effects on program participants of switching to Small Area FMRs can vary widely depending on the housing market.

More Families Are Moving into Areas of Opportunity – The interim evaluation found that HCV holders were slightly more likely to live in high-rent zip codes than they were before the implementation of Small Area FMRs. The evaluation found that there was a three percent increase in the likelihood of HCV holders to live in high-rent zip codes. The evaluation also found that high-rent zip codes offer more opportunity than low-rent zip codes on a variety of metrics.

There Is a Loss of Affordable Units – Across all PHAs that implement Small Area FMRs in the Small Area FMR Demonstration, the evaluation found that the gain in units in high-rent zip codes does not offset the loss of units in the low-rent and moderate-rent zip codes. The evaluation found a loss of affordability for over 22,000 units among the seven PHAs in available housing stock for vouchers, accounting for a 3.4 percent drop. The net loss of units in Long Beach, CA exceeded ten percent (though there were some locations, e.g., Dallas, with a net gain).

Families Are Bearing an Aggregate Higher Cost Burden – Between 2010 and 2015, the average payment standard declined about eleven percent in the Small Area FMR Demonstration sites compared to a decline of two percent in comparison areas (areas not using Small Area FMRs). Additionally, the average tenant contribution to rent in the Small Area FMR PHAs increased by sixteen percent between 2010 and 2015. Tenant contributions in comparison groups rose by nine percent in the same period. While one of the provisions in the Housing Opportunity Through Modernization Act of 2016 (HOTMA) allows PHAs to hold harmless payment standards, this only applies to current voucher holders. New program participants will still face the higher cost burden.

Using Small Area FMRs Should Be a Community Decision

These findings should dispel arguments that Small Area FMRs are “good” or “bad” as those arguments tend to be overly simplistic. Instead, Small Area FMRs, like many other policy options in the public sphere, impose a set of trade-offs. In this case, the researchers found that Small Area FMRs allow for “slightly more” households to live in areas of opportunity at a cost of a higher cost burden for households in the aggregate and a 3.4 percent drop in available units for households. Additionally, the magnitude of the trade-off can vary by housing market. For example, in some markets there will be a greater loss in units for a smaller gain in households living in areas of opportunity.

Finally, more research needs to be done in many different markets before the industry can understand all the costs and benefits of this policy. Making the imposition of Small Area FMRs voluntary would allow community-specific solutions to be crafted.

HUD’s Small Area FMR Interim Evaluation can be found here.