HUD recently announced a proposed change to the way Fair Market Rent (FMR) is calculated. Public comment is open until July 5 and can be submitted online.
Last month the National Low Income Housing Coalition (NLIHC) released their annual report Out of Reach which illustrated the large gaps between incomes of Michigan minimum wage earners and Fair Market Rent (FMR). Advocates quickly pointed out the high cost of rent, the number of hours an individual must work to afford it, and how our policies don’t support low-income families trying to rent a home on a low-wage paycheck.
But beyond these concerns lies an important critique of our existing system: how FMR dictates what a family can afford by using certain data sets to calculate the standard for rent subsidies. The gap between FMR and wages is large – staggering even for some rural communities such as Ingham County where only 42% of the county are renters but need to earn $17.46 an hour just to afford an FMR two-bedroom rental. But that potential gap only becomes more problematic when you consider the criteria that goes into calculating FMR, the size of the county or metropolitan area, and range of quality housing opportunities within it.
FMR is used by the U.S. Department of Housing and Urban Development (HUD) to determine the amount of subsidy allowed for programs such as Housing Choice Vouchers (HCV) and other federally funded programs. This is important to the estimated 55,000 Michigan households that receive HCVs in order to offset the amount of rent they pay for housing. In its most simple terms, the HCV program assists qualifying households to rent a unit of their choosing, within certain guidelines. The household must pay 30% of its monthly adjusted gross income on rent and utilities for that unit. The HCV covers the remainder of rent and utilities as negotiated between the landlord and the local Public Housing Authority (PHA) which administers the HCV program.
FMR thus plays a crucial role in determining the payment standard used in negotiating rent between the PHA and the landlord. But is FMR created in a way that adequately reflects local housing trends? Though calculated at the county or metropolitan area and released annually by HUD, FMR calculations rely on data sets that may not be as local or timely. Currently, these calculations incorporate changes in gross rents as identified in the American Community Survey (ACS), inflation measured by the Consumer Price Index (CPI), and a trend factor.
Does FMR Limit Opportunity?
Critics of the current FMR methodology point to several main concerns focused on the lack of current data, the difficulty in localizing FMR to smaller areas, and the complexity of the formulas which force local agencies to conduct costly rent surveys in order to understand and navigate their market. Without contextualized local market understandings, critics argue, FMR can disproportionately force HCV holders into lower-income areas where rents are cheaper and their voucher amount can actually meet rent demands. This is of course if they can even find a landlord that will accept their voucher rather than select a private market tenant that can pay above the rent standard in a tight rental market. All of this results in further segregation of communities and, in direct contradiction to the value of an HCV that emphasizes tenant choice and mobility, limits the neighborhoods that are open to low-income families.
In 2016, HUD attempted to address concerns regarding local data with a ruling that established the option, and for 24 metro areas required the use of, Small Area FMRs (SAFMR). Though encouraging for advocates concerned about FMR limiting mobility into high opportunity zones, this ruling has also created new concerns regarding the impact on overall affordability, an increase in voucher expenses leading to fewer available subsidies, and potential unintended consequences for established voucher households that could see an FMR decrease for their area.
HUD’s Proposed Changes
In order to address advocate and agency concerns regarding ongoing issues with FMR calculations, HUD is accepting public comment through July 5 on 2 proposed methodological changes to better reflect timely, local data.
- Trend Factor Changes – would change the CPI data in this calculation from national to local. Since this is only available for areas which cover about 42% of HCV holders, unique forecast models will be utilized, potentially resulting in changes to the model as new local data becomes available and incorporated.
- Neighboring Zip Codes Instead of County-Based SAFMR – neighborhood-level rents in metro areas can vary widely across zip codes, producing SAFMR that are equal to metropolitan or county FMR values. This proposal looks to neighboring Zip Code Tabulation Area (ZCTA) to calculate a weighted average for FMR rather than a county proxy.
Let’s go back to that Ingham County example to see how the proposed changes could impact FMR calculations. The FY2019 FMR for a two-bedroom apartment for the entire county is $908. This is for all 21 cities and townships in the county – from the populous Lansing to the college town of East Lansing and the surrounding rural communities. Under Proposal 1 (Trend Factor Changes), that FMR for the Lansing/East Lansing metro would decrease by $2 to $906 for a two-bedroom rental. Under Proposal 2 (Neighboring Zip Codes), the FMR could remain constant or increase by as much as $152 to $1,060 for a two-bedroom rental, depending on the zip code.
Again, each proposal creates new challenges and prompts questions for agencies working to house Michigan HCV holders, but both also acknowledge the need for more timely, local, and flexible calculations to accommodate what Michigan communities are seeing as a mismatch between FMR and actual market rents.
Can FMR changes create real housing choice?
While MCAH will not be providing guidance regarding which proposal will have the greatest positive impact for Michigan, we do encourage agencies to look at the proposals and accompanying data and submit your comment before the July 5 deadline. The Oakland County Continuum of Care, Alliance for Housing, submitted comments provide a helpful analysis of the local impact of these proposals, their concerns, and their overall appreciation for more localized data to be incorporated into FMR calculations.
Regardless of how HUD tackles the need for FMR calculation changes, we support the need to better align Michigan rents with wages, including subsidies such as HCV. We also acknowledge the need to expand protections and opportunities for HCV holders, such as with our source of income discrimination advocacy work which could increase mobility into higher opportunity neighborhoods, desegregate our communities, and allow greater choice for Michigan low-income households.
By Laurel Burchfield, MCAH Manager of Marketing, Growth, and Development. You can contact her at: firstname.lastname@example.org.