HUD Releases 2023 Fair Market Rents
The US Department of Housing and Urban Development (HUD) released fair market rents (FMR) for fiscal year 2023 Sept. 1, 2022 with an effective date of Oct. 1, 2022.
FMRs are the basis for setting rents for Housing Choice Vouchers (HCV), which allow low-income families to access safe and decent housing.
FMRs also are a critical part of the low-income housing tax credit (LIHTC) and residential rental tax-exempt private activity bond (TEB) programs. FMRs impact the income limits used both for determining who qualifies to live in LIHTC/TEB housing and how much tenants pay to rent that home in high housing cost (HHC) areas. In addition, many LIHTC and TEB housing units are occupied by tenants who are using HCVs. FMRs also play an important role in setting the high HOME rents.
By the Numbers
After anemic increases in FY 2022 FMRs, most areas will see a large increase in FY 2023 FMRs. Ninety-nine percent of all areas will see an increase in FMRs with the average increase of 10% over the prior year.
The following areas are those with an increase of 20% or more.
As in prior years, there was a slight divide in the increase in FMRs between metro and rural areas. The average increase in FMRs for metro areas was 11.5% and 8.9% for rural areas. Larger cities also tended to have an even larger increases in FMRs. See below for the FMR change for the 10 largest cities in the United States.
Certain areas in the country also tended to have larger increases. In the top 10 states by average change in FMRs, the Northeast leads the way.
Surprisingly, California ranks 31st out of the 50 states in average change in FMR.
Impact to Income Limits
FMRs play a part in HUD’s income limit calculation. In determining income limits, HUD applies a high housing cost to areas where rents are a disproportionate percentage of the median income of an area. The high housing cost adjustment is calculated by taking the 2-bedroom FMR times 85% divided by 35% times 12 rounded to the nearest $50. If this calculation is greater than 50% of the area median income the HUD Published very-low income (VLI) limit (the income limit used by LIHTC projects) is increased to this calculated amount. For example, if the 2-bedroom FMR is $1,750 then the high housing cost adjustment would be $51,000 ($1,750*.85/.35*12). If 50% of area median income for this area is $50,000 then VLI would be adjusted up to $51,000. For this area HUD would publish a VLI equal to $51,000.
This adjustment is still subject to applicable HUD caps and floors. HUD caps any increase in VLI at the greater of 5% or two times the change in national median income. Contingent on what HUD decides to do about the American Community Survey data issue, Novogradac currently estimates the cap for 2023 income increase will be 5%. Therefore, for 2023, If a high housing cost area has an increase in FMR of greater than 5% the increase in VLI will be capped at 5%.
Los Angeles, is a good example of this concept. It is a high housing cost area and its 2-bedroom FMR increased by 9%. Therefore, if there was no cap on VLI increases for 2023, the LIHTC income and rent limit would increase by 9%. However, due to the cap, the increase in 2023 will likely be limited to 5%.