New Methodology for Calculating Inflation Factors Used to Determine Voucher Funding Eligibility
By: Tushar Gurjal, Senior Policy Manager
On May 10, HUD published a notice titled “Section 8 Housing Assistance Payments Program-Fiscal Year (FY) Inflation Factors for Public Housing Agency (PHA) Renewal Funding” in the Federal Register. The notice establishes renewal funding inflation factors (RFIFs). The RFIFs are used to help determine the Housing Assistance Payment (HAP) renewal funding amount for which each PHA is eligible. The national inflation factor illustrates the expected change in the per unit cost (PUC) for the Housing Choice Voucher (HCV) program, which for 2024 is 7.38%. The methodology has been changed for 2024 from the methodology used in 2023.
In general, to calculate RFIFs, HUD forecasts a national inflation factor. HUD then calculates individual inflation factors based on the annual changes in the two-bedroom Fair Market Rent for each area. The Department then adjusts the individual inflation factors such that the voucher-weighted average of all individual area inflation factors is equal to the national inflation factor, while ensuring that no specific area receives an inflation factor less than one.
To calculate the national inflation factor, HUD applies forecasts of the Consumer Price Index (CPI) Rent of Primary Resident Index and the CPI Fuels and Utilities Index to the fiscal year (FY) national average two-bedroom Fair Market Rent (FMR) (i.e., the gross rent). This amount then has 30% of tenant income subtracted from it to calculate a “notional” PUC. The national inflation factor would be the percentage change of this “notional” PUC from the prior year’s PUC.
The Department decided to change the methodology for this year because they felt that the prior method of determining gross rents relied too heavily on changes in FMRs and FMRs reflected rents paid by “recent movers,” while understating rents paid by households that stayed in place. The Department feels that the notional PUC should not just represent recent movers, but also those households that stayed in place, which are more likely to have had lower rents. The Department is calculating the gross rent portion of the PUC based on a weighted average of the expected change in national FMR and the expected national change in Rent of Primary Residence CPI with the former represents the change in rents for recent movers, while the latter represents the change in rent for in-place tenants.
Individual RFIFs can be found here.
The full notice, including a full explanation of the methodological changes, can be found here.