Upward Fair Market Rents Trend Continues

Published by Thomas Stagg on Thursday, September 6, 2018 - 12:00am

On Aug. 31, the U.S. Department of Housing and Urban Development (HUD) released the fair market rents (FMR) for fiscal year (FY) 2019.

Background

In general, the FMR for an area is an amount that would be needed to pay the rent and utilities of a privately owned, decent and safe rental housing unit of a modest nature with suitable amenities. FMRs are used to determine payment standards for the Housing Choice Voucher program, initial renewal rents for some expiring project-based Section 8 contracts, rent ceilings in the HOME rental assistance program, and more. In addition, the FMRs influence income and rent limits for the Low-Income Housing Tax Credit (LIHTC) program, tax-exempt bond programs and other affordable housing programs.

Analyzing the 2019 Data

The FMRs for 2019 continued the upward trend of the last few years. FMRs increased by 2.49 percent ($23) on average. This is slightly less than the increases in 2018 of 3.03 percent ($26). More than 70 percent of the areas saw an increase in FMRs. Although the general trend was up, around 29 percent of the areas had a decrease, whereas in 2018 only 22 percent of the areas had a decrease. The following table summarizes these changes:

 

Blog Chart 2018-2019 FMR Area Trends 4
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Blog Chart 2018-2019 FMR Area Trends 3
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Metropolitan areas tended to have larger increases in 2019 than non-metropolitan areas. The average increase for metropolitan areas was 3.56 percent whereas non-metropolitan areas had an average increase of 1.73 percent. This is also apparent when calculating a weighted average change based on the population for each area. Once adjusted for population, 2019 had a larger percentage increase than 2018.

Of particular interest is the volatility in the year over year estimates. Of the 1,339 areas that had a decrease in 2019, 1046 of those areas had an increase in 2018 and only 236 areas had decrease for two years in a row (the remaining 57 areas with decrease in 2019 were flat in 2018). Even though only 236 had decreases two years in a row, 1,080 areas have a 2019 FMR that is less than their 2017 FMR. Local area surveys can impact the areas with decreases, as discussed below, but some areas had very large swings.

These are a few examples of areas that had large increase in 2018 and large decrease in 2019:

 

Blog Chart 2018-2019 FMR Area Trends 2
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Continuing the trend of volatility, there were 805 areas that had a decrease in 2018 and an increase in 2019.

Below are a few examples of areas that had a large decrease in 2018 and large increase in 2019:

 

Blog Chart 2018-2019 FMR Area Trends
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Below are the 10 largest increases for areas with populations greater than 100,000:

 

Blog Chart 10 Largest Increases for Areas With Populations Greater Than 100,000
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Below are the 10 largest decreases for areas with populations greater than 100,000:

 

Blog Chart 10 Largest Decreases for Areas With Populations Greater Than 100,000
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Impact of Local Area Surveys

A public housing authority (PHA) may request that the FMRs be re-evaluated if the PHA does not think the HUD published FMRs accurately reflect the rents in the area. For the 2018 FMRS, 13 areas initially notified HUD that they would like to have their limits re-evaluated. However, only eight of those areas submitted data to support the re-evaluation. It is unknown how many areas will request a re-evaluation for 2019 FMRs.

To request a re-evaluation the requestor must administer more than 50 percent of the housing choice voucher families in the FMR area. The requestor must obtain and provide to HUD data that is more current than the American Community Survey (ACS) data that was used to calculate the FMRs published by HUD. Because the 2019 FMRS use 2016 ACS, the requestor would have to gather data that is more current than 2016.

If an interested party were to gather data that had an effective date of July 1, 2018 or later, the local survey could be used to calculate FMRs for 2019-2021. If the effective date of the data is between July 1, 2017 and June 30, 2018 then the local survey could be used for the FMRs for 2019 and 2020 but a new local survey would need to be conducted for 2021. Due to the amount of time required to collect the data most local surveys are used for a period of two years and then data is required to be collected.

To see the impact of a local area survey, consider an area that had a local survey last year but does not have one this year: Oakland-Fremont, Calif. HMFA’s FMR calculated under a local survey for 2018 was $2,329. However, the local survey data that was used is now outdated and the FMR for 2019 using the ACS data is $2,109, which is a more than 9 percent decrease in FMRs.

Seattle-Bellevue, Wash. HMFA is an area that used a local survey for the first time in 2018. It is interesting to see the impact that the local survey had on the FMRs. The 2018 preliminary FMRs based on the ACS data was $1,527, however, after a local survey was commissioned the final 2018 FMRs were increased to $1,878.

Again, it is unknown which areas will request a local survey for 2019 FMRs, however, it is likely that those areas with large decreases in FMRs that have strong local economies such as San Francisco, Oakland and Washington D.C. will request a local survey.

Impact to LIHTC Properties Income and Rent Limits

When determining LIHTC income and rent limits, HUD applies a high housing cost adjustment that increases the income limits for areas where the cost of housing is abnormally high compared to the median income for the area. These areas are known as high housing cost areas and the adjustment is based on the 2-bedroom FMR as published by HUD.

After applying high housing cost adjustment to the 2019 FMR there are 75 areas that have a LIHTC income limit that is greater than the 2018 LIHTC limit with an average increase of 5.53 percent. The MTSP may be higher than the calculated amount if the AMI or other HUD adjustment for the county has increased to a level that is greater than the high housing cost adjustment. As reminder, estimates of the 2019 income and rent limits can be purchased from Novogradac.