[Federal Register Volume 82, Number 60 (Thursday, March 30, 2017)]
[Notices]
[Pages 15711-15714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06298]



[[Page 15711]]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5962-N-03]


Fair Market Rents for the Housing Choice Voucher Program and 
Moderate Rehabilitation Single Room Occupancy Program Fiscal Year 2017; 
Revised

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

ACTION: Notice of Revised Fiscal Year (FY) 2017 Fair Market Rents 
(FMRs) and Discussion of Comments on FY 2017 FMRs.

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SUMMARY: This notice updates the FY 2017 FMRs for Portland, ME HUD 
Metro FMR Area (HMFA) and Vallejo-Fairfield, CA Metropolitan 
Statistical Area (MSA), as requested by commenters. In addition to 
announcing these revised FY 2017 FMRs, this notice also includes HUD 
responses to the comments received regarding the FY 2017 FMRs.

DATES: Effective Date: The revised FY 2017 FMRs for Portland, ME, HMFA 
and Vallejo-Fairfield, CA, MSA are effective on May 1, 2017.

FOR FURTHER INFORMATION, CONTACT: 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 202-402-2409. Persons with hearing 
or speech impairments may access this number through TTY by calling the 
toll-free Federal Relay Service at 800-877-8339 (toll-free).
    Questions related to use of FMRs or voucher payment standards 
should be directed to the respective local HUD program staff.
    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 (toll-free) or access the information on the HUD USER Web 
site: http://www.huduser.gov/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 2017 FMR documentation 
system at https://www.huduser.gov/portal/datasets/fmr.html#2017_query 
and 50th percentile rents for all FMR areas are published at http://www.huduser.gov/portal/datasets/50per.html.

SUPPLEMENTARY INFORMATION: On August 26, 2016, HUD published the FY 
2017 FMRs, requesting comments on the FY 2017 FMRs, and outlined 
procedures for requesting a reevaluation of an area's FY 2017 FMRs (81 
FR 58952). This notice revises FY 2017 FMRs for two areas that 
requested reevaluation and provided data to HUD to allow for a 
reevaluation, and provides responses to the public comments HUD 
received on the previous notice referenced above.

I. Revised FY 2017 FMRs

    The FMRs appearing in the following table supersede the use of the 
FY 2016 FMRs for Portland, ME HUD Metro FMR Area (HMFA) and Vallejo-
Fairfield, CA Metropolitan Statistical Area (MSA). The updated FY 2017 
FMRs are based on surveys conducted in December 2016 by the area public 
housing agencies (PHAs) and reflect the estimated 40th percentile rent 
levels trended to April 1, 2017.
    The FMRs for the affected area are revised as follows:

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                                                         FMR by number of bedrooms in unit
   2017 fair market rent area    -------------------------------------------------------------------------------
                                       0 BR            1 BR            2 BR            3 BR            4 BR
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Portland, ME, HMFA..............             911            1028            1301            1755            1906
Vallejo-Fairfield, CA MSA.......             830            1035            1294            1884            2280
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    The FMR Schedules are amended as shown in the Appendix to this 
notice and are available on the HUD USER Web site: http://www.huduser.gov/portal/datasets/fmr.html. The FMR Schedules will not be 
codified in 24 CFR part 888.

II. Public Comments on FY 2017 FMRs

    A total of 29 comments were received and posted on regulations.gov, 
https://www.regulations.gov/docket?D=HUD-2016-0093. Fourteen of these 
comments were requests for reevaluation of the FY 2017 FMRs for 11 FMR 
areas. HUD approved requests for nine metropolitan areas and declined 
them for two metropolitan areas (where the requester(s) did not 
administer more than 50 percent of the housing choice voucher families 
in the metropolitan area, as required) in a posting on October 3, 2016 
available at https://www.huduser.gov/portal/datasets/fmr/fmr2017/Areas-where-FY2016-FMRs-Remain-in-Effect.pdf. These nine areas were granted 
approval to continue to use FY 2016 FMRs until the reevaluation of the 
FY 2017 FMRs has occurred. Each metropolitan area was given until 
January 6, 2017 to provide HUD with the data to reevaluate the FY 2017 
FMRs. One area, the Dallas, TX HUD Metro FMR Area (HMFA), which uses 
Small Area FMRs under a court settlement, has already been reevaluated 
and its FY 2017 Small Area FMRs have been updated (81 FR 78177), 
effective December 7, 2016. This notice updates FY 2017 FMRs for two 
additional areas. The remaining six areas did not provide HUD data to 
complete a reevaluation, and their FY 2017 FMRs are unchanged from the 
amounts provided in the August 26, 2016 notice. In accordance with the 
reevaluation procedures outlined in the August 26, 2016 FY 2017 Fair 
Market Rent notice (81 FR 58952, Section V. Requests For FMR 
Reevaluations, item 4), HUD posted a listing of these six areas where 
data was not submitted and announced that the FY 2017 FMRs for these 
areas became effective on January 9, 2017 (https://www.huduser.gov/portal/datasets/fmr/fmr2017/Areas-Where-FY2017-FMRs-become-effective.pdf).
    Most of the other comments discussed inaccuracies of the FMRs and a 
need for more current data. Several of the comments addressed HUD's 
specific request for public comment on ``on what should be considered 
`material changes' in FMR estimation methods for purposes of triggering 
public notice and comment under HOTMA.'' \1\ In addition, there was a 
request for a change in a geographic area definition for a metropolitan 
area in which parts of the area are not contiguous. HUD has summarized 
the comments where possible and provides responses to these comment 
groups in greater detail below.
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    \1\ HOTMA is the Housing Opportunities Through Modernization Act 
of 2016 (Pub. L. 114-201, approved July 29, 2016).
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General Comments

    Comments: FMRs do not represent accurate on-the-ground rental 
market prices. The accuracy of FMRs is a function of the underlying 
data set and

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the methodology used to convert the data set to the FMRs, and the 
source of the data is unchanged from last year.
    HUD Response: The American Community Survey (ACS) continues to be 
the primary source of gross rent data used in the calculation of the 
FMRs as it is the only known statistically reliable data source that 
provides comprehensive information on gross rents paid collected in a 
consistent manner nationwide. The ACS data HUD acquires is adjusted for 
housing quality and calculated at the 40th percentile rent for the FMR 
areas. HUD does point out that the data used to calculate FY 2017 FMRs 
is one year more current than the data used to calculate FY 2016 FMRs. 
HUD uses the most current ACS data available when calculating the FMRs. 
As an example, consider the publication timeline for the FY 2017 FMRs. 
The FY 2017 FMRs were calculated in June and July of 2016 for 
publication in August 2016, but the 2015 ACS data was not released 
until September through December of 2016. Therefore, during calculation 
of FY 2017 FMRs, the 2014 ACS data was the most current available ACS 
data. HUD augments the most current available ACS data with the annual 
change in gross rents measured by the Bureau of Labor Statistics' 
Consumer Price Index (measured between 2014 and 2015 in the FY 2017 FMR 
example), and a forecasted trend factor to align the calculated FMRs 
with the Fiscal Year for which the FMRs are effective.
    Comments: Inaccurate FMRs have strong negative impacts on PHAs' 
ability to serve Housing Choice Voucher (HCV) participants. Low-income 
families that rely on the HCV program will feel the greatest impact in 
areas where the published FMRs are too low relative to actual costs. 
These low FMRs cause cost burdens for voucher-assisted households to 
increase, sometimes to the point of forcing low-income families to seek 
housing in areas with greater concentrations of poverty and lower-
quality housing stock.
    HUD Response: HUD is aware of the impacts when FMRs are too high or 
too low and strives to limit inaccuracies and year-to-year fluctuations 
in FMRs. HUD continually reviews its methodology and expects to propose 
changes in a future Federal Register notice.
    Comments: HUD's previous statements about making further changes 
that would be reflected in its FY 2017 FMRs, were not acted upon. There 
are erratic fluctuations in FMR values within the same bedroom size in 
the same county, in opposite directions year over year, which do not 
accurately reflect many local housing markets. There are fluctuations 
in FMR values in opposite directions between different bedroom sizes 
within the same year and there are erratic fluctuations in opposite 
directions year over year that have had the effect of largely 
cancelling each other out over this three-year period, in a way that 
does not accurately reflect gross rent values in many rental housing 
markets. This commenter also expressed concern in the large variations 
in differences between the FY 2017 Unadjusted rents and the FY 2017 
Final FMRs.
    HUD Response: HUD's initial plan for Proposed FY 2017 FMRs included 
several changes to the FMR calculation methods to address these 
criticisms of FMRs; however, with the enactment of the Housing 
Opportunities Through Modernization Act (HOTMA) (Pub. L. 114-201, 
approved July 29, 2016) which changed the FMR publication process, 
there was insufficient time to publish a notice of proposed material 
change, review comments, and post FY 2017 FMRs with a 30-day delayed 
effective date (as is all now required), and still meet the mandated 
October 1, 2016 effective date for FY 2017 FMRs (which is unchanged). 
Therefore, HUD published FY 2017 FMRs with no methodology changes, and 
expects to propose them in a forthcoming notice.
    HUD implemented the state non-metropolitan minimum FMR standard to 
ensure that voucher holders have access to suitable rental housing 
units where the rent paid is sufficient to cover the long-term 
operating and capital requirements for the dwelling. Areas where the 
state non-metropolitan minimum rent is applied have ACS-based 
unadjusted rents that are below a reasonable level for these long-term 
commitments.
    State non-metropolitan minimum rents are calculated as the 
population weighted median 2 bedroom rent calculated from the data 
specific to each non-metropolitan county in a state. The Final 2 
bedroom FMR for an area becomes the state non-metropolitan minimum if 
the rent calculated based on the county level data is below the 
minimum; therefore, depending on the distribution of county-level 
unadjusted rents, certain counties could have considerable differences 
between their unadjusted rent and their published FMR. Unadjusted rents 
are made available to PHAs solely for the purpose of setting flat rents 
for their public housing portfolios.
    Comments: FMRs are deeply flawed and the changes HUD has taken 
regarding annual adjustment factors are still insufficient. Actions 
taken by the Senate Appropriations Committee are an attempt to force 
HUD to make deeper and broader improvements to its FMRs. The Senate FY 
2017 THUD-Appropriations bill (Pub. L. 114-223, approved on September 
29, 2016) appropriates $41.5 million to HUD to pay for local rental 
market surveys of areas affected by changing economic conditions and 
natural disasters.
    HUD Response: The funds in the Senate appropriations bill 
referenced by the commenter are for the American Housing Survey, which 
focuses on housing quality and other demographic issues rather than 
rents. This is a longitudinal survey with limited local data and the 
funds cannot be redirected for rent surveys in areas affected by 
changing economic conditions and natural disasters. The HUD 
appropriations previously used to conduct rent surveys to adjust FMRs 
have not been made since 2012.
    Comments: Ever since HUD used its discretionary authority to adopt 
each new OMB area for FMR purposes, starting in FY 2006, HUD's rent 
estimates have gone haywire. To calculate the FY 2016 FMRs, HUD 
incorporated OMB's latest metropolitan area definition from 2013. As a 
result, there are counties previously designated by HUD as non-metro 
that HUD subsequently designated as metropolitan and vice-versa. HUD's 
FMR areas and SAFMR areas artificially inflate rent values in non-
metropolitan areas and artificially deflate FMR values in metropolitan 
areas.
    HUD Response: In 2006, when HUD applied OMB's new metropolitan area 
definitions based on the 2000 Decennial Census to the FMRs, HUD was 
following longstanding past practice. HUD modified FMR areas in 
accordance with updated OMB area definitions after the 1980, and 1990 
Decennial Censuses. HUD's incorporation of the 2010 Decennial Census-
based area definitions into the FY 2016 FMRs continued HUD's 
longstanding past practices. The updated OMB area definitions' changes 
in area geography, and especially changes from non-metropolitan to 
metropolitan area designations, are important in providing consistency 
across all federal programs. HUD specifically considers the impact of 
area definition changes on Fair Market Rent levels and other program 
parameters when implementing metropolitan area definition changes, and 
specifically deviates from OMB definitions to prevent large changes 
when sufficient local data is available.
    Comments: HUD should use more timely data when calculating FMRs. 
HUD should work to develop a method to incorporate more recent data 
into its

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published FMRs rather than continue to rely on PHA-funded studies to 
correct inaccuracies in FMRs. The ACS five-year and one-year datasets 
do not possess adequate external validity for calculating current non-
regulated rents for all FMR areas. Additionally, the ACS dataset fails 
to capture key data on housing quality to ensure that calculations are 
based on the relevant population. This omission greatly alters the FMR 
estimates and leads to underestimation of the current housing costs. 
PHAs are not well suited to conduct surveys and compile sophisticated 
statistical analyses. This is a function that would be better suited 
for HUD's Office of Policy Development and Research (PD&R).
    HUD Response: There is no other data on gross rents paid that is 
consistently collected on a nationwide basis, available to HUD, and 
more timely than the ACS dataset. HUD recognizes the housing quality 
data limitations of the ACS dataset and uses a combination of ACS 
survey responses and a public housing ``cut-off'' rent calculated from 
HUD administrative data to identify and eliminate these low rent units 
from the distribution of gross rents paid before a 40th percentile rent 
is calculated. The rationale for using this ``cut-off'' rent is that 
units with gross rents below these amounts are either of insufficient 
quality to meet the housing quality standards for units occupied by 
voucher holders, or are representative of an assisted tenant's out of 
pocket expenses and not a true measure of the market gross rent for the 
unit. Eliminating these units from the distribution before the 40th 
percentile rent is calculated raises the 40th percentile rent for the 
area. As discussed earlier, HUD currently lacks funding and the 
mechanisms necessary to collect rent data by a more specialized survey 
method.
    Comments: The effective date for new FMRs should be 60 days from 
publication, not 30 days. HUD has offered only a 30-day period for PHAs 
to submit a request for reevaluation of the FMR for their regions. HUD 
should provide at least 60 days for PHAs to make a reevaluation 
request. Further, PHAs should be able to choose to continue to use the 
prior year FMR or use the new FMR for which they requested a 
reevaluation. Otherwise, a PHA seeking reevaluation whose FMR has 
increased is, in effect, penalized for requesting reevaluation because 
it must continue to use the prior year's lower FMR.
    HUD Response: HOTMA requires that FMRs become effective no less 
than 30 days following their publication. In order to provide 
additional time for PHAs to implement newly effective FMRs, HUD's Small 
Area FMR rule (81 FMR 80567) provides that all PHAs have up to three 
months from the date when the new FMRs go into effect in which to 
update their payment standards if a change is necessary to fall within 
the basic range of the new FMRs. Regarding the timing of reevaluation 
requests, the FY 2017 FMRs were delayed due to the HOTMA-mandated 
changes in FMR publication requirements and procedures. Based on timing 
constraints, HUD provided the longest window possible for making the FY 
2017 FMRs effective and for providing a request for FMR reevaluation. 
Finally, provisions within HOTMA govern the process for FMR 
reevaluation requests. Specifically, HOTMA states: ``The Secretary 
shall establish a procedure for public housing agencies and other 
interested parties to comment on such fair market rentals and to 
request, within a time specified by the Secretary, reevaluation of the 
fair market rentals in a jurisdiction before such rentals become 
effective.'' [emphasis added]. Therefore, HUD may not make the newly 
calculated FMRs effective when a valid reevaluation request is 
received. Practically speaking, allowing a PHA to use the higher of the 
previous year or current year FMR would also create significant issues 
for quality control and program audit activities.
    Comments: HUD should allow interested stakeholders to comment on 
the utility component of FMRs. We recommend that HUD provide PHAs with 
the utility data it gathers from the annual FMR calculations so that 
PHAs may evaluate the percentage change in the utility component from 
year to year.
    HUD Response: HUD receives ACS data on gross rents paid from the 
Census Bureau to determine FMRs. The utility component is embedded in 
this gross rent and not separately available. The inflation adjustments 
HUD applies to the ACS data includes indices for rent and utilities. 
While the rent and utility inflation indices can be found in the FMR 
documentation system, they only serve to inflate the gross rents HUD 
receives from the ACS, and are not separate estimates of the utility 
component of gross rent. Section 108 of HOTMA charges HUD with 
collecting data on utility consumption and costs in local areas to the 
extent that HUD can do so cost efficiently. HUD is reviewing what can 
be accomplished cost efficiently and will release these data when they 
become available.
    Comments: HUD should take an expansive view of what constitutes a 
``material change'' in FMR estimation methods. It is unlikely that HUD 
can predict the impact of changes in FMR methodology for every FMR 
geography. The ``material change'' criteria should not be based on 
either the number of FMR areas impacted or a triggering threshold based 
on the number of areas whose FMRs would change by a certain percentage 
before HUD is required to get comments on a ``material change''. Only 
changes that impact how a PHA can spend money (since PHA payment 
standards are based on FMRs) should be required to be considered 
material.
    HUD Response: HUD appreciates this comment and HUD is taking an 
expansive view on what constitutes a ``material change'' and intends to 
provide an opportunity for public comment on all FMR methodological 
changes in forthcoming proposed notices of material changes in FMR 
calculations. Moreover, HUD points out that most method changes do not 
occur in one direction and are not static. That is, FMRs in some areas 
will go up and some areas will go down as a result of calculation 
changes, and these changes may mean that an area that went up one year 
will go down the next year.
    Comments: HUD should consider smoothing-out the sharp swings in 
rents from the year-to-year caused by year-to-year changes in the 
determination of the recent mover factor. Such large changes affect 
planning and management efforts.
    HUD Response: HUD may assess the need to propose changes to the FMR 
estimation methodology related to data integrity in a forthcoming 
notice of Proposed Material Change that should reduce such large year-
to-year swings that can arise from the one-year recent mover data.
    Comments: The bonuses for three-bedroom, four-bedroom and higher 
bedroom-count units, ostensibly to help the largest and most difficult-
to-house families find units, should not be used without qualification. 
HUD's policy signals to every developer that a greater profit is to be 
found in the production of high bedroom-count units. The per-room rent 
differential offered by HUD for a three-bedroom unit is five times as 
attractive (per room) as the one offered for a single-bedroom unit, and 
thus hinders our ability to respond to local housing market conditions.
    HUD Response: The bonuses applied to the ratios used to calculate 
the FMRs for higher bedroom-count units have been an important means of 
serving the relatively small group of large-sized families dependent on 
vouchers. While HUD appreciate the comment, HUD does not believe the 
bonuses should be eliminated, even for certain areas.

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Comments Specific to Puerto Rico

    Comments: HUD should not use multiple non-contiguous geographical 
areas as an FMR Area nor apply a single FMR to non-adjacent 
geographical areas. HUD's use of non-contiguous county equivalents 
(municipios) in a metropolitan area does not conform to the adjacency 
standard governing the designation of metropolitan and nonmetropolitan 
areas.
    HUD Response: The county removed from the Barranquitas Aibonito-
Quebradillas FMR area was not removed because it is not a contiguous 
area, it was removed because OMB removed it from this metropolitan 
area. OMB kept the remaining non-contiguous county (municipio), 
Maunabo, in the metropolitan area, and did not follow the adjacency 
criteria for this metropolitan area. Both counties (municipios) have 
been in the metro area at least as far back as 2006. Functionally, 
removing Maunabo Municipio from the current FMR area will not change 
the effective FMR for the municipio as there is insufficient data to 
calculate a stand-alone FMR for the municipio and the state non-
metropolitan minimum would still be used.
    Comments: The use of the Consumer Expenditure Survey (CES) heat use 
index as a proxy to adjust the ``Rent of primary residence'' statistic 
to remove the influence of utilities has a depressing effect in a 
tropical area.
    HUD Response: HUD's longstanding use of the CES heat use index 
helps HUD estimate the portion of gross rent attributable to shelter 
cost and the portion attributable to utility costs. The commenter 
suggests that HUD's methodology has the effect of lowering FMRs in 
tropical areas. However, given recent economic trends, increasing the 
influence of utility costs in the calculation of gross rents in Puerto 
Rico at this time would further depress rents, not raise them. More 
fundamentally, HUD's use of the heat use index to ``remove'' the 
influence of utilities from the ``rent of primary residence component'' 
of gross rents is necessary because the rent of primary residence index 
captures some utility costs for units where utilities are included in 
the rent payment. Therefore, HUD must determine how much utility costs 
are embedded in the rent of primary residence so as to not double count 
the influence of utility costs changes when constructing a gross rent 
inflation factor.
    To summarize how the CES heat use index is used in the calculation 
of FMRs: FMRs are gross rent estimates. Gross rents include the cost of 
the shelter plus the cost of the necessary utilities for the dwelling 
unit. In order to produce an FMR that comports with the statutory 
requirements of calculating the FMRs ``based on the most recent 
available data trended so the rentals will be current for the year to 
which they apply,'' HUD uses data from the American Community Survey on 
gross rents paid, updated by the change in gross rents measured through 
the CPI and trended using a national forecast of expected growth in 
gross rents. In order to calculate a gross rent increase factor using 
CPI data, HUD must determine how to combine the CPI's measurement of 
the ``rent of primary residence'' and the ``fuels and utilities'' 
component of Housing. This step is complicated by the fact that some of 
the rents reported in the survey used to generate the CPI data for 
``rent of primary residence'' already include utility costs. To cleanly 
separate the two components of ``rents'' and ``utilities,'' it is 
necessary to factor out any utility costs reported as rents. HUD uses 
the CES heat use index to estimate this amount.
    Several years ago, HUD began using CPI ``rent'' and ``utilities'' 
components measured solely for Puerto Rico to calculate Puerto Rico's 
gross rent increase factor. However, because no local measure is known 
to exist that could serve as the equivalent of the CES heat use index, 
HUD uses the South Census Region CES information as a proxy in Puerto 
Rico. For the relevant time period (2014 to 2015), the ``rent of 
primary residence'' statistic measured across all of Puerto Rico 
increased by 0.47 percent while the ``fuels and utilities'' component 
of housing declined by 14.75 percent. Given the large decrease in fuels 
and utilities measured in Puerto Rico, every combination of the two CPI 
components to obtain a measurement of the change in gross rents where 
the weight on the ``rent of primary residence'' component is 95 percent 
or less for Puerto Rico yields an overall negative CPI update factor 
(less than 1). Therefore, as stated above, increasing the influence of 
utility costs in the calculation of gross rents in Puerto Rico in 2017 
would further depress rents, not raise them.

III. Environmental Impact

    This Notice makes changes in FMRs for two FMR areas and does 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).

    Dated: March 23, 2017.
Matthew E. Ammon,
General Deputy Assistant Secretary for Policy Development & Research.
[FR Doc. 2017-06298 Filed 3-29-17; 8:45 am]
 BILLING CODE 4210-67-P