Federal Register, Volume 78 Issue 192 (Thursday, October 3, 2013)

[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61668-61742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24155]

[[Page 61667]]

Vol. 78

Thursday,

No. 192

October 3, 2013

Part VI

Department of Housing and Urban Development

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Final Fair Market Rents for the Housing Choice Voucher Program and
Moderate Rehabilitation Single Room Occupancy Program Fiscal Year 2014;
Notice

Federal Register / Vol. 78, No. 192 / Thursday, October 3, 2013 /
Notices

[[Page 61668]]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5725-N-02]

Final Fair Market Rents for the Housing Choice Voucher Program
and Moderate Rehabilitation Single Room Occupancy Program Fiscal Year
2014

AGENCY: Office of the Assistant Secretary for Policy Development and
Research, HUD.

ACTION: Notice of Final Fiscal Year (FY) 2014 Fair Market Rents (FMRs).

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SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937
(USHA) requires the Secretary to publish FMRs periodically, but not
less than annually, adjusted to be effective on October 1 of each year.
This notice publishes the FMRs for the Housing Choice Voucher, the
Moderate Rehabilitation, the project-based voucher, and any other
programs requiring their use. Today's notice provides final FY 2014
FMRs for all areas that reflect the estimated 40th and 50th percentile
rent levels trended to April 1, 2014. The FY 2014 FMRs are based on 5-
year, 2007-2011 data collected by the American Community Survey (ACS).
These data are updated by one-year recent-mover 2011 ACS data for areas
where statistically valid one-year ACS data are available. The Consumer
Price Index (CPI) rent and utility indexes are used to further update
the data from 2011 to the end of 2012. HUD continues to use ACS data in
different ways according to the statistical reliability of rent
estimates for areas of different population sizes and counts of rental
units.
The final FY 2014 FMR areas are based on Office of Management and
Budget (OMB) metropolitan area definitions as updated through December
1, 2009 and include HUD modifications that were first used in the
determination of FY 2006 FMR areas. The February 28, 2013 OMB Area
definition update has not been incorporated in the FMR process due to
the timing of the release and the availability of ACS data. HUD will
work toward incorporating these new area definitions into the Proposed
FY 2015 FMR calculations; however, this is dependent on the
availability of ACS data conforming to the new area definitions.
The final FY 2014 FMRs in this notice reflect several updates from
FY 2013 to the methodology used to calculate FMRs. Specifically, HUD
has updated the information used to calculate FMRs in Puerto Rico.
Puerto Rico FMRs are now based on 2007-2011 Puerto Rico Community
Survey (PRCS) data (the PRCS is a part of the ACS program). Moreover,
HUD is using Consumer Price Index data calculated specifically for
Puerto Rico rather than using South Census Region CPI data. In response
to comments on the proposed notice, HUD has also adjusted the FMRs for
Puerto Rico based on validated information related to utility rates.
HUD will continue to refine its methodology for incorporating validated
utility rates into FMR calculations, as appropriate, in future notices.
The remaining methodology used to calculate FMRs remains the same,
including the use of the annually updated trend factor calculation
methodology. This trend factor for the FY 2014 FMRs is based on the
change in national gross rents from 2006 to 2011.
The FMR for Danbury, CT was updated to incorporate the results of a
survey. This survey was not available in time for inclusion in the
proposed FY 2014 FMRs and results in an increase.

DATES: Effective Date: The FMRs published in this notice are effective
on October 1, 2013.

FOR FURTHER INFORMATION CONTACT: For technical information on the
methodology used to develop FMRs or a listing of all FMRs, please call
the HUD USER information line at 800-245-2691 or access the information
on the HUD USER website http://www.huduser.org/portal/datasets/fmr.html. FMRs are listed at the 40th or 50th percentile in Schedule B.
For informational purposes, 40th percentile recent-mover rents for the
areas with 50th percentile FMRs will be provided in the HUD FY 2014 FMR
documentation system at http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14 and 50th percentile rents for all FMR areas
will be published at http://www.huduser.org/portal/datasets/50per.html
after publication of final FY 2014 FMRs.
Questions related to use of FMRs or voucher payment standards
should be directed to the respective local HUD program staff. Questions
on how to conduct FMR surveys or concerning further methodological
explanations may be addressed to Marie L. Lihn or Peter B. Kahn,
Economic and Market Analysis Division, Office of Economic Affairs,
Office of Policy Development and Research, telephone 202-708-0590.
Persons with hearing or speech impairments may access this number
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339. (Other than the HUD USER information line and TDD numbers,
telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing
assistance to aid lower-income families in renting safe and decent
housing. Housing assistance payments are limited by FMRs established by
HUD for different geographic areas. In the HCV program, the FMR is the
basis for determining the ``payment standard amount'' used to calculate
the maximum monthly subsidy for an assisted family (see 24 CFR
982.503). In general, the FMR for an area is the amount that would be
needed to pay the gross rent (shelter rent plus utilities) of privately
owned, decent, and safe rental housing of a modest (non-luxury) nature
with suitable amenities. In addition, all rents subsidized under the
HCV program must meet reasonable rent standards. HUD's regulations at
24 CFR 888.113 permit it to establish 50th percentile FMRs for certain
areas.
Electronic Data Availability: This Federal Register notice is
available electronically from the HUD User page at http://www.huduser.org/datasets/fmr.html. Federal Register notices also are
available electronically from http://www.gpoaccess.gov/fr/index.html,
the U.S. Government Printing Office Web site. Complete documentation of
the methodology and data used to compute each area's final FY 2014 FMRs
is available at http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14. Final FY 2014 FMRs are available in a variety
of electronic formats at http://www.huduser.org/portal/datasets/fmr.html. FMRs may be accessed in PDF format as well as in Microsoft
Excel. Small Area FMRs based on final FY 2014 Metropolitan Area Rents
are available in Microsoft Excel format at the same web address. Please
note that these Small Area FMRs are for reference only, except where
they are used by PHAs participating in the Small Area FMR
demonstration.

II. Procedures for the Development of FMRs

Section 8(c) of the USHA requires the Secretary of HUD to publish
FMRs periodically, but not less frequently than annually. Section 8(c)
states, in part, as follows:
Proposed fair market rentals for an area shall be published in the
Federal Register with reasonable time for public comment and shall
become effective upon the date of publication in final form in the
Federal Register. Each fair market rental in effect under this
subsection shall be adjusted to be

[[Page 61669]]

effective on October 1 of each year to reflect changes, based on the
most recent available data trended so the rentals will be current for
the year to which they apply, of rents for existing or newly
constructed rental dwelling units, as the case may be, of various sizes
and types in this section.
HUD's regulations at 24 CFR part 888 provide that HUD will develop
proposed FMRs, publish them for public comment, provide a public
comment period of at least 30 days, analyze the comments, and publish
final FMRs. (See 24 CFR 888.115.) For FY 2014 FMRs, HUD has considered
all comments submitted in response to its August 5, 2013 (78 FR 47339)
proposed FY 2014 FMRs and provides its responses later in this
preamble.
In addition, HUD's regulations at 24 CFR 888.113 set out procedures
for HUD to assess whether areas are eligible for FMRs at the 50th
percentile. Minimally qualified areas \1\ are reviewed each year unless
not qualified to be reviewed. Areas that currently have 50th percentile
FMRs are evaluated for progress in voucher tenant concentration after
three years in the program. Continued eligibility is determined using
HUD administrative data that show levels of voucher tenant
concentration. The levels of voucher tenant concentration must be above
25 percent and show a decrease in concentration since the last
evaluation. At least 85 percent of the voucher units in the area must
be used to make this determination. Areas are not qualified to be
reviewed if they have been made a 50th-percentile area within the last
three years or have lost 50th-percentile status for failure to de-
concentrate within the last three years.
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\1\ As defined in 24 CFR 888.113(c), a minimally qualified area
is an area with at least 100 Census tracts where 70 percent or fewer
of the Census tracts with at least 10 two-bedroom rental units are
Census tracts in which at least 30 percent of the two bedroom rental
units have gross rents at or below the two bedroom FMR set at the
40th percentile rent. This continues to be evaluated with 2000
Decennial Census information. Although the 5-year ACS tract level
data is available, HUD plans to implement new 50th percentile areas
in conjunction with the implementation of new OMB area definitions.
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In FY 2013 there were 20 areas using 50th-percentile FMRs. Of these
20 areas, only one area, the Bergen-Passaic, NJ HMFA, has completed
three years of program participation and is due for re-evaluation.
Voucher tenant concentration in the Bergen-Passaic, NJ HMFA has
decreased below what is required to be eligible for a 50th percentile
FMR and the area has ``graduated'' from the 50th percentile program.
Under current 50th percentile regulations, the Bergen-Passaic, NJ HMFA
will be evaluated annually and may return to the program in the future.
In summary, there will be 19 50th-percentile FMR areas in FY 2014.
These areas are indicated by an asterisk in Schedule B, where all FMRs
are listed by state. The following table lists the FMR areas along with
the year of their next evaluation.

FY 2014 50th-Percentile FMR Areas and Year of Next Reevaluation
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Austin-Round Rock-San Marcos, TX MSA.......... 2015 Sacramento--Arden-Arcade--Roseville, 2015
CA HUD Metro FMR Area.
Fort Worth-Arlington, TX HUD Metro FMR Area... 2015 Tucson, AZ MSA........................ 2015
Hartford-West Hartford-East Hartford, CT HUD 2015 Virginia Beach-Norfolk-Newport News, 2015
Metro FMR Area. VA-NC MSA.
Honolulu, HI MSA.............................. 2015 Baltimore-Towson, MD HUD Metro FMR 2016
Area.
Houston-Baytown-Sugar Land, TX HUD Metro FMR 2015 Fort Lauderdale, FL HUD Metro FMR Area 2016
Area.
Las Vegas-Paradise, NV MSA.................... 2015 New Haven-Meriden, CT HUD Metro FMR 2016
Area.
North Port-Bradenton-Sarasota, FL MSA......... 2015 Philadelphia-Camden-Wilmington, PA-NJ- 2016
DE-MD MSA.
Orange County, CA HUD Metro FMR Area.......... 2015 Richmond, VA HUD Metro FMR Area....... 2016
Phoenix-Mesa-Glendale, AZ MSA................. 2015 West Palm Beach-Boca Raton, FL HUD 2016
Metro FMR Area.
Riverside-San Bernardino-Ontario, CA MSA...... 2015
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III. Proposed FY 2014 FMRs

On August 5, 2013 (78 FR 47339), HUD published proposed FY 2014
FMRs with a comment period that ended September 4, 2013. HUD has
considered all public comments received and HUD provides responses to
these comments later in this preamble. HUD does not specifically
identify each commenter, but all comments are available for review on
the Federal Government's Web site for capturing comments on proposed
regulations and related documents (Regulations.gov-- http://www.regulations.gov/%23!docketDetail;D=HUD-2013-0073).

IV. FMR Methodology

This section provides a brief overview of how the FY 2014 FMRs are
computed. For complete information on how FMR areas are determined, and
on how each area's FMRs are derived, see the online documentation at
http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14.
The FY 2014 FMRs are based on current OMB metropolitan area
definitions and standards that were first used in the FY 2006 FMRs. OMB
changes to the metropolitan area definitions through December 2009 are
incorporated. The February 28, 2013 OMB area definition update has not
been incorporated in the FMR process due to the timing of the release
and the availability of ACS data. HUD will work toward incorporating
these new area definitions into the Proposed FY 2015 FMR calculations;
however, this is dependent on the availability of ACS data conforming
to the new area definitions.

A. Base Year Rents

The U.S. Census Bureau provided special tabulations of 5-year ACS
data collected between 2007 through 2011 to HUD in June 2013. For FY
2014 FMRs, HUD updates the base rents set in FY 2013 using the 2006-
2010 5-year data with the 2007-2011 5-year ACS data.\2\
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\2\ The only difference in survey data between the 2006-2010 5-
year ACS data and the 2007-2011 5-year ACS data is the replacement
of 2006 survey responses with survey responses collected in 2011.
The 2007, 2008, 2009, and 2010 survey responses remain intact.
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FMRs are historically based on gross rents for recent movers (those
who have moved into their current residence in the last 24 months).
However, due to the way the 5-year ACS data are constructed, HUD
developed a new methodology for calculating recent-mover FMRs in FY
2012. As in FY 2013 FMRs, all areas are assigned as a base rent the
estimated two-bedroom

[[Page 61670]]

standard quality 5-year gross rent from the ACS.\3\ Because HUD's
regulations mandate that FMRs must be published as recent mover gross
rents, HUD continues to apply a recent mover factor to the standard
quality base rents assigned from the 5-year ACS data. Calculation of
the recent mover factor is described in section B below.
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\3\ For areas with a two-bedroom standard quality gross rent
from the ACS that have a margin of error greater than the estimate
or no estimate due to inadequate sample in the 2011 5-year ACS, HUD
uses the two-bedroom state non-metro rent for non-metro areas.
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The 2011 ACS is not used as the base rent for 11 areas based on
surveys conducted in 2012 and 2013 by HUD or by PHAs. The FY 2013 FMRs
were revised for seven areas, based on surveys conducted in 2012 by the
PHA (for Hood River, OR) and by HUD (for Cheyenne, WY, Odessa, TX,
Burlington, VT, Mountrail County, ND, Ward County, ND, and Williams
County, ND). Two surveys conducted by HUD in 2012 were not included in
the revised FY 2013 FMR publications because HUD wanted to provide the
opportunity to comment on the proposed decreases. The survey results
for these areas (Flagstaff, AZ and Rochester, MN) replaced the base
rent of the 2011 ACS for the proposed FY 2014 FMRs. The PHAs that
administer programs in the Oakland, CA metropolitan area conducted a
survey in 2013, and submitted results in time to replace the 2011 ACS
base rent for the proposed FMRs. The Danbury, CT survey conducted by
HUD was not completed in time to be included in the proposed FY 2014
publication, but is included in this final publication.

B. Recent Mover Factor

The calculation of the recent mover factor for FY 2014 is similar
to the methodology used in FY 2013, with the only difference being the
use of updated ACS data. As described below, HUD calculates a similar
percentage increase as the FY 2013 factor using data from the smallest
geographic area containing the FMR area where the recent mover gross
rent is statistically reliable.\4\ The following describes the process
for determining the appropriate recent mover factor.
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\4\ For the purpose of the recent mover factor calculation,
statistically reliable is where the recent mover gross rent has a
margin of error that is less than the estimate itself.
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In general, HUD uses the 1 year ACS-based two-bedroom recent mover
gross rent estimate from the smallest geographic area encompassing the
FMR area for which the estimate is statistically reliable to calculate
the recent mover factor. HUD calculates some areas' recent mover
factors using data collected just for the FMR area. Other areas' recent
mover factors are based on larger geographic areas. For metropolitan
areas that are sub-areas of larger metropolitan areas, the order is
subarea, metropolitan area, state metropolitan area, and state.
Metropolitan areas that are not divided follow a similar path from FMR
area, to state metropolitan areas, to state. In nonmetropolitan areas
the recent mover factor is based on the FMR area, the state
nonmetropolitan area, or if that is not available, on the basis of the
whole state. The recent mover factor is calculated as the percentage
change between the 5-year 2007-2011 standard quality two-bedroom gross
rent and the 1 year 2011 recent mover two-bedroom gross rent for the
recent mover factor area. Recent mover factors are not allowed to lower
the standard quality base rent; therefore, if the 5-year standard
quality rent is larger than the comparable 1 year recent mover rent,
the recent mover factor is set to 1. The process for calculating each
area's recent mover factor is detailed in the FY 2014 Final FMR
documentation system available at: http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14. This process produces an ``as
of'' 2011 recent mover two-bedroom base gross rent for the FMR area.\5\
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\5\ The ACS is not conducted in the Pacific Islands (Guam,
Northern Marianas and American Samoa) or the U.S. Virgin Islands. As
part of the 2010 Decennial Census, the Census Bureau conducted a
``long-form'' sample surveys for these areas. The results gathered
by this long form survey were expected to be available late in 2012;
however, these data have not yet become available. Therefore, HUD
uses the national change in gross rents, measured between 2010 and
2011 to update last year's FMRs for these areas.
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C. Updates From 2011 to 2012

The ACS-based ``as of'' 2011 rent is updated through the end of
2012 using the annual change in CPI from 2011 to 2012. As in previous
years, HUD uses Local CPI data coupled with Consumer Expenditure Survey
(CEX) data for FMR areas with at least 75 percent of their population
within Class A metropolitan areas covered by local CPI data. HUD uses
Census region CPI data for FMR areas in Class B and C size metropolitan
areas and nonmetropolitan areas without local CPI update factors.
Additionally, HUD is using CPI data collected locally in Puerto Rico as
the basis for CPI adjustments from 2011 to 2012 for all Puerto Rico FMR
areas. Following the application of the appropriate CPI update factor,
HUD converts the ``as of'' 2012 CPI adjusted rents to ``as of''
December 2012 rents by multiplying each rent by the national December
2012 CPI divided by the national annual 2012 CPI value. HUD does this
in order to apply an exact amount of the annual trend factor to place
the FY 2014 FMRs as of the mid-point of the 2014 fiscal year.

D. Trend From 2012 to 2014

As in FY 2013, HUD continues to calculate the trend factor as the
annualized change in median gross rents as measured across the most
recent 5 years of available 1 year ACS data. The national median gross
rent in 2006 was $763 and $871 in 2011. The overall change between 2006
and 2011 is 14.15 percent and the annualized change is 2.68 percent.
Over a 15-month time period, the effective trend factor is 3.365
percent.

E. Bedroom Rent Adjustments

HUD calculates the primary FMR estimates for two-bedroom units.
This is generally the most common sized rental unit and, therefore, the
most reliable to survey and analyze. Formerly, after each decennial
Census, HUD calculated rent relationships between two-bedroom units and
other unit sizes and used them to set FMRs for other units. HUD did
this because it is much easier to update two-bedroom estimates annually
and to use pre-established cost relationships with other bedroom sizes
than it is to develop independent FMR estimates for each bedroom size.
When calculating FY 2013 FMRs, HUD updated the bedroom ratio adjustment
factors using 2006-2010 5-year ACS data using similar methodology to
what was implemented when calculating bedroom ratios using 2000 Census
data to establish rent ratios. The bedroom ratios used in the
calculation of FY 2014 FMRs were unchanged from those calculated using
2006-2010 ACS data. The bedroom ratios for Puerto Rico were calculated
for the FY 2014 FMRs using the 2006-2010 Puerto Rico Community survey.
HUD will continue to use the same bedroom ratios until the 5-year ACS
from 2011-2015 is released, probably in time for the FY 2018 FMRs.
HUD established bedroom interval ranges based on an analysis of the
range of such intervals for all areas with large enough samples to
permit accurate bedroom ratio determinations. These ranges are:
Efficiency FMRs are constrained to fall between 0.59 and 0.81 of the
two-bedroom FMR; one-bedroom FMRs must be between 0.74 and 0.84 of the
two-bedroom FMR; three-bedroom FMRs must be between 1.15 and 1.36 of
the two-bedroom FMR; and four-bedroom FMRs must be between 1.24 and
1.64 of the two-

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bedroom FMR. (The maximums for the three-bedroom and four-bedroom FMRs
are irrespective of the adjustments discussed in the next paragraph.)
HUD adjusts bedroom rents for a given FMR area if the differentials
between bedroom-size FMRs were inconsistent with normally observed
patterns (i.e., efficiency rents are not allowed to be higher than one-
bedroom rents and four-bedroom rents are not allowed to be lower than
three-bedroom rents). The bedroom ratios for Puerto Rico follow these
constraints.
HUD further adjusts the rents for three-bedroom and larger units to
reflect HUD's policy to set higher rents for these units than would
result from using unadjusted market rents. This adjustment is intended
to increase the likelihood that the largest families, who have the most
difficulty in leasing units, will be successful in finding eligible
program units. The adjustment adds 8.7 percent to the unadjusted three-
bedroom FMR estimates and adds 7.7 percent to the unadjusted four-
bedroom FMR estimates. The FMRs for unit sizes larger than four
bedrooms are calculated by adding 15 percent to the four-bedroom FMR
for each extra bedroom. For example, the FMR for a five-bedroom unit is
1.15 times the four-bedroom FMR, and the FMR for a six-bedroom unit is
1.30 times the four-bedroom FMR. FMRs for single-room occupancy units
are 0.75 times the zero-bedroom (efficiency) FMR.
For low-population, nonmetropolitan counties with small or
statistically insignificant 2006-2010 5-year ACS recent-mover rents,
HUD uses state non-metropolitan data to determine bedroom ratios for
each bedroom size. HUD made this adjustment to protect against
unrealistically high or low FMRs due to insufficient sample sizes.

V. Manufactured Home Space Surveys

The FMR used to establish payment standard amounts for the rental
of manufactured home spaces (pad rentals including utilities) in the
HCV program is 40 percent of the FMR for a two-bedroom unit. HUD will
consider exceptions of the manufactured home space FMRs where public
comments present statistically valid survey data of manufactured home
space rent (including the cost of utilities) for the entire FMR area.
All approved exceptions to these rents based on survey data that
were in effect in FY 2013 were updated to FY 2014 using the same data
used to estimate the HCV program FMRs. This computation is compared to
the new payment standard of 40 percent of the new two-bedroom FMR for
the area, and if higher, the exception remains and is listed in
Schedule D. No additional exception requests were received in the
comments to the FY 2014 FMRs and all areas with manufactured housing
exception rents in FY 2013 continued to have exception rents for FY
2014.

VI. Small Area Fair Market Rents

Public housing authorities in the Dallas, TX HMFA, along with the
Housing Authority of the County of Cook (IL), the City of Long Beach
(CA) Housing Authority, the Chattanooga, (TN) Housing Authority, the
Town of Mamaroneck (NY) Housing Authority, and the Laredo, (TX) Housing
Authority continue to be the only PHAs managing their voucher programs
using Small Area Fair Market Rents (SAFMRs). These FMRs are listed in
the Schedule B addendum. The department is working to secure more
housing authority participants in its Small Area FMR Demonstration
program.
SAFMRs are calculated using a rent ratio determined by dividing the
median gross rent across all bedrooms for the small area (a ZIP code)
by the similar median gross rent for the metropolitan area of the ZIP
code. This rent ratio is multiplied by the current two-bedroom rent for
the entire metropolitan area containing the small area to generate the
current year two-bedroom rent for the small area. In small areas where
the median gross rent is not statistically reliable, HUD substitutes
the median gross rent for the county containing the ZIP code in the
numerator of the rent ratio calculation. For FY 2014 SAFMRs, HUD
continues to use the rent ratios developed in conjunction with the
calculation of FY 2013 FMRs based on 2006-2010 5-year ACS data.\6\
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\6\ HUD has provided numerous detailed accounts of the
calculation methodology used for Small Area Fair Market Rents.
Please see our Federal Register notice of April 20, 2011 (76 FR
22125) for more information regarding the calculation methodology.
Also, HUD's Final FY 2014 FMR documentation system available at
(http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14) contains detailed calculations for each ZIP
code area in participating jurisdictions.
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VII. Public Comments

A. Overview

A total of 59 comments were received and posted on the
regulations.gov site (http://www.regulations.gov/#!docketDetail;D=HUD-
2013-0073), which is also linked on the HUD User FMR page http://www.huduser.org/portal/datasets/fmr.html). Most comments contested FMR
reductions compared with the FY 2013 FMRs and some contested reductions
in FMRs over several years. A majority of the comments, assisted by a
form letter provided by an advocacy organization, criticized the
variability in FMRs from year-to-year for smaller metropolitan and
nonmetropolitan areas and requested an analysis of the FY 2006 FMRs
compared with the 2006 one-year data. Decreases of any level were
opposed especially for certain HUD programs and other programs that use
FMRs but do not allow flexibility in applying FMRs. Two PHAs from
different FMR areas notified HUD of their intent to conduct surveys to
adjust their rents and several areas requested HUD to conduct surveys
of their areas. Several comments requested that HUD hold the FY 2014
FMRs harmless, that is they wanted the FMR to remain at the FY 2013
level, or some earlier level if it would otherwise be lower. In
addition to, or instead of, implementing a hold harmless policy,
several comments asked HUD to limit annual increases and decreases of
FMRs to five percent, or at the very least impose a hard floor of five
percent on decreases.
While HUD has been able to use such measures in constraining income
limit increases and decreases, HUD is specifically precluded from
incorporating these changes into the FMR methodology by the statutory
language governing FMRs requiring the use of the most recent available
data. As stated in previous FMR notices, HUD's Housing Choice Voucher
program counsel reviewed the statutory language governing the
calculation of FMRs to determine if the Department has the authority to
institute caps and floors on the amount the FMRs could change annually.
Based on this review, HUD's program counsel issued a legal opinion that
HUD CANNOT impose floors or caps in changes in FMRs because this would
violate the portion of the statute that directs HUD to use the most
current data available. The legal opinion is that the statute needs to
be changed in order for HUD to implement these types of caps and
floors. No statutory changes regarding the use of the most recent
available data have since been enacted; consequently, HUD does not have
the authority to use a hold harmless policy or other policy which would
permit HUD to impose caps and floors on FMR changes. HUD is required to
use the most recent available data and FMRs must increase or decrease
based on this data. Ignoring decreases or phasing decreases or
increases in over several years would not fully implement FMRs based on
the most recent available data. Comments formulated using the
assistance of the aforementioned form letter also posed the question of
whether

[[Page 61672]]

or not the statutory changes to FMR provisions requested by the
Department in recent budget requests would address the Department's
inability to implement limits on the amount of change in FMRs from year
to year. Statutory changes proposed affecting FMRs in HUD's FY 2014
budget request do not include language that would give the department
the flexibility to implement caps and floors on the FMRs. The statutory
language HUD has included in the FY 2014 budget request is designed
primarily to provide the Department with greater flexibility in the way
FMRs are published each year.
Comments were received that oppose the current methodology used to
define FMR areas. There was no specific request, as in past years, to
use the area definitions last used for the FY 2005 FMRs, nor were there
any recommendations as to how HUD should determine FMR areas. HUD has
not incorporated the new metropolitan area definitions released by the
Office of Management and Budget (OMB) on February 28, 2013 for the FY
2014 FMRs, but will begin to review how to incorporate these new area
definitions. While HUD will work to incorporate these new area
definitions into the Proposed FY 2015 FMRs, based on when the Census
Bureau incorporates the new areas into its data collection and
production, it is possible that HUD may not be able to incorporate the
new metropolitan area definitions into FMRs until the FY 2016 FMRs are
produced.
Several PHAs with lower proposed FY 2014 FMRs relative to FY 2013
or earlier FMRs requested that HUD conduct a survey of rents for their
FMR areas. As stated in the proposed FY 2014 FMR Notice, HUD
anticipates it will have no funds to conduct surveys in FY 2014. While
one area provided data, most of this data could not be accepted as the
basis for changing FMRs because it did not meet the threshold for
representativeness and/or statistical reliability established for
rental survey data to be used in FMR determinations. HUD may not use
data from newspaper ads because these do not represent actual
contracted rents, or rent reasonableness studies as these typically do
not sample units randomly. Other data provided may be acceptable, but
the sources and method of collection must be identified. Data must be
collected randomly and cover the entire rental stock including single-
family units, not just large apartment projects. Single family units
and smaller apartment buildings are an important part of the rental
market and cannot be ignored. HUD did receive notification that two
PHAs in different metropolitan areas are conducting their own surveys
and have sought guidance from HUD on how to conduct the surveys. Any
other PHAs interested in surveys to support changes in FMRs should
review section VIII of this notice for further information regarding
acceptable survey methodology.
For areas that are considering conducting their own surveys, HUD
would caution them to explore all no-cost options as a means of
alleviating problems they are having with low FMRs. HUD has experience
conducting surveys in areas with low or no vacancy rates and this
experience has shown that it is extremely difficult to capture accurate
gross rent levels in tight markets. For that reason, HUD provides
emergency exception payment standards up to 135 percent of the FMR for
the Section 8 voucher program in areas impacted by natural resource
exploration or in presidentially declared disaster areas. PHAs
interested in applying for these emergency payment standards should
contact their local HUD field office. Other programs that use FMRs will
have to pursue similar strategies such as exception payment standards
or hold harmless provisions within the statutory and regulatory
framework governing those programs.

B. Issues Raised in Comments and HUD Responses

In accordance with 24 CFR 888.115, HUD has reviewed the public
comments that have been submitted by the due date and has determined
that there are no comments with ``statistically valid rental survey
data that justify the requested changes.'' The following are HUD's
responses to all known comments received by the comment due date and a
part of the notice record at http://www.regulations.gov/#!docketDetail;D=HUD-2013-0073.
Comment: FMRs should be held harmless at the FY 2013 levels.
Several comments requested that FMRs not be allowed to decline from
their FY 2013 level. Some of these comments asked HUD to delay
implementation of FY 2014 FMRs for their area to allow local housing
authorities to complete a rent survey, or until HUD completes a survey
for them.
HUD Response: HUD cannot ignore the more current 2011 American
Community Survey (ACS) data and allow FMRs to stay the same as they
were for FY 2013, which were based on gross rents from the 2010 ACS,
except for areas where there was a HUD-sponsored or PHA-sponsored
survey. By statute (42 U.S.C. 1437f(c)(1)(B)) and regulation (24 CFR
888.113(e)), HUD is required to use the most current data available.
While rent surveys conducted either by HUD or a PHA would provide more
current data than the ACS, these surveys take about two months to
complete and can be quite expensive. HUD does not have the funds to
conduct any surveys in 2014 and HUD cannot delay the implementation of
FY2014 FMRs while new surveys are being conducted. Areas with
relatively short-term market tightening are not easily measured by rent
surveys. Based on past experience, HUD finds that an area must have
rent increases or declines for a period of at least two years before
changes can be accurately measured by surveys. Should the survey
results show market conditions that are statistically different from
the published FMRs, HUD will revise the Final FY 2014 FMRs. HUD
recommends following the survey guidance available at http://www.huduser.org/portal/datasets/fmr.html for small metropolitan areas
without consistent one-year ACS data and nonmetropolitan areas. For
large areas with significant one-year ACS data, the requirement for
completed recent mover surveys are greater; there must be about 200 2-
BR (or 2-BR and equivalent 1-BR) recent mover surveys completed with a
margin of error of plus or minus 5 percent. HUD will review the results
of these private surveys and will revise the Final FY 2014 FMRs if
warranted.
Comment: The Puerto Rico Community Survey should not be used
because it is seriously deficient. A 2012 publication by the Census
Bureau that analyzed the 2005-2009 Puerto Rico Community Survey (PRCS)
discussed how 20 percent of the population of Puerto Rico is excluded
from the survey.
HUD Response: The 2012 publication did show much lower coverage of
the 2005-2009 PRCS compared with the 2005-2009 ACS, 79.5 percent
compared with 94.2 percent; however, before FY 2014, the FMRs for
Puerto Rico were based on a 2005 telephone survey of Puerto Rico,
conducted by HUD, with even greater coverage issues than the 2009 PRCS.
The FY 2014 FMRs are based on the 2007-2011 PRCS and 2011 PRCS data has
much better coverage than the 2009 PRCS. Based on statics published by
the Census Bureau (available at: http://www.census.gov/acs/www/methodology/coverage_rates_data/index.php) the population coverage
rate of the PRCS is up to 89.2 percent. While the Census does
acknowledge that there would be serious data deficiencies with coverage
rates below 70 percent, the PRCS has a sufficiently high coverage rate
to alleviate this concern and moreover, the

[[Page 61673]]

survey coverage is well above the HUD survey conducted in 2005.
Comment: The FMR decreases do not reflect the reality of the rental
market in Puerto Rico. The majority of rental units do not include
utilities and utility rates have recently been substantially increased.
HUD Response: HUD has reviewed the utility data referenced in the
comments for the entire island of Puerto Rico and has made changes to
the FY 2014 Final FMRs. These data included average consumption amounts
and the increase in the rates which made it possible for HUD to
determine a utility adjustment for each FMR bedroom size that would be
applied uniformly across all areas, as the rate changes by these state-
owned utilities are also being applied. The table below shows the fixed
amount that is added to the proposed FY 2014 FMRs at each bedroom count
level in all Puerto Rico FMR areas.

Additions to Puerto Rico Proposed FMRs To Account for Recent Utility Rate Increases
--------------------------------------------------------------------------------------------------------------------------------------------------------
0-Bedroom 1-Bedroom 2-Bedroom 3-Bedroom 4-Bedroom
--------------------------------------------------------------------------------------------------------------------------------------------------------
Utility Adjustment................................................. $20 $25 $35 $40 $50
--------------------------------------------------------------------------------------------------------------------------------------------------------

HUD expects to phase out these increases over time as the utility
rate increases are observed in Puerto Rico data, and will adjust FMRs
as HUD refines its methodology for incorporating data on utility rates.
Comment: Market rents did not decrease in the past year and neither
should FMRs. Several comments were received that stated that market
rents did not decrease over the past year and so FMRs also should not
decrease.
HUD Response: FMRs should not be considered a time series of rent
data for each market in which FMRs are published. FMR data cannot
justify claims that rents in a particular area are increasing,
decreasing, or unchanged. The FMR process is designed to develop the
best estimate of rents for a particular area using the timeliest
available data covering the entire market area; this process does not
take into account whether previous FMRs make sense in light of new
data, and no attempt is made to revise past FMR estimates. Therefore,
year-over-year FMR changes can sometimes seemingly conflict with
perceived market trends.
Annual revisions to all of the underlying data used to estimate
FMRs are now possible with the 5-year ACS data. Because of the nature
of the ACS 5-year tabulations, however, 80 percent of the survey
observations will remain the same from one year to the next. Also, many
small FMR areas rely on update factors based on survey results from a
larger, encompassing geographic area (for example, state-based update
factors used for nonmetropolitan counties). Even if the base rent is
not adjusted, therefore, the annual changes in FMRs do not necessarily
reflect very recent changes in the housing market conditions for the
smaller area but still represent HUD's best estimate of 40th-percentile
gross rents in the FMR area.
Comment: FMR decreases do not reflect the annual or recent change
in rents for an area. To seek changes in FMRs, some comments provided
rent reasonableness findings, or rent data from large apartment
projects that show that the rents in their area increased in the past
year, while the FY 2014 FMRs show a decline from the FY 2013 FMRs.
HUD Response: FMRs are estimated rents, and can change from year-
to-year in ways that are different from market rent changes or economic
activity. First, as one commenter noted, when economic activity
decreases, rents don't necessarily decrease and some increased economic
activity that might put pressure on rents cannot be measured in real
time. HUD is required to use the most current data available. HUD is
also precluded from using sources of data that are not statistically
reliable. Rent reasonableness studies are not subject to the same
constraints on statistical reliability and cannot be used to alter
FMRs. Surveys of large apartment projects provide indications of where
the market is going, but do not account for the majority of most
markets made up of single family homes and small apartment buildings
(2-4 units). Much of the apartment project data submitted by the
commenter was for larger apartment projects and represented less than
20 percent of the rental market.
Comment: For the areas affected by Superstorm Sandy, the FY 2014
FMRs cannot go down; HUD should conduct a survey of the area. A
commenter stated that lower income renters were disproportionately
victims of the storm. Their already disadvantaged situation should not
be made worse by a reduction in available assistance at a time when
there is a demonstrated need for increased, not decreased, help.
HUD Response: While there are modest FMR decreases in areas
impacted by Sandy, HUD can continue to allow for the successful
operation of the HCV program through regulatory waivers provided in
disaster areas, and through its emergency exception payment standard
process. The modest decreases in the FMRs can be offset by emergency
payment standards up to 135 percent, depending on current rental
vacancy data and storm damage data. HUD developed the emergency payment
standards as an alternative to conducting surveys which do not work
well in areas where there has been loss of rental housing. Also, for FY
2014, there are no funds available for HUD-conducted surveys.
Comment: HUD should validate its FMR estimation methodology by
comparing one-year ACS data with fiscal year FMRs for the same year,
beginning with a comparison of 2006 one-year ACS rent data to the FY
2006 FMRs. This analysis would determine which aspects of HUD's
discretionary methodology is less accurate and could help HUD modify
its methodology to improve accuracy while adhering to the requirement
to use the most recent data available. The up and down changes that
occur with the final fair market rents cause a lot of problems and
stress for the landlords, tenants and the PHA.
HUD Response: Because the integration of ACS data into the FMR
estimation process has been gradual and evolving, and will continue to
evolve to address issues like volatility in estimates arising from
large sampling variation in smaller markets, there is not yet a basis
for making the suggested comparison. FMR methodology and the underlying
data have been relatively stable only between FY2013 and FY2014 FMRs.
ACS data on recent-mover rents are not yet available for 2013 and 2014.
Further, because the ACS only produces highly reliable estimates of the
40th percentile recent mover 2-bedroom rent in the largest metropolitan
areas, the comparison would only be valid for large markets, and FMRs
have not been particularly volatile in these markets. Finally, the
logic of this comment suggests that HUD should change the FMR
estimation process to a model-based forecast system derived from time-
series-panel data on rents. Again, this methodology would only be valid
for the largest

[[Page 61674]]

metropolitan FMR areas where a highly reliable recent mover rent can be
derived from ACS data. It is not clear that the model would be feasible
and accurate for smaller FMR areas, or how a model-based FMR estimate
would accord with statutory language regarding FMR estimates.
Comment: The year-to-year volatility in FMRs has significant
adverse impacts. A reduction of more than five percent in the published
FMRs triggers a rent reasonableness analysis on the part of the PHA
with jurisdiction over the area (Housing Choice Voucher Guidebook,
directive 7420.10G). If the PHA's analysis finds that the rent being
charged by a property owner is no longer reasonable, the owner will be
required to reduce the rent. If the owner determines that this
reduction will adversely affect the financial stability of the
property, the owner will likely choose to leave the program, and the
tenant will then have to move. Another consequence of a large reduction
in FMRs is that owners may have to defer maintenance items because cash
flows are no longer adequate to cover operating expenses.
Alternatively, higher FMRs force the PHA with jurisdiction over the
area to increase their payment standards and serve far fewer families
within the community. This is detrimental at a time when PHAs are
already stretching the limited amount of funding received from HUD to
help as many families as they can. Increased FMRs will increase the
waiting list for the HCV program and will increase the homeless
population for an area.
HUD Response: In estimating FMRs, HUD must carefully balance the
use of the most local data available with possible volatility of FMRs
from year to year. Most of the large changes in FMRs for smaller
metropolitan and nonmetropolitan counties come from changes in the one-
year ACS data. It is not clear how much of the variation is due to
actual market movement and how much is variability in the ACS sample.
HUD will examine possibly limiting the application of one-year ACS data
based on the size of the margin of error of the estimate of recent
mover rent. Members of the public should be aware, however, that
changes in methodology designed to limit FMR volatility in future years
may result in substantial volatility of FMRs in the year of
implementation.
Comment: The decrease in the FMR for smaller bedroom sizes has a
disproportionate impact on elderly, disabled and homeless programs.
HUD Response: HUD recognizes that the reduction in efficiency and
one-bedroom FMRs impacts these programs and is working to develop new
tools or use existing ones that can alleviate program problems. PHAs
may use Exception Payment Standards at 24 CFR 982.503 (c), or Success
Rate Payment Standards 24 CFR 982.503(e) for certain bedroom sizes, to
the extent allowed.
Comment: The reduction in the recent mover adjustment factor caused
a reduction in FMRs.
HUD Response: While the recent mover adjustment factor cannot be
below one, it can increase or decrease from year to year, just like the
base rent for the FMR. FMRs cannot be held harmless for the reasons
discussed in prior responses.
Comment: Small Area FMRs (SAFMRs) should not be used as the areas
for the Difficult to Develop Areas. ZIP Codes cannot be used to
delineate housing market because ZIP Codes were developed to facilitate
mail delivery. The use of SAFMRs could cause rents to drop
significantly and create a disincentive for investment, and put
existing properties into an unsustainable revenue loss position. While
HUD says it will impose a floor of 10 percent annually if rents
decrease, this is still a substantial drop in revenue for the property.
HUD Response: The use of Small Area FMRs in the determination of
Difficult to Develop Areas (DDAs) in the Low-Income Housing Tax Credit
program is outside of the scope of this notice. However, HUD would like
to point out that the proposed use of Small Area FMRs in the
construction of DDAs was published for public comment in a Federal
Register Notice on October 27, 2011 and that HUD further published a
Federal Register notice on September 28, 2012 which contains HUD's
responses to the comments received.
Comment: The Small Area FMR Demonstration program should have a
better analysis than the three questions listed in an article in
Cityscape: A Journal of Policy Development and Research regarding HUD's
intent to evaluate the demonstration program.
HUD Response: The content of any analysis of the Small Area FMR
Demonstration is beyond the scope of this notice. HUD will, however,
consider any public input it receives regarding the design of the
evaluation of the Small Area FMR demonstration program. In accordance
with HUD's evidence-based policymaking philosophy, HUD will not require
metropolitan housing authorities generally to use Small Area FMRs until
the demonstration has been evaluated, and then only if the evaluation
shows that Small Area FMRs achieve the intended policy objectives.
Comment: Small Area FMRs should be estimated directly from the ZIP
Code Tabulation Area (ZCTA) data published by the Census Bureau; the
data and technology is available to determine FMRs without the use of
the ratio method.
HUD Response: HUD cannot generate FMRs directly from the 5-year
ZCTA data tables because recent mover rents cannot be determined from
5-year ACS data and ZCTA tabulations are only created from the 5-year
data. HUD has maintained the ZCTA-to-metropolitan area rent
relationships based on the 2006-2010 5-year ACS data to ensure
stability of the Small Area FMR estimates. HUD uses the 2011 ACS data
to estimate the metropolitan level rent that is used in conjunction
with the rent ratio to determine the FY 2014 Small Area FMR for each
ZIP Code area.
Comment: FMRs cannot decrease in economic growth areas; some of
these areas cannot manage the voucher program even with modest FMR
increases. Several comments, even pertaining to FMR areas with
decreases below 5 percent, or with modest increases, pressed for higher
FY 2014 FMRs. Some of these areas had very tight markets and some of
these areas already used payment standards at 110 percent of the FMRs.
HUD Response: For rent data, the ACS provides the most current
data, and the 5-year 2007-2011 data is the most current data available
for FMR areas of all sizes. HUD must use the most current statistically
reliable data available. None of the areas that found FMRs too low
because of economic and population growth provided statistically valid
data that could be use to update the proposed FY 2014 FMRs. To help
manage the program during times of FMR decreases, PHAs operating the
Housing Choice Voucher program may be able to use Success Rate Payment
Standards 24 CFR 982.503(e), or request Exception Payment Standards for
subareas within a FMR area (not to exceed 50 percent of the population)
at 24 CFR 982.503 (c), or in severely disrupted rental markets,
emergency payment standards.
Comment: Vacancy rates are low, making it impossible to absorb FMR
decreases. Several comments stated that low or no vacancy rates in
areas with increased economic activity require higher FMRs so that
voucher tenants can compete for housing. In these areas, there is not
sufficient rental housing and generally the 2011 rental data from the
ACS does not reflect this situation.

[[Page 61675]]

HUD Response: When a market tightens rapidly, the FMRs cannot keep
pace. The most accurate, statistically reliable data available to HUD
is lagged by two years. Even if HUD conducts surveys of these areas,
capturing the full scope of rent increases is difficult if the market
condition has been occurring for less than two years; furthermore, it
is challenging to get valid results for surveys of relatively small
housing markets (under 1,000). Most of the areas suffering from very
rapidly tightening market conditions meet one or both of these
criteria. Areas with sustained extremely low vacancy rates require
construction of additional units. Higher FMR levels will not
necessarily encourage additional development. These areas will have to
rely on the use of Exception Payment Standards for subareas within an
FMR area (not to exceed 50 percent of the population) as described at
24 CFR 982.503 (c), or through the use of Success Rate Payment
Standards available at 24 CFR 982.503(e) to alleviate market pressures,
or in severely disrupted rental markets, emergency payment standards.
Comment: FY 2014 FMR decreases reduce the ability of families to
find affordable housing. Several comments stated that decreases in FMRs
would negatively affect tenants' ability to find affordable housing and
therefore should not be implemented. The decrease in FMRs from FY 2013
to FY2014 will reduce the availability of affordable housing in the
area; landlords will be able to get higher rents from tenants that are
not Section 8 voucher holders and so many will opt out of the program.
HUD Response: FMRs must reflect the most current statistically
valid data and this means that FMRs cannot be held harmless when this
data shows a decline. Most of the declines in the FMRs are based on
lower 2011 rents, in a few cases the 2011 to 2012 CPI adjustment
reflects a decline.
Comment: FMR reductions will lead to poverty concentration.
Decreases in the FMR, whether by loss of a 50th percentile FMR status
or by reductions in Small Area FMRs (SAFMRs) lead to poverty
concentration and prevent tenants from moving to areas of opportunity.
HUD Response: HUD is required to increase or decrease FMRs (and
SAFMRs are the FMRs for Dallas) based on the most currently available
data that meets the statistical reliability tests. PHAs may use
Exception Payment Standards to increase payment standards for higher
rent parts of their FMR areas as a means to reduce poverty
concentration. Areas that lost their 50th percentile FMR because they
graduated from the program or failed to show measurable poverty
deconcentration can use higher payment standards as shown at 24 CFR
982.503 (f) to mitigate FMR decreases.
Comment: A significant increase in the FMR is detrimental to
managing the HCV program. PHAs must already stretch the limited amount
of funding received from HUD to help as many families as possible. A
proposed increase will increase the waiting list for the HCV program
and also increase the homeless population. The commenter assumes that
new luxury apartments in the area may be responsible for the increase
in the FMR.
HUD Response: HUD is required to increase or decrease FMRs based on
the most currently available data that meets the statistical
reliability tests. While the commenter assumes that new luxury
apartments in the area may be responsible for the increase in the FMR,
the ACS rent data, which is from 2011, excludes units built in the past
two years, so units built since 2009 are not included in the data set.
Comment: A reduction in the FMRs puts HUD-financed projects and
low-income housing tax credit projects at risk. If a current HUD
Section 8 project uses rents at 110 percent of the FMR, a reduction in
the FMR puts this project at risk. An FMR reduction could mean that
LIHTC landlords will no longer accept Section 8 voucher tenants.
HUD Response: HUD is required to increase or decrease FMRs based on
the most currently available data that meets the statistical
reliability tests. PHAs may use the Exception Payment Standard to
increase payment standards for higher rent areas and reduce poverty
concentration. While there are no project-based exception areas, an
area already at 110 percent of the FMR may be eligible for Success Rate
Payment Standards or a portion of the FMR area may be granted
exceptions above 110 percent, if warranted. PHAs interested in
exploring this option are encouraged to review the FY 2014 Small Area
FMRs published at http://www.huduser.org/portal/datasets/fmr.html in
the section labeled ``Small Area FMRs.'' The manner in which SAFMRs are
calculated makes them ideal to be used as in the ``median rent method''
section of the exception payment standard regulations found at 24 CFR
982.503(c)(2)(A). While certain HUD and non-HUD programs are limited to
the use of the FMR and not the potentially higher payment standard, we
are working to resolve this issue with HUD programs and would suggest
that non-HUD programs also make rule changes to allow for flexibility
during times of decreases in FMRs.
Comment: FY 2014 FMR decreases will require existing tenants to pay
a greater share of their income on rents. Several comments stated that
their current tenants will have to pay a greater share of their income
on rents, with FMR decreases.
HUD Response: New tenants are not allowed to pay more than 40
percent of their income on rent. Existing tenants will not have to pay
rent based on reduced FMRs until the second anniversary of their
Housing Assistance Payment (HAP) contract. If tenant rent burden
increases for an area, PHAs may use this as a justification for higher
payment standards.
Comment: Disabled and difficult-to-place residents suffer a
disproportionately greater impact from FMR decreases because they have
fewer housing choice options. Disabled residents already have fewer
units available to them, and reducing the FMR will further reduce their
options. Difficult to place residents, because of history of late
payments or other issues, will have fewer landlords willing to rent to
them if the FMR is lower.
HUD Response: If an FMR decreases there may be fewer units
available at or below the FMR. However, HUD must use the most current
data available and rents may increase and decrease. The data used as
the basis for FY 2014 FMRs is more current than what was available in
the estimation of the 40th percentile FMRs for FY 2013, so while more
units were available, those rents are being replaced with rents based
on more current information. If a family has a member with a
disability, a PHA may establish a higher payment standard for that
family as a reasonable accommodation as discussed in 24 CFR 982.505(d).
Comment: Construction and/or preservation of affordable housing is
threatened by FMR decreases. In areas where affordable housing
construction is increasing, a reduction in the FMR will reduce the
benefit of existing affordable housing projects and may prevent
additional affordable housing construction. Several areas claim that
there has been an increase in affordable housing production and that
HUD's failure to include units built in the past two years ignores new
affordable housing production, which in turn artificially reduces the
FMR.
HUD Response: HUD has long eliminated rents from units built in the
last two years from its calculation of the 40th percentile FMR. This is
because new units typically receive a premium over other units of the
same size in the

[[Page 61676]]

same area, and may skew the distribution of market rent. Maximum
allowable rents in Low-Income Housing Tax Credit properties are set
based upon 50- or 60-percent income limit levels, or if the payment
standard is higher, this amount can be used for voucher holders. If the
FMR is below the rent determined by the income limit levels, then
generally the income limit rent is used. So if FMRs fall below the
income limit rents, voucher holders would either pay more out of pocket
for units or would be unable to use their voucher for these units.
However, PHAs could use their authority to adjust payment standards
where warranted, to increase FMRs so voucher holders can have access to
these existing units. FMRs are used in the determination of High- and
Low-Rent levels for HOME funded projects. However, when the income
limit hold harmless policy was removed for the FY 2010 Income Limits,
HUD instituted a specific hold harmless provision for HOME rents. A
decrease in the FY 2013 FMR will not necessarily affect HOME rents or
home project funding unless the FMR is lower than the held harmless
income limit rent.
Comment: FMRs in nonmetro counties adjacent to metropolitan areas
should be more like those in the neighboring metropolitan areas.
HUD Response: HUD will not make changes to metropolitan area
composition until it incorporates the February 28, 2013 OMB new
metropolitan area definitions, and it will begin its analysis of these
areas with the FY 2015 FMRs. HUD relies on OMB guidance for determining
metropolitan areas and plans to continue market area definitions based
on income and rent differences of more than 5 percent.
Comment: Homelessness will increase in areas where the FY 2014 FMRs
decreased. Several comments suggest that FMR decreases, even those
under five percent, will reduce the ability of tenants to find units
that meet housing quality standards and will increase homelessness, as
fewer units are available at the lower FMR.
HUD Response: Where market conditions warrant, HUD encourages PHAs
to use Exception Payment Standards and Success Rate Payment Standards
to increase voucher holder's success in finding housing.
Comment: Decreases in FMRs will undo PHAs efforts to maintain a
high success rate; program utilization will be reduced with lower FMRs.
HUD Response: Where market conditions warrant, HUD encourages PHAs
to use Exception Payment Standards and Success Rate Payment Standards
to increase voucher holder's success in finding housing.
Comment: HUD should institute caps and floors to limit annual FMR
changes to five percent. A five percent change in the FMR triggers a
rent reasonableness study, which is costly for cash-strapped PHAs. HUD
should have instituted the same cap and floor of five percent that it
instituted for Income Limits with the FY 2010 Income Limits.
HUD Response: HUD is constrained by legal and regulatory language
for its calculation of FMRs, and therefore cannot ignore the
requirement to use the most current data by only implementing FMR
changes in five percent increments. Statutory and regulatory changes
are required before HUD would be able to implement any methodology
changes to not fully use the most current rent data in setting FMRs. No
such regulation or legislative requirement governs the calculation of
income limits and prior to FY 2010, income limits were held harmless,
that is, not allowed to ever decline. The change to incorporate caps
and floors of up to five percent was a way to remove this hold harmless
policy and create parity with increases and decreases.
Comment: The FY 2014 Small Area FMRs for Dallas do not
affirmatively further fair housing. HUD's 2014 proposed SAFMRs will
perpetuate racial segregation by increasing SAFMRs in the Black and
other predominantly minority ZIP Codes while decreasing SAFMRs in many
majority White ZIP Codes. The landlords for 9,609 of the 9,952 voucher
holders in the less than 10-percent White Zip Codes will have an SAFMR
increase averaging 10 percent more than the 2011 SAFMRs. The landlords
in the 10 majority Black ZIP Codes will have an SAFMR increase
averaging 12 percent over the 2011 SAFMRS. The landlords for only 343
of the 9,952 existing voucher participants in these ZIP Codes will have
a decreased SAFMR that will average 1 percent less than the 2011
SAFMRS. HUD will decrease by 9 percent the SAFMRs for 2,622 of the
voucher participants in those majority White ZIP Codes where SAFMRs
decrease. This is 54 percent of participants in all majority White ZIP
Codes. HUD's 2014 proposed SAFMRs will perpetuate the segregation of
Black voucher participants into predominantly minority areas with
conditions substantially inferior to the conditions in which White
voucher participants are housed.
HUD Response: HUD must follow its statutory and regulatory
requirements to update FMRs using the most current data available. This
means that both increases and decreases must be applied to the Dallas
SAFMRs. A decrease that reflects more current data does not prevent HUD
from affirmatively further fair housing. The data HUD uses in the
calculation of FMRs (both metropolitan-wide and small area FMRs) are
compiled across all survey respondents in a given area and are not
segmented in any way by demographic traits.
Comment: The FMRs are too low and do not reflect market rents; HUD
must conduct a survey of rents.
HUD Response: While rent surveys conducted either by HUD or a PHA
would provide more current data, these surveys take about two months to
complete and are quite expensive. HUD does not anticipate having the
funds to conduct any surveys in FY 2014 and HUD cannot delay the
implementation while any surveys are being conducted. Areas with
relatively short-term market tightening are not easily measured by rent
surveys. Based on past experience, HUD finds that an area must have
rent increases or decreases for a period of at least two years before
it can be measured.
Comment: HUD should publish 2000 decennial Census data to help PHAs
determine exception payment standards.
HUD Response: Data from the 2010 ACS is much more current than the
2000 Decennial Census long form data. Moreover, with the calculation of
Small Area FMRs for metropolitan areas, HUD is relying on the SAFMRs,
published by ZIP Code, to help determine what portions of a
metropolitan area may qualify for exception payment standards. This
data for metropolitan areas only is already available to PHAs at http://www.huduser.org/portal/datasets/fmr/fmrs/index_sa.html&data=fy2014.

VIII. Rental Housing Surveys

In 2011, HUD solicited bidders to study the methodology used to
conduct local area surveys of gross rents to determine if the Random
Digit Dialing (RDD) methodology could be improved upon. The Department
undertook this study due to the increasing costs and declining response
rates associated with telephone surveys. Furthermore, the advent of the
1-year ACS limits the need for surveys in large metropolitan areas.
Based on this research, the Department decided that its survey
methodology should be changed with mail surveys being the preferred
method for conducting surveys, because of the lower cost and greater
likelihood of survey responses. These surveys, however, take almost
twice as long to conduct as prior survey methods took,

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and when response times are most critical, the Department may choose to
conduct random digit dialing surveys as well, as the budget permits.
Unfortunately, the anticipated budget does not permit any surveys to be
conducted in FY 2014. The methodology for both types of surveys along
with the survey instruments is posted on the HUD USER website, at the
bottom of the FMR page in a section labeled Fair Market Rent Surveys
at: http://www.huduser.org/portal/datasets/fmr.html.
Other survey methodologies are acceptable in providing data to
support comments if the survey methodology can provide statistically
reliable, unbiased estimates of the gross rent. Survey samples should
preferably be randomly drawn from a complete list of rental units for
the FMR area. If this is not feasible, the selected sample must be
drawn to be statistically representative of the entire rental housing
stock of the FMR area. Surveys must include units at all rent levels
and be representative of structure type (including single-family,
duplex, and other small rental properties), age of housing unit, and
geographic location. The 2007-2011 5-year ACS data should be used as a
means of verifying if a sample is representative of the FMR area's
rental housing stock.
Most surveys cover only one- and two-bedroom units, which has
statistical advantages. If the survey is statistically acceptable, HUD
will estimate FMRs for other bedroom sizes using ratios based on the
2006-2010 5-year ACS data. A PHA or contractor that cannot obtain the
recommended number of sample responses after reasonable efforts should
consult with HUD before abandoning its survey; in such situations, HUD
may find it appropriate to relax normal sample size requirements.
HUD will consider increasing manufactured home space FMRs where
public comment demonstrates that 40 percent of the two-bedroom FMR is
not adequate. In order to be accepted as a basis for revising the
manufactured home space FMRs, comments must include a pad rental survey
of the mobile home parks in the area, identify the utilities included
in each park's rental fee, and provide a copy of the applicable public
housing authority's utility schedule.
As stated earlier in this Notice, HUD is required to use the most
recent data available when calculating FMRs. Therefore, in order to re-
evaluate an area's FMR, HUD requires more current rental market data
than the 2011 ACS.

VIII. Environmental Impact

This Notice involves the establishment of fair market rent
schedules, which do not constitute a development decision affecting the
physical condition of specific project areas or building sites.
Accordingly, under 24 CFR 50.19(c)(6), this Notice is categorically
excluded from environmental review under the National Environmental
Policy Act of 1969 (42 U.S.C. 4321).
Accordingly, the Fair Market Rent Schedules, which will not be
codified in 24 CFR part 888, are proposed to be amended as shown in the
Appendix to this notice:

Dated: September 27, 2013.
Jean Lin Pao,
General Deputy Assistant Secretary for Policy Development and Research.

Fair Market Rents for the Housing Choice Voucher Program

Schedules B and D--General Explanatory Notes

1. Geographic Coverage
a. Metropolitan Areas--Most FMRs are market-wide rent estimates
that are intended to provide housing opportunities throughout the
geographic area in which rental-housing units are in direct
competition. HUD is using the metropolitan CBSAs, which are made up of
one or more counties, as defined by the Office of Management and Budget
(OMB), with some modifications. HUD is generally assigning separate
FMRs to the component counties of CBSA Micropolitan Areas.
b. Modifications to OMB Definitions--Following OMB guidance, the
estimation procedure for the FY 2014 Final FMRs incorporates the OMB
definitions of metropolitan areas based on the CBSA standards as
implemented with 2000 Census data updated through December 1, 2009, but
makes adjustments to the definitions to separate subparts of these
areas where FMRs or median incomes would otherwise change significantly
if the new area definitions were used without modification. In CBSAs
where subareas are established, it is HUD's view for programmatic
purposes that the geographic extent of the housing markets are not yet
the same as the geographic extent of the CBSAs, but may become so in
the future as the social and economic integration of the CBSA component
areas increases. Modifications to metropolitan CBSA definitions are
made according to a formula as described below.
Metropolitan area CBSAs (referred to as MSAs) may be modified to
allow for subarea FMRs within MSAs based on the boundaries of old FMR
areas (OFAs) within the boundaries of new MSAs. (OFAs are the FMR areas
defined for the FY 2005 FMRs. Collectively they include 1999-definition
MSAs/Primary Metropolitan Statistical Areas (PMSAs), metro counties
deleted from 1999-definition MSAs/PMSAs by HUD for FMR purposes, and
counties and county parts outside of 1999-definition MSAs/PMSAs
referred to as nonmetropolitan counties.) Subareas of MSAs are assigned
their own FMRs when the subarea 2000 Census Base Rent differs by at
least 5 percent from (i.e., is at most 95 percent or at least 105
percent of) the MSA 2000 Census Base Rent, or when the 2000 Census
Median Family Income for the subarea differs by at least 5 percent from
the MSA 2000 Census Median Family Income. MSA subareas, and the
remaining portions of MSAs after subareas have been determined, are
referred to as HUD Metro FMR Areas (HMFAs) to distinguish these areas
from OMB's official definition of MSAs.
The specific counties and New England towns and cities within each
state in MSAs and HMFAs are listed in Schedule B.
2. Bedroom Size Adjustments
Schedule B shows the FMRs for zero-bedroom through four-bedroom
units. The Schedule B addendum shows Small Area FMRs for all PHAs
operating using Small Area FMRs. The FMRs for unit sizes larger than
four bedrooms are calculated by adding 15 percent to the four-bedroom
FMR for each extra bedroom. For example, the FMR for a five-bedroom
unit is 1.15 times the four-bedroom FMR, and the FMR for a six-bedroom
unit is 1.30 times the four-bedroom FMR. FMRs for single-room-occupancy
(SRO) units are 0.75 times the zero-bedroom FMR.
3. Arrangement of FMR Areas and Identification of Constituent Parts
a. The FMR areas in Schedule B are listed alphabetically by
metropolitan FMR area and by nonmetropolitan county within each state.
The exception FMRs for manufactured home spaces in Schedule D are
listed alphabetically by state.
b. The constituent counties (and New England towns and cities)
included in each metropolitan FMR area are listed immediately following
the listings of the FMR dollar amounts. All constituent parts of a
metropolitan FMR area that are in more than one state can be identified
by consulting the listings for each applicable state.

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c. Two nonmetropolitan counties are listed alphabetically on each
line of the non-metropolitan county listings.
d. The New England towns and cities included in a nonmetropolitan
county are listed immediately following the county name.
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Schedule D--FY 2014 Fair Market Rents for Manufactured Home Spaces in
the Section 8 Housing Choice Voucher Program
------------------------------------------------------------------------
State Area name Space rent
------------------------------------------------------------------------
California..................... Orange County, CA HUD $818
Metro FMR Area *.
Riverside-San Bernardino- 532
Ontario, CA MSA *.
Los Angeles-Long Beach, 674
CA HUD Metro FMR Area.
San Diego-Carlsbad-San 819
Marcos, CA MSA.
Santa Rosa-Petaluma, CA 738
MSA.

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Vallejo-Fairfield, CA MSA 594
Colorado....................... Boulder, CO MSA.......... 479
Maryland....................... St. Mary's County........ 500
Oregon......................... Bend, OR MSA............. 355
Salem, OR MSA............ 506
Pennsylvania................... Adams County............. 568
Washington..................... Olympia, WA MSA.......... 603
Seattle-Bellevue, WA HUD 664
Metro FMR Area.
West Virginia.................. Logan County............. 453
McDowell County.......... 453
Mercer County............ 453
Mingo County............. 453
Wyoming County........... 453
------------------------------------------------------------------------
* 50th percentile FMR areas.

[FR Doc. 2013-24155 Filed 10-2-13; 8:45 am]
BILLING CODE 4210-67-P