[Federal Register Volume 88, Number 46 (Thursday, March 9, 2023)]
[Notices]
[Pages 14639-14641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04813]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[FR-6365-N-01]


Section 8 Housing Assistance Payments Program--Annual Adjustment 
Factors, Fiscal Year 2023

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

ACTION: Notice of fiscal year (FY) 2023 annual adjustment factors 
(AAFs).

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SUMMARY: The United States Housing Act of 1937 requires that certain 
assistance contracts signed by owners participating in the Department's 
Section 8 housing assistance payment programs provide annual 
adjustments to monthly rentals for units covered by the contracts. For 
owners subject to a Reserve for Replacement deposit requirement, HUD 
also requires that the amount of the required deposit be adjusted each 
year by the AAF. This notice announces FY 2023 AAFs for such 
adjustments. The factors are based on a formula using residential rent 
and utility cost changes from the most recent annual Bureau of Labor 
Statistics (BLS) Consumer Price Index (CPI) survey.

DATES: Effective Date: March 9, 2023.

FOR FURTHER INFORMATION CONTACT: Ryan Jones, Director, Management and 
Operations Division, Office of Housing Voucher Programs, Office of 
Public and Indian Housing, 202-708-1380, for questions relating to the 
Section 8 Moderate Rehabilitation program (not the Section 8 Moderate 
Rehabilitation Single Room Occupancy program); Norman A. Suchar, 
Director, Office of Special Needs Assistance Programs, Office of 
Community Planning and Development, 202-402-5015, for questions 
regarding the Section 8 Moderate Rehabilitation Single Room Occupancy 
(SRO) program; Jennifer Lavorel, Director, OAMPO Program Administration 
Office, Office of Multifamily Housing, 202-402-2231, for questions 
relating to all other Section 8 programs; and Adam Bibler, Director, 
Program Parameters and Research Division, Office of Policy Development 
and Research, 202-402-6057, for technical information regarding the 
development of the schedules for specific areas or the methods used for 
calculating the AAFs. The mailing address for these individuals is: 
Department of Housing and Urban Development, 451 7th Street SW, 
Washington, DC 20410. HUD welcomes and is prepared to receive calls 
from individuals who are deaf or hard of hearing, as well as 
individuals with speech or communication disabilities. To learn more 
about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: AAFs are applied at the anniversary of 
Housing Assistance Payment (HAP) contracts for which rents are to be 
adjusted using the AAF for those calendar months commencing after the 
effective date of this notice. The amount that an owner is required to 
deposit to the Reserve for Replacement account is also adjusted 
annually by the most recently published AAF, at the HAP contract 
anniversary. AAFs are distinct from, and do not apply to the same 
properties as, Operating Cost Adjustment Factors (OCAFs). OCAFs are 
annual factors used to adjust rents for project-based rental assistance 
contracts issued under Section 8 of the United States Housing Act of 
1937 and renewed under section 515 or section 524 of the Multifamily 
Assisted Housing Reform and Affordability Act of 1997 (MAHRA). HUD has 
published OCAFs for 2023 in the Federal Register at 87 FR 68513. The 
AAFs are also distinct from Renewal Funding Inflation Factors which 
help determine renewal funding for public housing agencies operating 
the Housing Choice Voucher program. A separate Federal Register notice, 
to be published following the passage of FY 2023 HUD appropriations, 
will contain the 2023 Renewal Funding Inflation Factors.
    Tables showing AAFs will be available electronically from the HUD 
data information page at http://www.huduser.gov/portal/datasets/aaf.html.

I. Applying AAFs to Various Section 8 Programs

    AAFs established by this notice are used to adjust contract rents 
for units assisted in certain Section 8 housing assistance payment 
programs during the initial (i.e., pre-renewal) term of the HAP 
contract. There are two categories of Section 8 programs that use the 
AAFs:
    Category 1: The Section 8 New Construction, Substantial 
Rehabilitation, and Moderate Rehabilitation programs; and
    Category 2: The Section 8 Loan Management Set-Aside (LMSA) and 
Property Disposition (PD) programs.
    Each Section 8 program category uses the AAFs differently. The 
specific application of the AAFs is determined by the law, the HAP 
contract, and appropriate program regulations or requirements.
    AAFs are not used in the following cases:
    Renewal Rents. AAFs are not used to determine renewal rents after 
expiration of the original Section 8 HAP contract (either for projects 
where the Section 8 HAP contract is renewed under a restructuring plan 
adopted under 24 CFR part 401; or renewed without restructuring under 
24 CFR part 402). In general, renewal rents are established in 
accordance with the statutory provision in MAHRA, as amended, under 
which the HAP is renewed. After renewal, annual rent adjustments will 
be provided in accordance with MAHRA.
    Budget-based Rents. AAFs are not used for budget-based rent 
adjustments. For projects receiving Section 8 subsidies under the LM 
program (24 CFR part 886, subpart A) and for projects receiving Section 
8 subsidies under the PD program (24 CFR part 886, subpart C), contract 
rents are adjusted, at HUD's option, either by applying the AAFs or by 
budget-based adjustments in accordance with 24 CFR 886.112(b) and 24 
CFR 886.312(b). Budget-based adjustments are used for most Section 8/
202 projects.
    Housing Choice Voucher and Project-Based Voucher Programs. AAFs are 
not used to adjust rents in the Tenant-Based or the Project-Based 
Voucher programs.
    Reserve for Replacement. The amount that an owner is required to 
deposit to the Reserve for Replacement account is adjusted annually by 
the AAF at the HAP contract anniversary.

II. Adjustment Procedures

    This section of the notice provides a broad description of 
procedures for adjusting the contract rent. Technical details and 
requirements are described

[[Page 14640]]

in HUD notices H 2002-10 (Section 8 New Construction and Substantial 
Rehabilitation, Loan Management, and Property Disposition) and PIH 97-
57 (Moderate Rehabilitation). HUD publishes two separate AAF Tables, 
Table 1 and Table 2. The difference between Table 1 and Table 2 is that 
each AAF in Table 2 is 0.01 less than the corresponding AAF in Table 1. 
Where an AAF in Table 1 would otherwise be less than 1.0, it is set at 
1.0, as required by statute; the corresponding AAF in Table 2 will also 
be set at 1.0, as required by statute. Because of statutory and 
structural distinctions among the various Section 8 programs, there are 
separate rent adjustment procedures for the two program categories:

Category 1: Section 8 New Construction, Substantial Rehabilitation, and 
Moderate Rehabilitation Programs

    In the Section 8 New Construction and Substantial Rehabilitation 
programs, the published AAF factor is applied to the pre-adjustment 
contract rent. In the Section 8 Moderate Rehabilitation program (both 
the regular program and the single room occupancy program), the 
published AAF is applied to the pre-adjustment base rent.
    For Category 1 programs, the Table 1 AAF factor is applied before 
determining comparability (rent reasonableness). Comparability applies 
if the pre-adjustment gross rent (pre-adjustment contract rent plus any 
allowance for tenant-paid utilities) is above the published Fair Market 
Rent (FMR).
    If the comparable rent level (plus any initial difference) is lower 
than the contract rent as adjusted by application of the Table 1 AAF, 
the comparable rent level (plus any initial difference) will be the new 
contract rent. However, the pre-adjustment contract rent will not be 
decreased by application of comparability.
    In all other cases (i.e., unless the contract rent is reduced by 
comparability):
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     Table 2 AAF is used for a unit occupied by the same family 
as at the time of the last annual contract anniversary.

Category 2: Section 8 Loan Management Program (24 CFR Part 886, Subpart 
A) and Property Disposition Program (24 CFR Part 886, Subpart C)

    Category 2 programs are not currently subject to comparability. 
Comparability will again apply if HUD establishes regulations for 
conducting comparability studies under 42 U.S.C. 1437f(c)(2)(C).
    The applicable AAF is determined as follows:
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     Table 2 AAF is used for a unit occupied by the same family 
as at the time of the last annual contract anniversary.

Category 3: Reserve for Replacement

    The amount of the deposit to the Reserve for Replacement account 
must be increased annually using the most recently published ``Regional 
AAF with Highest Utility Excluded'' for the region in which the project 
is located. This adjustment must be made without regard to vacancies.

III. When To Use Reduced AAFs (From AAF Table 2)

    In accordance with Section 8(c)(2)(A) of the United States Housing 
Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), the AAF is reduced by 0.01:
    In Section 8 programs, for a unit occupied by the same family at 
the time of the last annual rent adjustment (and where the rent is not 
reduced by application of comparability (rent reasonableness)).
    The law provides that:
    For any unit occupied by the same family at the time of the last 
annual rental adjustment, where the assistance contract provides for 
the adjustment of the maximum monthly rent by applying an annual 
adjustment factor and where the rent for a unit is otherwise eligible 
for an adjustment based on the full amount of the factor, 0.01 shall be 
subtracted from the amount of the factor, except that the factor shall 
not be reduced to less than 1.0.
    Legislative history for this statutory provision states that ``the 
rationale [for lower AAFs for non-turnover units is] that operating 
costs are less if tenant turnover is less . . . .'' \1\ The 
Congressional Record also states the following:
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    \1\ See Department of Veteran Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations for 1995, 
Hearings Before a Subcommittee of the Committee on Appropriations 
103d Cong., 2d Sess. 591 (1994).
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    Because the cost to owners of turnover-related vacancies, 
maintenance, and marketing are lower for long-term stable tenants, 
these tenants are typically charged less than recent movers in the 
unassisted market. Since HUD pays the full amount of any rent increases 
for assisted tenants in section 8 projects, HUD should expect to 
benefit from this `tenure discount.' Turnover is lower in assisted 
properties than in the unassisted market, so the effect of the current 
inconsistency with market-based rent increases is exacerbated. 140 
Cong. Rec. 8659, 8693 (1994).

IV. How To Find the AAF

    AAF Table 1 and Table 2 are posted on the HUD User website at 
http://www.huduser.gov/portal/datasets/aaf.html. There are two numeric 
columns in each AAF table. The first column is used to adjust contract 
rent for rental units where the highest cost utility is included in the 
contract rent, i.e., where the owner pays for the highest cost utility. 
The second column is used where the highest cost utility is not 
included in the contract rent, i.e., where the tenant pays for the 
highest cost utility.
    The applicable AAF is selected as follows:
     Determine whether Table 1 or Table 2 is applicable. In 
Table 1 or Table 2, locate the AAF for the geographic area where the 
contract unit is located.
     Determine whether the highest cost utility is or is not 
included in contract rent for the contract unit.
     If highest cost utility is included, select the AAF from 
the column for ``Highest Cost Utility Included.'' If highest cost 
utility is not included, select the AAF from the column for ``Highest 
Cost Utility Excluded.''

V. Methodology

    AAFs are rent inflation factors. Two types of rent inflation 
factors are calculated for AAFs: gross rent factors and shelter rent 
factors. The gross rent factor accounts for inflation in the cost of 
both the rent of the residence and the utilities used by the unit; the 
shelter rent factor accounts for the inflation in the rent of the 
residence but does not reflect any change in the cost of utilities. The 
gross rent inflation factor is designated as ``Highest Cost Utility 
Included'' and the shelter rent inflation factor is designated as 
``Highest Cost Utility Excluded.''
    AAFs are calculated using CPI data on ``rent of primary residence'' 
and ``fuels and utilities.'' \2\ The CPI inflation index for rent of 
primary residence measures the inflation of all surveyed units 
regardless of whether utilities are included in the rent of the unit or 
not. In other words, it measures the inflation of the ``contract rent'' 
which includes units with all utilities included in the rent, units 
with some utilities included in the rent, and units with no utilities 
included in the rent. In producing a

[[Page 14641]]

gross rent inflation factor and a shelter rent inflation factor, HUD 
decomposes the contract rent CPI inflation factor into parts to 
represent the gross rent change and the shelter rent change. This is 
done by applying data from the Consumer Expenditure Survey (CEX) on the 
percentage of renters who pay for heat (a proxy for the percentage of 
renters who pay shelter rent) and, also, American Community Survey 
(ACS) data on the ratio of utilities to rents.\3\ The BLS does not 
produce local inflation estimates for Puerto Rico. Therefore, HUD uses 
analogous estimates from the Puerto Rico Department of Labor and Human 
Resources (DTRH), Bureau of Statistics.
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    \2\ CPI indexes ``SEHA'' and ``SAH2'' respectively.
    \3\ The formulas used to produce these factors can be found in 
the Annual Adjustment Factors overview and in the FMR documentation 
at www.HUDUSER.gov.
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Survey Data Used To Produce AAFs

    The rent inflation factor and fuel and utilities inflation factor 
for each large metropolitan area and Census region are based, 
respectively, on changes in the CPI index for rent of primary residence 
and the CPI index for fuels and utilities from 2020 to 2021. The CEX 
data used to decompose the contract rent inflation factor into gross 
rent and shelter rent inflation factors come from a special tabulation 
of 2021 CEX survey data produced for HUD. The utility-to-rent ratio 
used to produce AAFs comes from 2020 ACS median rent and utility costs.

Geographic Areas

    Beginning with the data collection for 2018, BLS revised the sample 
for the CPI to be based on Core Based Statistical Areas (CBSAs). 
Previously, the sample was based on Metropolitan Statistical Areas 
(MSAs) as defined in 1998. In addition, the population required to be 
designated a Class A CPI city was increased from 1.5 million to 2.5 
million. The following major metropolitan areas were eliminated under 
the new sample design: Pittsburgh PA, Cincinnati-Hamilton OH-KY-IN, 
Cleveland-Akron OH, Milwaukee-Racine WI, Kansas City MO-KS, and 
Portland-Salem OR-WA. With the change in metropolitan area definitions 
and the designation of Class A cities, the number of CPI cities 
declined from 28 metropolitan areas to 23 metropolitan areas 
(Riverside-San Bernardino has been split off from the Los Angeles 
survey area). This decline has resulted in fewer metropolitan component 
areas receiving local CPI adjustments. The 2018 CPI data with new 
metropolitan area definitions was first used with the FY 2020 AAFs. 
This change did not impact Puerto Rico which applies an island-wide CPI 
to all metropolitan and nonmetropolitan areas.
    Each metropolitan area that uses a local CPI update factor is 
listed alphabetically in the tables and each HUD Metro FMR Area (HMFA) 
is listed alphabetically within its respective CBSA. Each AAF applies 
to a specific geographic area and to units of all bedroom sizes. AAFs 
are provided:
     For metropolitan areas at the MSA or HMFA level, and 
counties that are currently designated as nonmetropolitan, but are part 
of the metropolitan area defined in the local CPI survey.
     For the four Census regions (to be used for those 
metropolitan areas that are not covered by a CPI metropolitan survey, 
and non-metropolitan areas).
    AAFs use the same Office of Management and Budget (OMB) 
metropolitan area definitions, as revised by HUD, that are used for the 
FY 2023 FMRs.

Area Definitions

    To make certain that they are using the correct AAFs, users should 
refer to the Area Definitions Table section at http://www.huduser.gov/portal/datasets/aaf.html. The Area Definitions Table lists CPI areas in 
alphabetical order by State, and the associated Census region is shown 
next to each State name. Areas with AAFs that are determined by local 
CPI surveys are listed first. All metropolitan areas with local CPI 
survey areas have separate AAF schedules and are shown with their 
corresponding county definitions or as metropolitan counties. In the 
six New England States, the listings are for counties or parts of 
counties as defined by towns or cities. The remaining counties use the 
CPI for the Census region and are not separately listed in the Area 
Definitions Table at http://www.huduser.gov/portal/datasets/aaf.html.
    Puerto Rico uses its own AAFs calculated from the inflation 
estimates from the Puerto Rico Department of Labor and Human Resources 
(DTRH), Bureau of Statistics, and adjusted by the ACS. The Virgin 
Islands uses the South Region AAFs, and the Pacific Islands use the 
West Region AAFs.

Solomon J. Greene,
Principal Deputy Assistant Secretary for Policy Development and 
Research.
[FR Doc. 2023-04813 Filed 3-8-23; 8:45 am]
BILLING CODE 4210-67-P