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Understanding the New Small Area FMR

Published by Thomas Stagg on Wednesday, January 18, 2017 - 12:00AM

(Editor’s note – a condensed version of this discussion will appear in February issue of the Novogradac Journal of Tax Credits.)

On Nov. 16, 2016 the U.S. Department of Housing and Urban Development (HUD) released a final rule implementing small area fair market rents (SAFMR). In the notice, HUD said, “The use of Small Area FMRs is expected to give [Housing Credit Voucher] tenants access to areas of high opportunity and lower poverty areas by providing a subsidy that is adequate to cover rents in those areas, thereby reducing the number of voucher families that reside in areas of high poverty concentration.”

Higher opportunity areas are those areas that have lower poverty concentration and better access to schools, employment and other opportunities. HUD Secretary Julián Castro summed up what HUD means by higher opportunity areas in HUD’s announcement of the SAFMR program by saying the goal is to “offer these voucher-holding families more opportunities to move into higher opportunity neighborhoods with better housing, better schools and higher paying jobs.” 


The fair market rent (FMR) is used as a guideline by public housing authorities (PHA) and other administrators when determining the maximum voucher payment (known as the payment standard) in the Housing Choice Voucher (HCV) program. A PHA has some leeway in determining the HCV payment standard, but typically, the PHA sets their HCV payment standard within a range of 90-110 percent of the FMR, and up to 120 percent with HUD approval.

Historically, area wide FMRs have been determined based on Section 8 program’s FMR area definitions which consist of the following three types of areas:

  1. Metropolitan area (i.e. a metropolitan statistical area(MSA)) – these are large metropolitan areas made up of one or more counties. For example the Denver-Aurora-Lakewood, Colo. MSA would have one FMR for all 10 counties located in the MSA.
  2. Parts of some metropolitan areas (i.e. a HUD metro fair market rent areas (HMFA)) – these are MSAs that have been divided into smaller areas by HUD. For example the San Antonio-New Braunfels, Texas MSA - has been divided into 4 HMFAs containing one to five counties each.
  3. Non-metropolitan counties. 

Traditionally, FMRs are set at the 40th percentile for the FMR area. However, in 2000 HUD implemented the 50th percentile FMR for areas that meant certain requirements, including where higher FMRs were needed to help voucher holders find decent and affordable housing. The 50th percentile FMRs were also designed to allow voucher holders access to locations within the FMR area that have higher opportunity. An area could apply to be a 50th percentile FMR area and, if granted, the designation lasted three years.

After the end of the three-year period, a 50th percentile FMR area was required to document that the higher FMRs are resulting in de-concentration of vouchers in lower opportunity areas or it will lose its 50th percentile status. Over the years many areas have lost their designation because they aren’t able to document that the higher rents are having the desired outcome.

According to HUD, research has shown that 50th percentile FMRs have not resulted in a de-concentration of voucher holders, i.e. tenants are not moving out of high poverty areas to higher opportunity areas that have a lower concentration of poverty. In fact, the studies cited by HUD show that much of the benefit of the increased 50th percentile FMR goes to landlords who collect the higher voucher rents in areas with higher poverty, lower opportunities for employment and worse school options.

Beginning with FY2018 HUD will begin requiring designated areas to use SAFMRs.  With the SAFMRs, HUD is attempting to help create actual incentives for tenants to move out of lower opportunity areas. Unlike the 50th percentile FMRs, the SAFMRs will be based on the actual rent of each zip code. As stated in the Federal Register:

HUD has considered various methodologies that would set FMRs at a more granular level. HUD's goal in pursuing the Small Area FMR methodology is to create more effective means for HCV tenants to move into higher opportunity, lower poverty areas by providing them with subsidy adequate to make such areas accessible and to thereby reduce the number of voucher families that reside in areas of high poverty concentration.

With the implementation of SAFMRs, at the expiration of their three-year 50th percentile period areas using 50th percentile rents will transition to either 40th percentile rents or the SAFMRs. However, PHAs that revert to 40th percentile rents will still be able to request HUD approval to use 50th percentile rents. If granted, the area will be required to document that the 50th percentile rents are successful annually rather than after three years.

Initial SAFMRs Areas

Under the new guidance HUD will begin publishing SAFMRs on a zip code basis. PHAs located in designated areas will be required to use the SAFMR when determining the HCV payment standard. In addition, PHAs not located in the designated area can choose to use  the SAFMR when administering the HCV program. All other programs that use FMRs would continue with area-wide FMRs unless the PHA specifically elects to use SAFMRs.

The following 24 areas will be required to implement the SAFMR for the HCV program starting in FY2018:

  • Atlanta-Sandy Springs-Marietta, Ga. HUD Metro FMR Area
  • Bergen-Passaic, N.J. HUD Metro FMR Area
  • Charlotte-Gastonia-Rock Hill, N.C.-SC HUD Metro FMR Area
  • Chicago-Joliet-Naperville, Ill. HUD Metro FMR Area
  • Colorado Springs, Colo. HUD Metro FMR Area
  • Dallas-Plano-Irving, Texas Metro Division
  • Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. Metro Division
  • Fort Worth-Arlington, Texas HUD Metro FMR Area
  • Gary, Ind. HUD Metro FMR Area
  • Hartford-West Hartford-East Hartford, Conn. HUD Metro FMR Area
  • Jackson, Miss. HUD Metro FMR Area
  • Jacksonville, Fla. HUD Metro FMR Area
  • Monmouth-Ocean, N.J. HUD Metro FMR Area
  • North Port-Bradenton-Sarasota, Fla. MSA
  • Palm Bay-Melbourne-Titusville, Fla. MSA
  • Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA
  • Pittsburgh, Pa. HUD Metro FMR Area
  • Sacramento--Arden-Arcade--Roseville, Calif. HUD Metro FMR Area
  • San Antonio-New Braunfels, Texas HUD Metro FMR Area
  • San Diego-Carlsbad-San Marcos, Calif. MSA
  • Tampa-St. Petersburg-Clearwater, Fla. MSA
  • Urban Honolulu, Hawaii MSA
  • Washington-Arlington-Alexandria, D.C.-Va.-Md. HUD Metro FMR Area
  • West Palm Beach-Boca Raton-Delray Beach, Fla. Metro Division

HUD says these 24 areas contain approximately 368,000 HCVs, which is 18 percent of the total.

Impact to Project Based Vouchers

As mentioned earlier, only HCV in designated SAFMR areas are required to use the new SAFMRs. All project-based voucher (PBV) projects are exempt from this requirement, even those located in a SAFMR area. However, PHAs that are using SAFMR for its HCV program can use SAFMR for all new PBV projects. In addition, the PHA can use SAFMR on current PBV projects if the owner and the PHA mutually agree to the change. The final rules do not specifically state this, but it would appear that for existing projects, you may have some projects managed by the same PHA using SAFMR and some using area-wide FMRs. This determination would likely be made on if the SAFMR was higher than the area-wide FMR. However, once a PBV project chooses to use the SAFMR they are prohibited from reverting back to the area wide FMR.

Impact to LIHTC Properties

LIHTC properties may be impacted if they are located in an area that will use SAFMR when setting HCV payment standards. LIHTC properties are allowed to collect the entire HCV payment standard, even if this exceeds LIHTC max rents. Therefore, projects located in areas where the SAFMR is greater than the previous area wide FMR will be able to collect additional rent; however, in areas where the HCV payment standard has decreased the LIHTC properties will collect less total rent from the HCV holders.  It is important to note that if the HCV payment standard were reduced to less than applicable LIHTC rent, the unit would likely not be able to collect the LIHTC rent.  The HCV payment to owners is made up of two parts, the tenant paid portion and the housing assistance payment.  The tenant paid portion is typically required to be 30% of the tenant’s adjusted income, however, in some cases the tenant can pay up to 40% of their income towards a unit if the rent on the unit is greater than the HCV payment standard.  Therefore, if the HCV payment standard plus the additional 10% of the tenant’s adjusted income is less than the LIHTC rent, the owner would not be able to collect the entire LIHTC rent from HCV holders.

Determining SAFMR Areas

HUD has a series of selection criteria used in determining which areas are required to use the SAFMR, including:

  • number of HCVs under lease
  • are vacancy rate
  • number of units in a ZIP code where the Small Area FMR is more than 110 percent of the area wide FMR
  • percentage of voucher holders living in concentrated low-income areas relative to all renters within these areas over the entire metropolitan area

The final rule lists the selection criteria but does not list the selection values. The selection values for the first round of SAFMR areas was released via the Federal Register and the selection values for future designations will be made available for public comment in the Federal Register before HUD designates additional SAFMR areas. Once an area is designated as a SAFMR area the selection is permanent. However, HUD can suspend a SAFMR designation if warranted due to adverse rental housing conditions. HUD does not give a list of parameters that may allow a SAFMR to be suspended but does give the example of a “metropolitan area experiences a significant loss of housing units as a result of a natural disaster.”

HUD will designate additional areas every five years. HUD did not release the selection values to give itself maximum flexibility in designating future areas. However, as noted above the selection values will be made available for public comment.

Implementation Issues

SAFMRs are designed to have the HCV payment standard better match the rent for each zip code and make it so that HCV holders can find housing in higher opportunity areas. Because of this some zip codes will have decreases in SAFMR from the area wide FMR and some areas will have increases. Unfortunately, this means that some HCV holders will see decreases in their payment standard if they choose to remain in their unit/zip code.

Although the SAFMRs are not required to be implemented until 2018, HUD has provided a schedule of the hypothetical SAFMRs. Based on our analysis, 3,880 zip codes are included in the 24 SAFMR areas, distributed is as follows:

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Note, HUD has stated it will limit the decrease in SAFMR to no more than 10 percent of the previous year’s amount. The hypothetical SAFMRs do not appear to take this limitation into account and therefore, the actual decreases in SAFMRs will be more gradual and spread out over a longer time. However, Novogradac has not adjusted the hypothetical SAFMRs for the 10 percent floor either, in order to show the full variance between the 2017 area wide FMRs and the hypothetical SAFMRs.

HUD has some protection in place for tenants that have decreases in SAFMR. First, the PHA is not required to implement the new payment standard on existing tenants until the second regular reexamination following the effective date of the decrease in the payment standard. Second, as mentioned above, HUD will limit the decrease in SAFMR to no more than 10 percent from the previous year’s amount. Also, as mentioned earlier, a PHA can establish an HCV payment standard up to 110 percent of the SAFMR without HUD approval. In addition, PHAs are allowed to set a different payment standard for disabled tenants as a reasonable accommodation of their disability. Finally, HUD may approve exception payments standard, including a payment standard exception for an entire zip code.

The chart below shows how each area will be affected by the implementation of the SAFMRs. The decreases and increases in the chart were calculated by comparing the 2017 area wide FMR to the hypothetical 2017 SAFMR. HUD does not provide a spreadsheet comparing the SAFMR to the area wide FMRs for 2017, nor does it provide area-wide FMRs for each zip code. Therefore, it’s important to note that the amounts below were recreated by Novogradac and should be used for information purposes only.

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HUD made the SAFMR data available for all metropolitan zip codes in the country. The changes for the 24,766 zip codes are as follows:

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FMR Change Maps

We have worked Novogradac & Company’s geographic information system experts to map what the changes would look like in three of the new SAFMR areas.

As with the table above, the decreases and increases were calculated by comparing the 2017 area wide FMR to the hypothetical 2017 SAFMR.

San Diego

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San Diego would have increases in HCV payment standards in the downtown core area as well as the northern part of the county along the coast.  The HCV payment standard decreases for the majority of the inland areas.


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Northern Atlanta would have increases in the HCV payment standards.  The southern urban areas of Atlanta primarily have decreases.  The less densely populated zip codes to the south and east mostly have increases.

Washington-Arlington-Alexandria, D.C.-Va.-Md. HMFA

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Excluding the Northeast and Southeast quadrants of the city, D.C. primarily has increases in the HCV payment standards. Interestingly, the revitalizing areas of Northeast also show increases in the HCV payments. The Southeast quadrant of the city will have large decreases in the HCV payment standards.  The outer surrounding communities also largely have decreases in the HCV payment standards.

Other Areas

The areas above are provided as a sample of the changes; contact our GoVal team to inquire about Novogradac & Company’s ability to map a specific area for you.

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