[Federal Register Volume 60, Number 41 (Thursday, March 2, 1995)]
[Proposed Rules]
[Pages 11870-11873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5094]



      

[[Page 11869]]

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Part XII





Department of Housing and Urban Development





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24 CFR Part 888



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Low Income Housing; Housing Assistant Payments (Section 8); Fair Market 
Rent Calculation Methods; Proposed Rule

  Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / 
Proposed Rules   
[[Page 11870]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 888

[Docket No. R-95-1764; FR-3694-P-01]
RIN 2501-AB76


Fair Market Rents for Section 8 Housing Assistance Payments 
Program; Amendments to Method of Calculating

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This rule proposes amendments to the Department's regulations 
at 24 CFR part 888 governing the method of calculating Fair Market 
Rents (FMRs) for the Section 8 Rental Certificate program (including 
space rentals by owners of manufactured homes under that program); the 
Moderate Rehabilitation program (including Single Room Occupancy); 
housing assisted under the Loan Management and Property Disposition 
programs; payment standards for the Rental Voucher program; and any 
other programs whose regulations specify the use of such FMRs.

DATES: Comments due date: April 3, 1995.

ADDRESSES: Interested persons are invited to submit comments on this 
rule to the Office of the General Counsel, Rules Docket Clerk, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street 
SW, Washington, DC 20410. Communications must refer to the above docket 
number and title. A copy of each communication submitted will be 
available for public inspection and copying during regular business 
hours (7:30 a.m.-5:30 p.m. Eastern Time) at the above address.

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Rental Assistance 
Division, Office of Public and Indian Housing, (202) 708-0477 (TDD: 
(202) 708-0850), for questions relating to the Section 8 Rental 
Certificate, Rental Voucher, and Moderate Rehabilitation programs;
    Barbara Hunter, Program Planning Division, Office of Multifamily 
Housing Management, (202) 708-3944 (TDD: (202) 708-4594), for questions 
relating to all other Section 8 programs.
    David Pollack, Office of Community Planning and Development, (202) 
(708-1234) (TDD: (202) 708-2565), for questions relating to Moderate 
Rehabilitation, Single Room Occupancy (SRO).
    Michael Allard, Office of Policy Development and Research, (202) 
(708-0577) (TDD: 708-1455), for questions relating to measurement of 
rent levels.
    Mailing address for above persons: Department of Housing and Urban 
Development, 451 Seventh Street SW, Washington, DC 20410. (Telephone 
numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Introduction and Applicability

    Section 8 of the U. S. Housing Act of 1937 (the Act) (42 U.S.C. 
1437f) authorizes housing assistance to aid low-income families in 
renting decent, safe, and sanitary housing. Assistance payments are 
limited by Fair Market Rents (FMRs) established by HUD for the Rental 
Certificate program, or by payment standards established by local 
housing authorities for the Rental Voucher program based on the FMRs. 
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, safe, and sanitary rental housing of a modest (non-luxury) 
nature with suitable amenities. (The amount of rent payable by a 
resident of assisted housing is based on income, not the FMR.)
    Under section 8(c) of the Act, the Secretary of HUD is directed to 
establish FMRs periodically, but not less frequently than annually. HUD 
publishes proposed FMRs each year, and after a period of public 
comment, publishes the final FMRs for the next fiscal year.
    The method used to calculate FMRs is described in 24 CFR part 888, 
subpart A. With this publication HUD is updating that regulation to 
specify the most current information being used. This rule would amend 
the regulations:
    (1) To change the FMR rent standard from the 45th to 40th 
percentile rent of the rent distribution of rental housing units;
    (2) To identify Random Digit Dialing (RDD) telephone surveys as a 
data source used to establish FMRs for selected individual areas and to 
develop rent-change factors for updating FMRs;
    (3) To provide that FMRs for manufactured home spaces are set at 30 
percent of the FMR for a two-bedroom housing unit;
    (4) To authorize the Secretary to establish FMR areas that differ 
from the OMB definitions of metropolitan areas where the OMB 
definitions are determined by HUD to be larger than housing market 
areas; and
    (5) To state the requirement that, in order to be considered as a 
basis for revising the FMRs, public comments on proposed FMRs must 
contain statistically valid rental housing survey data justifying the 
requested changes.
    The amendments to the method of calculating FMRs proposed in this 
rule would apply to the following Section 8 Housing Assistance Payments 
programs: The Rental Certificate program, including space rentals by 
owners of manufactured homes; the Moderate Rehabilitation program and 
Moderate Rehabilitation SRO Program; the loan management program for 
projects with HUD-insured or HUD-held mortgages, as well as the 
Property Disposition program; and any other HUD programs whose 
regulations provide for the use of these FMRs (e.g., programs to assist 
the homeless). In addition, the rule would amend the regulations to 
reflect use of FMRs to establish payment standards for the Rental 
Voucher program.

II. Discussion of Amendments

Change in Percentile (Sec. 888.113(a))

    FMRs are gross rent estimates; they include shelter rent and the 
cost of utilities, except telephone. HUD sets FMRs to assure that a 
sufficient supply of rental housing is available to program 
participants. To accomplish this objective, FMRs must be both high 
enough to permit a selection of units and neighborhoods and low enough 
to serve as many families as possible. The level at which FMRs are set 
is expressed as a percentile point within the rent distribution of 
standard quality rental housing units. The current definition used is 
the 45th percentile rent, the dollar amount below which 45 percent of 
the standard quality rental housing units rent.
    This rule would change the definition to the 40th percentile rent 
of the rent distribution of standard quality rental housing units. The 
impact of this proposal is that FMRs on average will be 3.3 percent 
less than if they were set at the 45th percentile level. The current 
FMR standard is believed to be higher than necessary for successful 
operation of the affected programs. HUD believes that the change in the 
FMR standard will not significantly alter the amount, or quality, of 
rental housing available to program participants. The sample data used 
to calculate FMRs will continue to exclude substandard units and public 
housing units, and the FMR standard will continue to be based on only 
units occupied by recent movers.

Added Data Source (Sec. 888.113(c))

    In developing the base-year FMR estimates, HUD uses the most 
accurate and current data available. The [[Page 11871]] regulations 
currently provide for two sources of survey data: (1) The decennial 
Census and (2) post-Census American Housing Surveys (AHSs). The 
regulations also currently provide for base-year FMRs to be updated 
each year using Consumer Price Index (CPI) data for rents and for 
utilities. This rule would amend the regulations to include Random 
Digit Dialing (RDD) telephone surveys as a third data source for base-
year estimates and for rent-change factors for updating rents in FMR 
areas without a local CPI survey. The RDD telephone survey technique is 
based on a sampling procedure that uses computers to select random 
samples of telephone numbers. Each sampled number is phoned to 
establish eligibility for the survey and, if eligible, the respondent 
is asked about the unit's rent and utility usage.
    Three types of RDD surveys are used, the first two on behalf of 
HUD, and the third by individual PHAs. Under contract with HUD, a 
professional survey firm does large-scale RDD surveys to establish 
base-year FMRs for areas where HUD suspects FMRs might not correspond 
well with current market conditions. About 60 areas are chosen to be 
surveyed each year. In addition, the same firm also does 20 RDD surveys 
to establish rent-change factors in the metropolitan and 
nonmetropolitan parts of each of the ten HUD geographic regions.
    Finally, individual PHAs are encouraged to sponsor or conduct 
various levels of RDD surveys if they wish to comment on proposed FMRs. 
The larger PHAs are encouraged to contract with professional survey 
firms to do large-scale RDD surveys. Smaller PHAs are allowed to use a 
simplified version of the RDD survey that makes it possible for them to 
do their own RDD surveys. (PHAs and other commenters are not required 
to use RDD surveys as long as they provide statistically-reliable, 
unbiased estimates of the 40th percentile gross rent.)
    All of the RDD survey techniques involve drawing random samples of 
renter units. All exclude public housing units and other subsidized 
housing where the respondent does not know the full market rent. The 
surveys also exclude newly-built units and units for which no cash rent 
is paid. They do not exclude substandard units because there is no 
practical way to determine housing quality from telephone interviews. 
However, a HUD analysis conducted specifically to address this issue 
has shown that the slight downward bias caused by including some rental 
units that are in substandard condition is almost exactly offset by the 
slight upward bias that results from surveying only units with 
telephones.
    Tests in areas where Census, AHS, and CPI data on rents are 
available have shown that professionally-conducted RDD surveys have a 
high degree of statistical accuracy. In those tests, HUD concluded that 
there was a 95 percent likelihood that the rent estimates developed 
using this approach were within 3 to 4 percent of the actual rent value 
and that virtually all were within 5 percent. The PHA-conducted surveys 
using the modified RDD technique are less precise but are still within 
acceptable ranges of accuracy.

FMRs for Manufactured Home Spaces (Sec. 888.113(e))

    This rule also proposes to calculate FMRs for manufactured home 
spaces as a percentage of the FMR for two-bedroom units. The base 
estimates used to calculate the FMRs for manufactured home spaces were 
not revised in FY 1994 because no data were available in the 1990 
Census on manufactured home space rentals, and no other source of 
reliable data was found that could be used for this purpose.
    Originally the FMRs for rental of manufactured home spaces were 
established using AHS data (no longer available) for the 
nonmetropolitan parts of states and HUD Field Office surveys of the 
metropolitan areas. Over the years the FMRs for additional individual 
areas were established on the basis of local surveys submitted as 
public comments.
    Because the FMRs for manufactured home spaces are based on old 
survey data, and there is no current data source to update these 
estimates, HUD does not consider them to be sufficiently accurate for 
continued use. Further, the very limited use of this part of the 
Certificate program does not justify the cost of obtaining the 
necessary survey data to re-benchmark the FMRs. HUD is proposing, 
therefore, to amend this rule to establish FMRs for manufactured home 
spaces at 30 percent of the applicable Section 8 two-bedroom FMR for 
the Rental Certificate program. HUD arrived at the 30 percent standard 
after analyzing the existing manufactured home space FMRs and 
concluding that the substantial majority of the FMRs were within a 20 
to 30 percent range of the two-bedroom FMRs.
    HUD will continue to accept public comments requesting modification 
of the proposed manufactured home space FMRs for those areas where 
space rentals are thought to differ from the 30 percent standard. To be 
considered for approval, the comments must contain statistically-valid 
survey data that show the 40th percentile manufactured home space rent 
(excluding the cost of utilities) for the FMR area. This program uses 
the same FMR area definitions as the Rental Certificate program. In 
addition HUD is proposing to retain the manufactured home space FMR 
revisions approved since 1990. The reason for continuing to use the 
revised FMRs is that they are based on recent survey data that HUD 
determined to be valid. Once approved, the revised manufactured home 
space FMRs establish new base-year estimates that will be updated 
annually using the same data used to update the Rental Certificate 
program FMRs.

FMR Areas (Sec. 888.113(b)

    Section 888.113(b) would be amended to authorize the Secretary to 
make exceptions to the use of the Office of Management and Budget 
definitions of Metropolitan Statistical Areas (MSAs) and Primary 
Metropolitan Statistical Areas (PMSAs) as FMR areas where HUD 
determines that use of an MSA or PMSA would encompass an area that is 
larger than a housing market area.

Public Comments On Proposed FMRs (Sec. 888.115)

    The proposed rule states the requirement that, in order to be 
considered for approval, public comments on proposed FMRs must contain 
statistically-valid rental housing survey data justifying the requested 
revision. Each year, the Department receives, in response to its 
request for public comments on proposed FMRs, comments that merely 
object to the proposed FMRs for the area, but do not contain any 
documentation to support the assertion that the FMRs are inaccurate. 
The Notice announcing proposed FMRs has always stipulated that such 
documentation be included in the comment. This rule would make the 
regulations for the program clear that adequate supporting rental 
housing survey data are necessary to justify a requested change.

III. Justification for Reduced Comment Period

    HUD's general policy is to provide a 60-day public comment period. 
For this proposed rule, however, HUD is providing only a 30-day comment 
period. The reduced comment period is justified because the public has 
had ample notice that HUD was contemplating the 40th percentile Fair 
Market Rent (FMR) standard.
    On June 23, 1994 (59 FR 32492), HUD published a notice in the 
Federal Register containing two separate sets of proposed FMRs--one 
based on the 45th [[Page 11872]] percentile rental distribution of 
standard quality rental housing units, and the other based on the 40th 
percentile rent of the same rental housing distributions. The published 
notice explained that HUD was considering a 40th percentile FMR 
standard. A reduction in the FMR standard was also announced as a 
proposed cost savings measure in HUD's FY 1995 budget presentation.
    The June 23, 1994 Notice requested public comment on the proposed 
FMRs at both the 45th and 40th percentiles. Since the public has 
already had the opportunity to consider the proposed change in the FMR 
standard and to comment on the actual proposed FMRs at the 40th 
percentile level, an abbreviated comment period on the same idea will 
not have an adverse impact on the ability of the public to participate 
in this rulemaking.
    The Department believes this abbreviated comment period is 
justified in order to speed the publication of a final rule which will 
allow more low income families to receive housing assistance.

IV. Other Matters

Executive Order 12866, Regulatory Planning and Review

    This proposed rule was reviewed and approved by the Office of 
Management and Budget as a significant rule, as that term is defined in 
Executive Order 12866, which was signed by the President on September 
30, 1993. Any changes to the proposed rule as a result of that review 
are contained in the public file of the rule in the office of the 
Department's Rules Docket Clerk.

Environmental Assessment

    A Finding of No Significant Impact with respect to the environment 
required by the National Environmental Policy Act (42 U.S.C. 4321-4374) 
is unnecessary, since the establishment and review of fair market rents 
is categorically excluded from the Department's regulations 
implementing the National Environment Policy Act at 24 CFR 50.20(l).

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this document before publication and by 
approving it certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small entities, 
because FMRs reflect the rents for similar quality units in the area. 
Therefore, FMRs do not change the rent from that which would be charged 
if the unit were not in the Section 8 program.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this proposed rule would 
not have a significant impact on family formation, maintenance, or 
well-being. The proposed rule would amend the method for calculating 
Fair Market Rent for various Section 8 assisted housing programs, and 
would not affect the amount of rent a family receiving rental 
assistance pays, which is based on a percentage of the family's income.

Executive Order 12611, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12611, Federalism, has determined that this proposal 
would not involve the preemption of State law by Federal statute or 
regulation and would not have Federalism implications. The 
establishment of Fair Market Rents does not have any substantial direct 
impact on States, on the relationship between the Federal government 
and the States, or on the distribution of power and responsibility 
among the various levels of government.

Semi-Annual Regulatory Agenda

    This rule was listed as sequence number 1727 in the Department's 
Semiannual Regulatory Agenda published on November 14, 1994 (59 FR 
57632, 57641) under Executive Order 12866 and the Regulatory 
Flexibility Act.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number is 
14.156, Lower-Income Housing Assistance Program (Section 8).

List of Subjects in 24 CFR Part 888

    Grant programs--housing and community development, Rent subsidies.

    Accordingly, title 24 of the Code of Federal Regulations would be 
amended as follows:

PART 888--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--FAIR 
MARKET RENTS AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS

    1. The authority citation for part 888 would continue to read as 
follows:

    Authority: 42 U.S.C. 1437c, 1437f, and 3535(d).

    2. Sections 888.101 and 888.105 would be removed, and Sec. 888.111 
would be revised to read as follows:


Sec. 888.111  Fair market rents for existing housing: Applicability.

    The Fair Market Rents (FMRs) for existing housing (see definition 
in Sec. 882.102 of this chapter) are determined by the Department of 
Housing and Urban Development (HUD) and apply to the Section 8 
Certificate Program, including space rentals by owners of manufactured 
homes under the Section 8 Certificate Program, the Section 8 Moderate 
Rehabilitation Program, Section 8 existing housing project-based 
assistance, and Section 8 existing housing assisted under part 886. 
FMRs are also used to determine payment standard schedules in the 
Rental Voucher program.
    3. Section 888.113, would be revised to read as follows:


Sec. 888.113  Fair market rents for existing housing: Methodology.

    (a) Basis for setting fair market rents. Fair Market Rents (FMRs) 
are estimates of rent plus the cost of utilities, except telephone. 
They are housing market-wide estimates of rents that provide 
opportunities to rent standard quality housing throughout the 
geographic area in which rental housing units are in competition. The 
level at which FMRs are set is expressed as a percentile point within 
the rent distribution of standard quality rental housing units in the 
FMR area. FMRs are set at the 40th percentile rent--the dollar amount 
below which 40 percent of standard quality rental housing units rent. 
The 40th percentile rent is drawn from the distribution of rents of all 
units that are occupied by recent movers. Adjustments are made to 
exclude Public Housing units and newly built units.
    (b) FMR Areas. FMR areas are metropolitan areas and nonmetropolitan 
counties (nonmetropolitan parts of counties in the New England States). 
With several exceptions, the most current Office of Management and 
Budget (OMB) metropolitan area definitions of Metropolitan Statistical 
Areas (MSAs) and Primary Metropolitan Statistical Areas (PMSAs) are 
used because of their generally close correspondence with housing 
market area definitions. HUD may make exceptions to OMB definitions if 
the MSAs or PMSAs encompass areas that are larger than housing market 
areas. The counties deleted from the HUD-defined FMR areas in those 
cases are established as separate metropolitan county FMR areas. FMRs 
are established for all areas in the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, and the Pacific Islands.
    (c) Data sources. (1) HUD uses the most accurate and current data 
available [[Page 11873]] to develop the FMR estimates and may add other 
data sources as they are discovered and determined to be statistically 
valid. The following sources of survey data are used to develop the 
base-year FMR estimates:
    (i) The most recent decennial Census, which provides statistically 
reliable rent data.
    (ii) The American Housing Survey (AHS) data, conducted by the 
Bureau of the Census for HUD. AHS's have comparable accuracy to the 
decennial Census, and are used to develop between-census revisions for 
the largest metropolitan areas on a four-year revolving schedule.
    (iii) Random Digit Dialing (RDD) telephone survey data, based on a 
sampling procedure that uses computers to select statistically random 
samples of rental housing.
    (iv) Statistically valid information, as determined by HUD, 
presented to HUD during the public comment and review period.
    (2) Base-year FMRs are updated and trended to the midpoint of the 
program year they are to be effective using Consumer Price Index (CPI) 
data for rents and for utilities or using rent-change factors obtained 
from the RDD regional surveys. The RDD rent-change factors are 
developed annually for the metropolitan and nonmetropolitan parts of 
the HUD-specified geographic regions not covered by CPI surveys, and 
are used to update the base-year FMR estimates within these regions.
    (d) Bedroom size adjustments. (1) For most areas the ratios 
developed from the most recent decennial Census are applied to the two-
bedroom FMR estimates to derive FMRs for other bedroom sizes. 
Exceptions to this procedure may be made for areas with local bedroom 
intervals below an acceptable range. To help the largest most difficult 
to house families find units, higher ratios than the actual market 
ratios may be used for three-bedroom and larger-size units.
    (2) The FMR for single room occupancy housing is 75 percent of the 
FMR for a zero bedroom unit.
    (e) Manufactured home space. The FMR for a manufactured home space 
is 30 percent of the FMR for a two-bedroom unit, or, where approved by 
HUD on the basis of survey data submitted in public comments, the 40th 
percentile of the rental distribution of manufactured home spaces for 
the FMR area. HUD accepts public comments requesting revision of the 
proposed manufactured home space FMRs for areas where space rentals are 
thought to differ from the 30 percent standard. To be considered for 
approval, the comments must contain statistically-valid survey data 
that show the 40th percentile manufactured home space rent (excluding 
the cost of utilities) for the FMR area. Once approved, the revised 
manufactured home space FMRs establish new base-year estimates that 
will be updated annually using the same data used to update the Rental 
Certificate program FMRs.
    4. Section 888.115 would be revised to read as follows:


Sec. 888.115  Fair market rents for existing housing: Manner of 
publication.

    FMRs will be published at least annually in the Federal Register. 
The Department will propose FMRs and provide a comment period of at 
least 30 days for the purpose of identifying areas where the FMRs are 
believed to be too high or too low. To be considered for FMR revisions, 
public comments must include statistically-valid rental housing survey 
data that justify the requested changes. After the comments have been 
considered, the Department will publish a final notice announcing FMRs 
to be effective on October 1 each year.

    Dated: January 30, 1995.
Henry G. Cisneros,
Secretary.
[FR Doc. 95-5094 Filed 3-1-95; 8:45 am]
BILLING CODE 4210-32-P