HUD Publishes Comprehensive Guidance on Payment Standards

By: Tushar Gurjal, Senior Policy Manager

On September 30, HUD published Notice PIH 2024-34 titled “Updated and Consolidated Policy Guidance on Housing Choice Voucher (HCV) Program Payment Standards.” This notice gives comprehensive guidance to PHAs on payment standards after the implementation of recent regulatory changes. The notice discusses Fair Market Rents (FMRs), Small  Area FMRs, establishing payment standards, mandatory and opt-in Small Area FMRs, exception payment standards, success rate payment standard phase-out, deconcentration payment standards, payment standards lower than the basic range, applying increases and decreases to payment standards, reasonable accommodation payment standards, project-based vouchers, administrative plan requirements, reevaluation of HUD-published FMRs, and certain other topics.

The notice provides an overview of FMRs and Small Area FMRs. It discusses the relationship between payment standards and FMRs, the role of FMRs in the Project-Based Voucher program, and the different type of FMRs including metropolitan FMRs, non-metropolitan FMRs, and zip-code area FMRs (i.e., Small Area FMRs).

Payment Standards

The notice discusses the differing ways to set payment standards. In many instances, a payment standard may be applicable to an entire FMR, but there are multiple instances where that will not be the case. For example, in areas where Small Area FMRs are not mandatory, PHAs may still opt to use Small Area FMRs as the basis for exception payment standards in areas within their jurisdiction. A PHA may designate a payment standard area that is a census tract or a block of census tracts, but the area must at least be a census tract and not smaller. Housing agencies may also set a basic range of at least 90% to 110% of the applicable FMR. Housing agencies are encouraged to publish their payment standard schedule on their website.

Small Area FMRs

Housing agencies that will use Small Area FMRs are those that are required to use them because they are in a mandatory Small Area FMR region or because they opt-in to use them. Small Area FMRs are not used by a PHA’s Project-Based Voucher (PBV) program unless the PHA has a policy that they be used in future PBV projects where the Small Area FMRs are in effect.

The Department has designated several areas throughout the country where it is mandatory for PHAs to use Small Area FMRs. For those PHAs with jurisdictions wider than the mandatory designated area, they must use Small Area FMRs in those areas where the mandatory requirement is in place within their jurisdiction. Moving to Work agencies may be exempt from the mandatory Small Area FMR requirement if they have an alternative payment standard scheme in place. Additionally, Small Area FMRs may be suspended or temporarily exempt from the mandatory requirement in certain instances including, but not limited to, low vacancy rates, influx of families into the area, loss of rental units, or a rapid increase in the per unit cost. Declining success rates, in some instances, may also signify adverse rental conditions requiring the suspension of the designation or the exemption of a PHA from the Small Area FMR designation.

Housing agencies may also voluntarily opt-in to use Small Area FMRs when not mandatorily required to do so. For PHAs that opt-in, they may opt-in in one or more of the FMR areas in which they administer vouchers. When deciding to opt-in the PHA should consider the availability of rental housing, the impact on family rent burdens, the potential need for additional rent reasonableness determinations, and whether to apply the Small Area FMR to their PBV program. The notice provides instructions for opting into Small Area FMRs.

Exception Payment Standards

There are several options to set payment standard beyond their basic range:

• Payment standards based on Small Area FMRs where the Small Area FMR is greater than the metropolitan or non-metropolitan FMR;
• Payment standards greater than 110% up to 120% of the applicable FMR;
• Payment standards over 120% of the applicable FMR; and
• Payment standards necessary as a reasonable accommodation.

The notice discusses when and how to use all of these options and provides illustrative examples. Of particular interest is the simplified exception payment standard process for payment standards above 110% up to 120% of the applicable FMR. Housing agencies that have less than a 75% 12-month success rate or PHAs with more than 40% of their tenant-based voucher families paying more than 30% of their adjusted income may set their exception payment standards up to 120% after notifying HUD through an electronic submission.

The notice also discusses the success rate payment standards (the phase out of success rate payment standards), deconcentration payment standards, and payment standards lower than the basic range.

Applying Increases and Decreases in the Payment Standard

When applying an increased payment standard to an existing Housing Assistance Payment (HAP) contract, the PHA must use the increased payment standard amount in calculating HAP no later than the earliest of the following:

• The effective date of an increase in the gross rent that would result in an increase in the family share;
• The family’s first regular or interim reexamination; or
• One year following the effective date of the increase in the payment standard amount.

The PHA may apply a payment standard increase at an earlier date if it is included in the PHA administrative plan.

When applying a decreased payment standard to an existing HAP contract, the PHA may do one of the following:

• The PHA may choose to hold the family harmless (i.e., not reduce the payment standard amount used to calculate the HAP payment for as long as the family resides in the unit while receiving assistance);
• The PHA may gradually reduce the payment standard amount used to calculate the family’s HAP payment, though the initial reduction must take place two years after the effective date of the decrease in the payment standard; or
• The PHA may reduce the payment standard used to calculate the HAP payment after two years following the effective date of the decrease in the payment standard.

PBVs and Small Area FMRs

Housing agencies that are in mandatory Small Area FMR designated areas or have opted to use Small Area FMRs may elect to use Small Area FMRs with their PBV programs, though they must adopt that policy in their administrative plans. Housing agencies may not establish an exception payment standard for a specific PBV project. The notice details certain other requirements of the PBV program.

Administrative Plan Requirements

Housing agency administrative plans should address certain items including the process for establishing and revising payment standards (including administering increases and decreases to payment standards), criteria used to determine designated areas and payment standard amounts for those areas, and policies related to Small Area FMRs and PBV programs.

Finally, the notice discusses the process to reevaluate FMRs and provides links to additional resources.

The full notice can be read here.