[Federal Register Volume 60, Number 157 (Tuesday, August 15, 1995)]
[Rules and Regulations]
[Pages 42222-42227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19834]




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Part II





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Secretary



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24 CFR Part 888



Fair Market Rents for Section 8 Existing Housing; Amendments to Method 
of Calculating; Final Rule

  Federal Register / Vol. 60, No. 157 / Tuesday, August 15, 1995 / 
Rules and Regulations   

[[Page 42222]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 888

[Docket No. FR-3694-F-02]
RIN 2501-AB76


Fair Market Rents for Section 8 Existing Housing; Amendments to 
Method of Calculating

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends the Department's regulations at 24 CFR 
part 888 governing the method of calculating Fair Market Rents (FMRs) 
for Section 8 Existing housing programs including the Section 8 Rental 
Certificate program (including space rentals by owners of manufactured 
homes under that program); the Moderate Rehabilitation Single Room 
Occupancy program; the Loan Management and Property Disposition 
programs; payment standards for the Rental Voucher program; and any 
other programs which use the Section 8 FMRs.
    HUD is changing the definition from the 45th percentile of the 
rental distribution of standard quality rental housing units to the 
40th percentile as a cost saving measure. On average, FMRs will be 3.3 
percent less than if they were set at the 45th percentile level. This 
change will not significantly affect September 8 program operations. 
Families will continue to have an adequate choice of good housing and 
neighborhoods at the 40th percentile FMR.

EFFECTIVE DATE: September 14, 1995.

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Rental Assistance 
Division, Office of Public and Indian Housing; telephone (202) 708-0477 
or (202) 708-0850 (TDD for speech- or hearing-impaired), 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; telephone (202) 708-3944 or (202) 708-4594 (TDD for 
speech- or hearing-impaired), for questions relating to all other 
Section 8 programs.
    David Pollack, Office of Community Planning and Development; 
telephone (202) 708-1234 or (202) 708-2565 (TDD for speech- or hearing-
impaired), for questions relating to Moderate Rehabilitation, Single 
Room Occupancy (SRO).
    Michael Allard, Office of Policy Development and Research, (202) 
708-0577 or 708-1455 (TDD for speech- or hearing-impaired), 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. Background

    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, or by payment 
standards based on the FMRs established by public housing agencies for 
the Rental Voucher program. 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.
    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. The method used to calculate FMRs is 
described in 24 CFR part 888, subpart A. This rule amends 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 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;
    (3) 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;
    (4) 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; and
    (5) To provide that the FMR for a manufactured home space in the 
tenant-based certificate program is 30 percent of the FMR for a two-
bedroom housing unit.
    The amendments to the method of calculating FMRs in this final rule 
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 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 
which use these FMRs (e.g., programs to assist the homeless). In 
addition, the rule amends the regulations to reflect use of FMRs to 
establish payment standards for the Rental Voucher program. The rule 
applies to public housing agencies (PHAs) and Indian Housing 
Authorities (IHAs), which are collectively referred to as housing 
authorities (HAs).

II. Public Comments on Proposed Rule

    On March 2, 1995 (60 FR 11626), HUD published its proposed rule 
that would amend the Department's regulations at 24 CFR part 888 
governing the method of calculating FMRs for the Section 8 Rental 
Certificate Programs discussed above. The Department received 628 
comments on the proposed regulation.
    The following presents the major issues raised in the public 
comments and HUD's responses to these issues.
    1. Comment: Many commenters contended that the reduction to the 
40th percentile rent standard would result in a shortage of units 
available to the Section 8 program and that participants would be 
limited in their housing choices and, therefore, trapped in poor 
neighborhoods where units are of marginal quality. Some HAs are 
claiming that the reduction will kill the program in rural areas.
    Response: The proposed rule would have HUD set the FMR standard at 
the 40th percentile rent level of the distribution of standard quality 
rental housing units occupied by recent movers. Because the rents of 
recent movers are almost always higher than the rents of stayers, more 
than 40 percent of the standard quality rental housing units in each 
FMR area have rents that would make them available to program 
participants.
    A HUD analysis of Census data shows that, contrary to the 
perception of most of the commenters, rent-eligible units are actually 
widely dispersed throughout FMR areas. An analysis of a representative 
sample of 13 metropolitan areas revealed that, on average, 85 percent 
of census tract neighborhoods with 10 or more two-bedroom rental units 
had at least 30 percent of the two-bedroom units below the FMRs. The 
variation among these areas was not great. All areas had high 

[[Page 42223]]
percentages of neighborhoods with rent eligible units, ranging from 71 
to 95 percent of the census tracts with 30 percent or more of the units 
below the FMR. This is strongly suggestive that families will continue 
to have an adequate choice of good housing and neighborhoods at the 
40th percentile FMR.
    A similar analysis was conducted and similar results found for a 
number of nonmetropolitan counties, supporting the conclusion that 
rural areas also will have an ample proportion of rental housing that 
families with housing certificates can afford at the 40th percentile 
FMR standard.
    2. Comment: Many commenters were concerned that lower FMRs would 
result in landlords dropping out of the Section 8 Existing program.
    Response: Lowering the standard from the 45th to the 40th 
percentile rent will reduce FMRs by a small amount, 3.3 percent on 
average. While some participating landlords with units renting very 
close to the current FMRs may choose to drop out of the program, the 
vast majority of units now in the program will continue to be eligible 
under the new 40th percentile standard. In addition, HUD will be able 
to use the FMR exception authority available for submarkets of FMR 
areas to mitigate this situation.
    3. Comment: The proposed rule was viewed by commenters as an 
attempt by OMB and HUD to reduce budgets at the expense of low-income 
Americans.
    Response: The reduction in the FMR standard is a cost savings 
measure. The streamlined Section 8 program will save taxpayers money 
while still assuring that low-income families participating in the 
program will be able to improve their housing situations. HUD is 
confident that providing Section 8 families access to 40 percent of the 
standard quality rental housing stock in a housing market offers them 
the opportunity to afford decent, safe, and sanitary housing. Further, 
a lower FMR standard permits assistance for more families with 
available funding.
    4. Comment: Commenters thought that lower FMRs would result in more 
program vacancies and therefore lower administrative fees to HAs 
increasing their financial burden and impacting their ability to 
operate the program.
    Response: The fact that FMRs are lower does not mean there will be 
a lower lease-up rate in the program. Lower FMRs are an issue only for 
new families entering the program or for families that move. Families 
in need of housing will find units that rent below the lower FMR rather 
than give up their rental assistance. Current program participants 
desiring to move will be less likely to move if they have difficulty 
finding a unit.
    HUD is in the process of decoupling the HA ongoing administrative 
fees from the current FMR to the extent allowed by law. Under the 
notice on administrative fees for the Section 8 Rental Voucher and 
Rental Certificate Programs that was published in the Federal Register 
on January 24, 1995 (59 FR 32492), the HA ongoing administrative fees 
for the rental vouchers and certificates funded from pre-FY 1989 
appropriations, representing more than one-half of the program units, 
were decoupled from the current FMRs. HUD is seeking legislation to 
decouple fees from the FMRs for rental vouchers and certificates funded 
from FY 1989 and subsequent appropriations. Changes in the monthly per 
unit fee amount would be based on changes in wage data or other 
objectively measurable data, as determined by HUD, that reflect the 
costs of administering the program.
    5. Comment: Commenters objected that the proposed rule encourages 
HAs to conduct RDD surveys which are too costly and are not as reliable 
as local surveys of real estate agents, renters, and visual inspections 
of rental units. RDD surveys do not account for substandard housing, 
and households with telephones are not necessarily standard quality 
units, especially in rural areas. HUD requires HAs to use statistically 
valid surveys, implying the required use of the RDD approach. HUD 
should allow a common sense, inexpensive approach to rental housing 
surveys.
    Response: HUD encourages HAs that believe their FMRs are too low to 
conduct statistically valid surveys to test these numbers. HUD 
recommends the use of RDD-type surveys, but these surveys are not 
mandatory. Both the RDD and the traditional methods that HUD recommends 
emphasize the need to obtain a complete list of the rental universe and 
conduct the survey in an unbiased way. Very small samples, if carefully 
drawn and surveyed, are more accurate than large samples drawn from 
biased sources or surveyed in a biased manner. Regardless of how the 
survey itself is conducted, the universe list must reflect the entire 
rent distribution of the FMR area. HAs may continue to submit 
traditional rental housing surveys and HUD will continue to evaluate 
them in terms of their sample validity.
    HUD provides extensive step-by-step guidance on how to conduct 
statistically valid surveys, including sample selection (using either 
the RDD or traditional method), questionnaire wording, follow-ups of 
nonrespondents, and data processing. HUD is also willing to help HAs 
that want to conduct their own surveys.
    HUD's past analysis indicates that RDD surveys appropriately 
reflect the rent levels of the standard quality housing stock. The 
impact of substandard housing is offset by the use of samples of rental 
housing units with telephones. The upward rent bias from surveying only 
units with telephones is offset by the high proportion of non-telephone 
units that would not meet quality standards.
    HUD has always required the use of statistically valid housing 
surveys in FMR comments and has stated the requirements for such 
surveys in the preambles to the notices of proposed FMRs. In recent 
years, HUD has also publicized the availability of its rental housing 
survey guides and has conducted an outreach program to help HAs conduct 
statistically valid surveys. These surveys need not be conducted by 
professionals, and are cheap enough that most HAs can afford to conduct 
them. Even very small HAs have been able to use these surveys by 
joining their resources and conducting combined surveys.
    6. Comment: The proposed change was particularly perplexing to 
several commenters in view of the Section 8 NOFA selection criteria--
Efforts of HA to Provide Area-Wide Housing Opportunities for Families.
    Response: Prior to issuing the proposed regulation, HUD considered 
the impact of this change on efforts to encourage families to move from 
high poverty neighborhoods. As discussed in the response to the first 
comment, HUD is confident that rental housing units meeting the program 
standards are available throughout FMR areas, and will favorably 
consider requests for submarket exception rents in order to maintain 
opportunities for families to rent units in non-poverty neighborhoods.
    7. Comment: The reduction in the FMR standard would make it more 
difficult to administer a program that mandates Family Self-Sufficiency 
(FSS).
    Response: HUD provided special funding in FY 1994 for HAs to hire a 
service coordinator under the FSS program. The Notice of Funding 
Availability for FY 1995 provides additional funding for HAs to hire 
FSS service coordinators.
    8. Comment: Several commenters stated that reduced FMRs were 
insufficient to support new construction programs like the Low Income 
Housing Tax Credit (LIHTC) or HOME program.

[[Page 42224]]

    Response: The FMRs, set at the 40th percentile level of standard 
quality recent mover rental units, would include approximately the 
bottom half of an area's standard quality rental stock. It is not HUD's 
intention to set the FMRs at a level high enough to support new 
construction and only in very unusual situations would this occur. Over 
the years, some production programs, such as the HOME and LIHTC 
programs, have had program rents tied to the FMRs to ensure that the 
end result was affordable housing. HOME participants can use the grant 
money in a variety of ways ranging from leveraging production costs to 
directly paying for them. Many of the HOME and LIHTC participants have 
used other sources of funds to write down rents on these projects.
    9. Comment: Commenters objected to the 30-day comment period as 
being too short a time period to comment on the proposed changes.
    As stated in the preamble to the proposed rule and repeated here, 
HUD's position in providing a 30-day comment period, rather than 60 
days, is that the public had already had ample notice that HUD was 
considering this change. On June 23, 1994 (59 FR 32492), HUD published 
a notice in the Federal Register containing two separate sets of FMRs--
one based on the 45th percentile rent levels and the other based on the 
40th percentile rent levels. The 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 40th and 45th percentiles. 
Since the public had 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, HUD believes that a 60-day 
comment period was unnecessary since the abbreviated comment period did 
not adversely impact the public's ability to participate in this rule 
making. In fact, HUD received and evaluated all comments received after 
the 30-day comment period had ended.
    10. Comment: Commenters contended that HUD's proposal to provide 
for a 30-day comment period for the annual notice of proposed FMRs is 
not enough time for HAs to do rental housing surveys. Some commenters 
requested a comment period longer than the 60 days currently allowed.
    Response: The regulation requires the Department to provide a 
comment period of at least 30 days to identify areas where the FMRs are 
believed to be too high or too low. HUD's practice has been, and will 
continue to be, to allow interested parties 60 days to prepare their 
comments. The 60-day comment period was adopted in recognition that the 
additional time was needed for HAs to conduct rental housing surveys. 
HUD reserves the right, however, to abbreviate the comment period in 
the event that special circumstances should warrant such an action.
    HUD cannot provide for a comment period longer than 60 days and 
still be able to publish final FMRs on October 1 of each year. Because 
of the time required to obtain the year-end data used to update and 
process the FMR schedules each year, the earliest these estimates can 
be published is in mid-April. The 60-day comment period, therefore, 
ends in mid-June, and the remainder of that month is required to 
process and distribute the comments to the respective HUD Field 
offices. HUD reviews the comments for the next month and a half, 
through mid-August. The remainder of the time is spent preparing the 
revised FMRs for publication, clearing the publication, and submitting 
them to the Federal Register.
    11. Comment: Commenters objected to the proposal to give the 
Secretary the discretion to make modifications to the FMR area 
definitions of large metropolitan areas.
    Response: HUD generally uses the OMB definitions of metropolitan 
areas as FMR definitions because they are good approximations of 
housing market area definitions--the criterion that HUD uses to define 
FMR areas. OMB in its publication establishing these definitions (OMB 
Bulletin NO. 93-17), however, directs agencies who use the definitions 
for nonstatistical purposes to ensure that they are appropriate for the 
specific program use. OMB recommends that the agency in such a 
circumstance seek public comment on their appropriateness. The OMB 
bulletin further states that an agency may deviate from the 
definitions, but should identify the deviations and specify the program 
for which they will apply. In establishing the FMR area definitions, 
HUD followed the OMB procedures. First, HUD conducted an evaluation of 
the revised OMB metropolitan area definitions and determined there were 
seven metropolitan areas for which the OMB definitions were too large 
to represent housing market area definitions. HUD then invited public 
comment in the notice of proposed FMRs published on May 6, 1993 (58 FR 
27062). HUD received only one public comment on this issue. After 
reviewing the comment, HUD decided to make the modified definitions 
effective, which it did in the October 1, 1993, Federal Register 
publication of final FMRs (58 FR 51410). This rule merely codifies 
HUD's existing policy of making exceptions to FMR definitions, as 
warranted, in accordance with OMB's instructions.
    12. Comment: Several commenters objected to HUD's rule to set 
manufactured home space rents at the 30 percent of the FMRs for a two-
bedroom unit.
    Response: HUD first announced in the May 6, 1993, notice of 
proposed FMRs that it was considering other alternatives for 
establishing manufactured home space FMRs. It was explained in the 
notice that the data base used to estimate the FMRs for manufactured 
home space rents was quite old, from a 1978 survey, and that no new 
data sources were available. HUD did not consider the existing data 
sufficiently accurate to continue using these estimates. Because there 
is very limited use of the manufactured home space rents in the tenant-
based rental assistance programs, the expected cost of obtaining new 
survey data was not justified.
    HUD did not receive any comments on this proposal and, therefore, 
on June 23, 1994, proposed that the manufactured home space FMR would 
be 30 percent of the Section 8 two-bedroom FMR. The 30-percent ratio 
was selected on the basis of an analysis which showed that the vast 
majority of the manufactured home space FMRs were within a 20 to 30 
percent range of the regular two-bedroom FMR. Recognizing that there 
would be valid exceptions to this relationship, HUD informed the public 
that it would accept local surveys of space rentals in manufactured 
home parks as a basis for modifying the FMRs where the proposed new 
standard was not adequate to operate the program. HUD also announced 
that it was retaining all local surveys that had been accepted since 
1990 as the basis for modifying the manufactured home space FMRs. On 
September 28, 1994 (59 FR 49494), HUD published separately in Schedule 
D, the manufactured home space FMRs for 13 areas that had recent local 
surveys and established the FMRs for all other areas at 30 percent of 
the two-bedroom FMR.
    13. Comment: A commenter requested that HUD publish a contract rent 
and a utility amount rather than a gross rent FMR estimate. The basis 
for this request is the concern that the amount HUD is using for the 
utility component is less than what is used at the local level. 

[[Page 42225]]

    Response: HUD FMRs are gross rent estimates, which means that they 
include the cost of all utilities. HUD prefers using gross rent as a 
basis because it accounts for the total costs to tenants and it 
provides a consistent basis for comparison. There is no one contract 
rent for an FMR area. Contract arrangements vary with regard to the 
types of utilities paid by the landlord and those paid by the tenant. 
HUD actually uses two methods to develop gross rent estimates. For the 
base-year estimates of FMR areas using the 1990 Census and post-1990 
American Housing Surveys, a series of detailed questions are asked to 
determine what utilities the tenants pay and how much they pay. The 
contract rent and tenant paid utilities are then combined on an 
individual unit basis to derive the gross rent of each unit. For those 
areas based on RDD surveys, the gross rents are determined by asking 
the tenant to identify the utilities they pay themselves. HUD then uses 
the approved HA utility allowances to determine the appropriate amount 
of tenant paid utilities, which are added to the contract rent amount 
to determine a gross rent. HUD has found no evidence to suggest there 
is a downward bias introduced into the estimates using either method. 
The RDD procedure uses the most current HA estimates of utilities, 
while the Census surveys use tenant estimates of utilities. If 
anything, the latter source may be somewhat overstated.
    14. Comment: A commenter stated that HUD should not implement this 
change without specific Congressional approval. They also stated that 
Congressional opposition last year should have convinced HUD not to 
take this action unless Congress specifically directs it to do so.
    Response: The law does not specify the percentile standard used to 
establish the FMRs and permits HUD to change the FMR standard from the 
45th to the 40th percentile standard. Accordingly, HUD has the 
authority to implement this change.
    15. Comment: A commenter claimed that HUD's FMR calculations are 
flawed because they do not include newly constructed units which would 
allow for greater choice of locations and increase the number of units 
passing HQS.
    Response: HUD is authorized to provide assistance for existing 
housing units and to determine FMRs for such units. Newly constructed 
units--units built within the past 2 years--are excluded from the FMR 
calculations. An objective of the Section 8 Housing Assistance Payments 
program is to serve as many low-income families as possible by making 
available standard quality rental housing units of modest (nonluxury) 
quality. Newly constructed units generally have much higher initial 
rent levels than other units. HUD, therefore, considers that such units 
should be deleted from the data base used to calculate the Existing 
Housing FMRs. Deletion of new units from the data base does not 
significantly affect the number of units that would pass HQS. HUD also 
calculates the FMRs by deleting substandard units from the Census 
distributions of rental housing and making an additional adjustment to 
factor out the affects of substandard housing on rents using the more 
refined housing quality data available in the American Housing Survey 
distributions.
    16. Comment: A commenter, concerned that FMRs in nonmetropolitan 
areas were too low, suggested HUD consider establishing minimum FMRs 
based on State averages.
    Response: HUD's use of the 1990 Census to re-benchmark the FMRs 
significantly improved the accuracy of these estimates in 
nonmetropolitan counties. For the first time, rent data were available 
for all counties individually rather than for county groups as had been 
the situation with previous Censuses. To protect against 
unrealistically low FMRs being set as the result of insufficient sample 
sizes, exceptions were made to the use of county level FMRs. The 
exceptions involved the use of State-wide minimum rent estimates that 
were applied to all FMR areas with fewer than 100 two-bedroom rental 
unit cases in the Census and with FMRs below the State minimum 
comparable rent of areas with 100 or more such cases. The base year FMR 
estimates for these counties were set at the lower of the State-wide 
minimum or the upper end of the confidence interval of the Census-based 
rent. HUD is concerned about the continued number of inquiries on this 
issue, however, and is currently reviewing its exception procedure to 
determine if a further adjustment may be warranted for nonmetropolitan 
counties with extremely low rents.
    17. Comment: A commenter objected that comments should not be 
restricted in any way. Requiring smaller housing authorities to submit 
exhaustive statistics (from rental housing surveys) violated the 
spirit, if not the letter of the law. The comment stated that nearly 
all HAs have complete data for rental properties to establish rent 
reasonableness and comparability and that the results of RDD surveys 
pale to insignificance when compared to the actual day to day 
experience of a local housing authority.
    Response: As explained in the response to comment number 5, HUD 
does not mandate the use of RDD surveys and continues to accept the 
traditional type rental housing surveys as a basis for revising the 
FMRs as long as the survey samples are not biased and are 
representative of the rental housing stock of the entire FMR area. HUD 
disagrees with the contention that local rent reasonableness data are a 
better, or even an acceptable alternative, to an RDD survey or a 
traditional survey conducted in accordance with HUD survey guidelines. 
The rent reasonableness data base is a restricted source of information 
that is collected for specific units being considered for participation 
in the program, for limited parts of FMR areas, and at various points 
in time. As such, the data are not likely to constitute a 
representative sample. For many areas these data were collected for 
units that entered the program prior to the re-benchmarking of the FMRs 
and, therefore, include concentrations of units above the current FMRs.
    18. Comment: Commenters suggested that if HUD insists on going to 
the 40th percentile rent level, it should allow Certificate holders the 
same flexibility to exceed the FMR as Voucher Holders.
    Response: HUD is preparing the last part of the final rule to 
implement the provisions of the National Affordable Housing Act of 
1990, that would allow certificate holders to pay more than 30 percent 
of their income toward rent. Under the provisions of law, up to 10 
percent of the families renting units with assistance under the rental 
certificate program could pay more than 30 percent of their income 
toward rent. Similarly, under HUD's proposed Housing Certificate Fund, 
90 percent of the participants would be allowed to pay up to 35 percent 
of their income toward rent and 10 percent of the families could pay 
more than 35 percent of their income for rent.
    19. Comment: A commenter disputed the General Counsel's findings on 
executive orders 12606, Family and 12611, Federalism.
    Response: This rule will not restrict families to spatial 
concentrations of poverty. HUD is still committed to providing 
affordable housing to as many families as possible in today's market. 
The establishment of FMRs at the 40th percentile level 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. 

[[Page 42226]]

    20. Comment: One commenter stated that the change from the 45th to 
the 40th percentile FMR standard will cause still more families to be 
unsuccessful in finding decent, safe, and sanitary housing. The comment 
cited the nationwide success rate of 81 percent as evidence supporting 
this claim.
    Response: A recent HUD study found just the opposite situation. The 
study, completed in 1994, found 80 percent of recipients in large 
cities were successful in finding housing that qualified for the 
program. Excluding New York City from the sample, the nationwide 
success rate was even higher, 87 percent. The success rates in the 
Section 8 program have been increasing over time, rising from about 50 
percent in the late-1970's, to 65 percent in the mid-1980's, to the 
current 80 percent rate. As pointed out in the response to comment 
number 1, there is a more than adequate supply of housing in good 
condition and in good neighborhoods available to program participants. 
The Census data for the 13 selected metropolitan areas show that at the 
40th percentile standard at least 40 percent of the two-bedroom rental 
housing stock had rents at or below the FMRs. Five of these areas had 
more than half of all two-bedroom units at or below the FMR, and most 
of the other areas had from 45 to 50 percent of the two-bedroom units 
at or below the FMR.

III. Other Matters

Executive Order 12866, Regulatory Planning and Review

    This final 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 final 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 Environmental 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 FMRs 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.

Semiannual Regulatory Agenda

    This rule was listed as sequence number 1727 in the Department's 
Semiannual Regulatory Agenda published on May 8, 1995 (60 FR 23368, 
23377) 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, part 888 of 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 is revised to read as 
follows:

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

    2. Sections 888.101 and 888.105 are removed and Sec. 888.111 is 
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 of 
this chapter. FMRs are also used to determine payment standard 
schedules in the Rental Voucher program.
    3. Section 888.113 is 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, newly built units and substandard 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 

[[Page 42227]]
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 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 is 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: August 4, 1995.
Henry G. Cisneros,
Secretary.
[FR Doc. 95-19834 Filed 8-14-95; 8:45 am]
BILLING CODE 4210-32-P