Impacts Of 2005 Proposed Fair Market Rents, Updated 8/25/04

On August 6, 2004, HUD published the 2005 Proposed Fair Market Rents. In many areas, the proposed FMRs vary dramatically from the current FMRs. The changes in FMRs will have many implications for housing agencies. Tables 1 and 2 list the counties that will likely experience the largest declines in FMRs. As is discussed below, large FMR declines can be expected to have severe programmatic impacts.

Comments on the proposed FMRs are due to HUD by September 7, 2004. However, due to the relatively late release of the proposed FMRs, HUD has announced that it will accept comments for the 60-day period following the initial comment period. Housing agencies with concerns should submit comments to HUD by September 7, even if the comments are preliminary. Housing agencies may also want to consider contacting their Congressional representatives if they are facing dramatic programmatic changes.

Note:
HUD told Congressional staff and members of the press on September 27, that it will make two significant changes to its process for setting 2005 Fair Market Rents. According to reports we have heard, it will (1) not implement changes in FMR areas based on new OMB metropolitan area definitions in 2005 and (2) it will delay implementation of 2005 FMRs in at least some areas where HUD studies of local rents are ongoing.

While many details are not yet clear, it appears that these changes avoid some — though not all — of the sharp FMR changes that HUD proposed in August. But in some ways, will the changes will result in a process that is even more hurried and disruptive than HUD’s original plan would have been.

1.	County-by-County Data on Proposed Changes in Fair Market Rents for 2005
		View state map
2.	The 70 areas around the country that are scheduled for a Random Digital Dialing (RDD) survey by HUD
	Complete Excel File*	Separate PDFs: Counties That Are Scheduled by HUD for an RDD (7pp.)
3.	Areas that are facing a significant decrease that are not scheduled for an RDD
	Complete Excel File*	Separate PDFs:
		Counties with at Least $100 Decrease in 2-Bedroom FMR That Are Not Scheduled for an RDD (1pp.)
		Counties Where 110% of the 2005 FMR Is Less Than 100% of the 2004 FMR for Any Bedroom Size That Are Not Scheduled for an RDD (12pp.)
		Counties That Will Experience at Least a 5% Decrease in FMR for Any Bedroom Size That Are Not Scheduled for an RDD (17pp.)
	*To view these files, click on the links and select "open" or "save".

The changes in the proposed FMRs are the result of several features of the way that FMRs are calculated. One of the biggest factors that contributed to the changes is that HUD went through a process of “rebenchmarking” the FMRs this year. HUD has always relied on data from the decennial Census to help determine accurate FMRs in every area of the country. Because of the time required to process all of the information collected as part of the Census, this is the first year that data from the 2000 Census was available to HUD for use in calculating FMRs. These changes are reflected in the new FMRs. The Census data are used to revise the ratio of smaller and larger bedroom size units to the 2-bedroom FMRs. As a result, even areas that had fairly recent rent surveys – which are limited to 2-bedroom units – may experience very substantial changes in the smaller and larger bedroom FMRs.

Another major factor contributing to the changes in FMRs is the fact that many Metropolitan Statistical Areas were redefined this year by the Office of Management and Budget. MSAs are supposed to represent areas that are economically linked, and OMB updates the groupings of counties (and in previous years towns in New England) periodically in an effort to make sure the MSAs match reality. Earlier this year, OMB released new Metropolitan Statistical Areas and introduced a new grouping of counties called Micropolitan Statistical Areas. Furthermore, OMB created a new type of sub-grouping within MSAs. All of these changes to MSAs affected the definitions of FMR areas. In many cases, FMR areas were expanded as a result of the changes to MSAs. Formerly non-metropolitan counties that were added to an MSA generally have higher FMRs because of the influence of higher central city rents. At the same time, central city areas in these FMR areas generally have slightly lower FMRs because they are averaged with the lower rents in outlying areas. (HUD is not required to use the OMB geographical areas. FMR areas should correspond to actual “housing market” areas. Comments may address the appropriateness of the geographical boundaries selected in particular areas.)

A third factor that led to many of the changes in the proposed FMRs is the fact that HUD eliminated the use of state minimums. Previously, HUD raised the FMRs of some non-metropolitan areas that had unusually low rents. The FMR for such areas was equal to the statewide 40^th percentile rent for all non-metropolitan counties. With the 2005 proposed FMRs, HUD has eliminated the use of state minimums. Instead, HUD has grouped low-population non-metropolitan counties that have small recent-mover samples together according to Census-defined county groups. While non-metropolitan counties as a whole generally will see increases in FMRs with the new figures, some areas that had previously had higher FMRs because of state minimums will see a decrease in FMRs, and for some areas the increase in FMRs will be smaller than it otherwise would have been.

In addition to these major changes, HUD made other technical changes in how it estimates FMRs. It is not clear what effect these changes had in all cases. Housing agencies, developers using HOME funds, and advocates should check the FMRs for their areas to see exactly how the proposed FMRs will affect them. The 2005 proposed FMRs can be viewed at http://www.huduser.org/datasets/FMR/FMR2005/fmr05.html.

Table 1 shows those counties where the proposed FMRs are significantly lower than current FMRs. In these counties, agencies that currently have a payment standard of 100 percent of the 2004 FMR will not be able to maintain a constant dollar figure for their payment standards even by raising the percentage to 110 percent of the proposed FY 2005 FMR. Thus, new participants and families moving to new units will likely be faced with having to pay a greater share of their income to use their vouchers.

The counties affected by these substantial decreases are likely to have relatively more vouchers than the average, so these reductions will affect a far larger proportion of voucher holders than the percent of counties affected.

Table 2 shows counties where the proposed FMRs are at least five percent lower than current FMRs. According to current HUD regulations, housing agencies must redetermine rent reasonableness anytime there is a published decrease of five percent in the FMR 60 days before the contract anniversary. Thus, for the counties listed in Table 2, if the proposed FMRs become final on October 1, 2004, agencies will have to redetermine rent reasonableness for all contracts up for renewal beginning December 1, 2004.

We did not list every area with a proposed decrease in FMR. Many more areas face a decrease for one or more bedroom sizes. If agencies serving these counties now set the payment standard above 100 percent of the FMR, it is possible that they will not be able to maintain the payment level by increasing the payment standard to 110 percent of the new FMR, the maximum permitted without HUD approval.