HUD’s 2024 Fair Market Rents Average 10%; Second Straight Large Annual Jump
Published by Thomas Stagg on Monday, September 11, 2023 - 12:00AM
Fair market rents–used as the basis for the U.S. Department of Housing and Urban Development (HUD) to set rents for Housing Choice Vouchers (HCV) saw a substantial increase for the second consecutive year. HCVs allow low-income families to access safe and decent housing.
HUD released FMRs for fiscal year 2024 (FY 2024) Aug. 31, with an effective date of Oct. 1.
FMRs also are a critical part of the low-income housing tax credit (LIHTC) and residential rental tax-exempt private activity bond (PAB) programs. FMRs impact the income limits used both for determining who qualifies to live in LIHTC/PAB housing and how much tenants pay to rent that home in high housing cost areas. In addition, many LIHTC and PAB housing units are occupied by tenants who are using HCVs. FMRs also play an important role in setting the high HOME rents.
2024 FMRs: By the Numbers
Like FY 2023, most areas will see a large increase. After anemic increases in FY 2022 FMRs, there have been two consecutive years with an average increase of more 10%. Nearly 99% of all areas will see an increase in FMRs in FY 2024, 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 areas and rural areas: The average increase in FMRs for was 10.44% for metro areas and 9.01% for non-metro areas. Larger cities also tended to have an even larger increases in FMRs. See below for the FMR change for the 10 largest U.S. cities:
If we look at the top 10 states by average change in FMRs, we will see that surprisingly no West Coast states are in the top 10, with Wyoming the westernmost state in the top 10.
Surprisingly, California 11% increase (23rd), Florida 11% increase (24th) and Texas 10% increase (27th) were all middle of the pack in terms of the average change in FMR.
Impact to Income Limits
Fair market rents play a part in HUD’s income limit calculation. In determining income limits, HUD applies a high housing cost adjustment to areas where rents are a disproportionate percentage of the area median income (AMI). The high housing cost adjustment is calculated by taking the two-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, then HUD-published very-low income (VLI) limit (the income limit used by LIHTC projects) is increased to this calculated amount–subject to any caps.
For example, if the two-bedroom FMR is $1,750, then the high housing cost adjustment would be $51,000 ($1,750 x .85 ÷.35 x 12). If 50% of AMI 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.
Los Angeles is a good example of this concept. It is a high housing cost area and its two-bedroom FMR increased by 9% in 2023. 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 was limited to 5.92% increase (the cap for 2023). Looking forward to 2024, the FMR for Los Angeles increased by 13%. This means if there was no cap, we would expect the VLI for 2024 to increase by 13% plus the 3% that was not used in 2023, so an increase of around 16%. However, HUD will continue to apply a cap, we don’t know what this cap will be for 2024 but we can assume it will be less than 16%, so income limits in Los Angeles will likely be capped for 2024 and the increase in income limits will equal whatever the HUD cap is.