HUD Releases Final FY 2013 FMRs

Published by Mike Hannon on Thursday, November 1, 2012
Journal thumb November 2012

The U.S. Department of Housing and Urban Development (HUD) issued fair market rents (FMRs) for HUD fiscal year (FY) 2013 on Oct. 4. FMRs in FY 2013 increased for the majority of the country. The FY 2013 FMRs are higher than the FY 2012 FMRs for approximately 89 percent of counties and lower for approximately 11 percent of counties. The average change in counties is an increase of 8 percent. This is in stark contrast to the FY 2012 FMRs, in which 70 percent of counties experienced a decrease from the FY 2011 FMRs and the average change was a decrease of 3 percent.

Methodology
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. HUD is required to publish the FMRs at least annually to be effective on Oct. 1 of each year. FMRs are used to determine payment standards for the Housing Choice Voucher program, initial renewal rents for some expiring project-based Section 8 contracts, initial rent for housing assistance payment contracts in the Moderate Rehabilitation Single Room Occupancy program and rent ceilings in the HOME rental assistance program. In addition, the FMRs influence income and rent limits for the Low-Income Housing Tax Credit (LIHTC) program, tax-exempt bond (TEB) programs and other affordable housing programs.

FMRs are calculated using standard quality base rents, derived from the American Community Survey (ACS) five-year gross rents and a recent mover factor that is applied to the standard quality base rents. Both variables saw general increases from the prior year, explaining the general increases in FY 2013 FMRs. For FY 2013 FMRs, HUD used the 2006-2010 five-year ACS data to update the base rents set in FY 2012, which used the 2005-2009 five-year ACS data. The gross median rent in 2010 was approximately 17 percent higher than the gross median rent in 2005, an annualized increase of approximately 3.25 percent.

FMRs are historically based on gross rents for recent movers (those who have moved into their current residence in the last 24 months). However, because of the way the five-year ACS data are constructed, HUD developed a new methodology for calculating recent-mover FMRs in FY 2012. That recent mover factor process was revised again for the FY 2013 FMRs. In FY 2013, 91 percent of FMR areas have a recent mover factor greater than one in FY 2013, compared with only 38 percent in FY 2012.

In addition to the ACS data from 2006 through 2010, HUD used information from 2010 and 2011 Consumer Price Index rent and utility indexes, random telephone surveys and local area rent surveys from HUD and public housing agencies. HUD bases its FMRs on two-bedroom units and then adjusts the FMRs for larger and smaller units. HUD based the FY 2013 FMR statistical areas on Office of Management and Budget metropolitan area definitions and HUD modifications first used in FY 2006.

Largest Changes
The largest FMR increases are in Laurens County, S.C.; Aleutians East Borough, Alaska; Trego County, Kan.; Chaves County, N.M.; and Huerfano County, Colo. These counties had increases ranging from 41.6 to 54.7 percent, or $238 to $307, for a two bedroom unit. The largest rent decreases are in Wayne County, Utah; Bailey County, Texas; Greenlee County, Ariz.; Yakutat City and Borough, Alaska; and Denali Borough, Alaska. These counties had decreases ranging from 21.4 to 31.4 percent, or $191 to $282, for a two bedroom unit.

LIHTC and TEB
For LIHTC and TEB properties, the changes are of most direct relevance to income limits for properties located in Metro High Cost Housing areas where HUD uses the FMRs to calculate income and rent limits. HUD increased FMRs in 16 of the 20 High Cost Housing counties; it decreased rents in four Metro High Cost Housing counties in California, Connecticut and New Jersey. In the previous year there were 21 high cost housing counties. Grand Rapids, Mich. and Washington, D.C. were dropped from the list and Richmond, Va. was added.

Metro High Cost Housing areas with increases in FMRs will likely see increases in the HUD published multifamily tax subsidy project (MTSP) income limits; those with decreases in FMRs will likely see decreases in the HUD published MTSP income limit. For existing LIHTC and TEB projects, income limits will not decrease because of the hold harmless policy under Internal Revenue Code §142; new LIHTC and TEB projects, however, may have lower rent and income limits.

Industry Comments
HUD released the proposed FY 2013 FMRs Aug. 3, 2012, and accepted comments until Sept. 4 on the proposed FY 2013 FMRs. Several commenters requested that the FY 2013 FMRs be held harmless at the FY 2012 FMRs. Many areas are experiencing increasing rents but decreasing FMRs. HUD responded that it is required by statute to use the most current statistically significant data available, and therefore cannot hold any areas harmless.

Another set of commenters raised concerns about the potential effect of HUD’s newly updated bedroom ratios. HUD has updated the bedroom ratios, which are used to calculate zero-, one-, three- and four-bedroom FMRs based on the two-bedroom FMRs. Bedroom ratios were last updated using the decennial census. HUD calculates the primary FMR estimates for two-bedroom units because it is the most common sized rental unit and the most reliable to survey and analyze. It uses data from the same sources to calculate zero-, one-, three- and four-bedroom FMRs. However, if the ratio of two-bedroom FMRs to the zero-, one-, three- and four-bedroom FMRs does not fall within a reasonable ratio, HUD adjusted the zero-, one-, three- and four-bedroom FMRs using the applicable bedroom ratio. The development of new bedroom ratios means that some areas will have lower relationships to the two-bedroom FMR than they did in the past. HUD received comments that its new bedroom ratio ranges could have a negative effect on the homeless and elderly programs. HUD acknowledged these problems, but stated there is no action they may take under current statute to provide relief for these programs.

The notice is posted on the Facts & Figures page under Fair Market Rents at www.taxcredithousing.com.