HUD Study Finds Small Area FMRs Have Mixed Results

Last week, HUD published a report titled “Small Area Fair Market Rent Demonstration Evaluation: Interim Report,” which provides preliminary findings from HUD’s Small Area Fair Market Rent (FMR) Demonstration. The Small Area FMR Demonstration is a Demonstration of seven PHAs that have implemented Small Area FMRs in a variety of housing markets to test their effectiveness. The potential adverse impacts to Housing Choice Voucher (HCV) program participants that this report identifies is one of the reasons that HUD suspended implementation of mandatory Small Area FMRs.

While NAHRO is still in the process of reading through and analyzing the report, the key takeaways from it on the imposition of Small Area FMRs are the following: different housing markets are impacted differently; there are more families moving into areas of opportunity; there is a loss of affordable units; and there is an aggregate higher cost burden for families.

The evaluation looks at the effects of Small Area FMRs on 1) potential access to opportunity; 2) actual access to opportunity; and 3) costs and rents. Additionally, the study looks at costs to PHAs. Click below for a brief summary of the evaluation findings.

• Potential Access to Opportunity;
  • Small Area FMRs increased the pool of units available in high-rent areas and reduced the pool of units available in low-rent areas;
  • Across tested PHAs, more units become unavailable in low-rent areas than become available in high-rent areas (i.e., there was less available affordable housing for voucher holders);
  • The “net effect across all [Small Area FMR] PHAs [in the Demonstration] is a loss of over 22,000 units (3.4 percent) that might otherwise be affordable to HCV holders”;
  • Small Area FMRs’ effect on the number of units varied by market;
    • For three PHAs, the same number of units achieved increases in Small Area FMRs as units that achieved decreases in Small Area FMRs;
    • For four PHAs, the number of units with decreases in Small Area FMRs exceeded those with increases;
  • High-rent areas had greater opportunities than low-rent areas based on a variety of metrics;
• Actual Location of HCV Holders;
  • Housing Choice Voucher holders in demonstration areas are slightly more likely to live in high-rent areas;
  • The share of HCV holders who moved to high rent areas increased by 3 percent (from 14 percent to 17 percent);
  • Among those households that moved into new areas (zip codes), the share moving to high-rent areas increased from 18 percent to 28 percent;
  • After implementing Small Area FMRs, households moving to new neighborhoods are more likely to locate in new neighborhoods that have a “lower share of minorities” and “higher shares of household heads with college degrees”;
• Program Costs and Rents;
  • The average payment standard decreased for HCV holders, in real terms, by 11 percent in Small Area FMR areas, while only 2 percent in comparison areas;
  • Housing Assistance Payment (HAP) costs decreased by 13 percent in real terms in Small Area FMR areas, while only 5 percent in comparison areas;
  • Rent paid to landlords remained flat in Small Area FMR areas; and
  • Tenant contributions to rent in Small Area FMR areas increased by 16 percent (22 percent in low-rent areas and 11 percent in high-rent areas), while only 9 percent in comparison areas.

The study also investigated PHA administrative impacts and found that the largest expenditures were for PHAs to “modify or adopt systems capable of handling ZIP code-level payment standards.” There were also “intensive staff efforts” to analyze and set payment standards and training staff on how to “explain and apply the new payment standards.”

In one of its comment letters to HUD on the mandatory imposition of Small Area FMRs, NAHRO stressed the potential adverse consequences to program participants, while writing the following:

NAHRO strongly believes that the mandatory imposition of SAFMRs has the potential to cost burden many current or future program participants. While NAHRO appreciates HUD’s commitment to “monitoring the progress of use of Small Area FMRs in addressing high levels of voucher concentration” to test “the core hypothesis . . . that this will significantly expand the ability of [Housing Choice Voucher] holders to access housing in neighborhoods with high-quality schools, low crime rates, and other indicators of opportunity,” NAHRO does not believe that a policy that has the potential to have such a large deleterious effect on the lives of hundreds of thousands of people should be implemented as an experiment. Given the large number of people and large effect on their lives, it is too early to implement this policy without further empirical evidence of its effects.

NAHRO is still in the process of reading the “Small Area FMR Demonstration Evaluation: Interim Report.” NAHRO looks forward to working with HUD and other stakeholders to ensure that those PHAs that choose to implement Small Area FMRs can do so in a way that will benefit program participants and not lead to greater cost burdens for families. We will provide additional coverage of this report to our members.

The Small Area FMR Demonstration Evaluation can be found here.