Small Area FMRs – What Will They Mean for Landlords?

The Small Area Fair Market Rent (SAFMR) program may have many effects on the subsidized housing landlords.  One of the desired outcomes may be that lower income tenants will have the opportunity to move to housing in higher cost neighborhoods.  However, another effect may be that landlords in lower cost neighborhoods will see a loss of income and become reluctant to rent to Housing Choice Voucher tenants.

Each year, HUD calculates and publishes Fair Market Rents (FMRs).  The FMRs are the basis for determining payments made to landlords on behalf of lower income tenants for a variety of programs, primarily the Housing Choice Voucher.  FMRs are set for an area, most often a county or metropolitan area, and represent the amount that would have to be paid for housing (including rent plus utilities) for privately owned, decent and safe rental housing with suitable amenities within the area.  The FMR is set so that most housing within the area, excluding luxury units, would be affordable to a tenant holding a Housing Choice Voucher.

However, because counties can be very large and diverse, especially in densely developed metropolitan areas, there are some neighborhoods where the FMR is much too low to allow Voucher holding tenants to rent, and in other neighborhoods, the FMR is more than the surrounding submarket rents.  In order to try to adjust the FMR system to these market areas, HUD has developed the Small Area FMR (SAFMR), publishing applicable rents for the Housing Choice Voucher (HCA) and Moderate Rehabilitation Single Room Occupancy programs on October 5, 2012. 

The SAFMR is calculated for a ZIP code using a ratio of the rents within the ZIP code area compared to the countywide FMR.  The result is that in some higher cost neighborhoods, the SAFMR is higher than the countywide FMR and in other neighborhoods the SAFMR is lower than the countywide FMR.

In order to test the use of the SAFMRs, HUD has set up a demonstration program, inviting Public Housing Authorities (PHAs) that met certain qualifications to participate. An initial test was announced August 4, 2010, when it was announced that SAFMRs would be used in the 8-county Dallas, TX Metropolitan Fair Market Rent Area (MHFA).  Because of the severe economic effect on developments with Project-Based Vouchers, in a June 8, 2011 Notice, HUD “clarified” that the SAFMRs would not apply to those developments that had PBV Housing Assistance Payment contracts before the effective date of the demonstration, and could continue to use area-wide FMRs.

On November 20, 2012, HUD announced that five PHAs had accepted invitations to participate, including the Housing Authority of Long Beach, CA.

The SAFMR program will have many effects on the Housing Choice Voucher program.  One of the desired outcomes may be that Voucher tenants will have the opportunity to move to housing in higher cost neighborhoods.  However, another effect may be that landlords in lower cost neighborhoods, where the SAFMR will pay less than the traditional countywide FMR would support, will see a loss of income and become reluctant to rent to Housing Choice Voucher tenants.  For rental housing developed with public subsidy, such as Low-Income Housing Tax Credits, or below market rate and deferred loans from public agencies, there may be a loss of revenue that could threaten the long-term viability of the development, and discourage those landlords from accepting Voucher tenants, excluding the lowest income residents from the subsidized housing.

Over the long-term, the SAFMR program, if expanded to other regions, may discourage development of new subsidized housing in lower rents neighborhoods due to the lower rents available from Voucher tenants.  While this may result in more subsidized housing being developed in higher cost areas, resulting in greater economic integration, it may also lead to disinvestment in lower cost communities where subsidized housing development helps to stabilize and improve the neighborhood.

The SAFMR demonstration should be closely monitored to see what the results are for the residents of the participating cities.