[Federal Register Volume 88, Number 120 (Friday, June 23, 2023)]
[Notices]
[Pages 41118-41123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13395]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6401-N-01]


Proposed Changes to the Methodology Used for Calculating Fair 
Market Rents

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

ACTION: Notice of proposed changes for calculating Fair Market Rents 
(FMRs).

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SUMMARY: The United States Housing Act of 1937 (USHA) requires the 
Secretary to publish FMRs periodically, but not less than annually, 
adjusted to be effective on October 1 of each year. The primary uses of 
FMRs are to determine payment standards for the Housing Choice Voucher 
(HCV) program, to determine initial renewal rents for some expiring 
project-based Section 8 contracts, and to serve as rent ceilings for 
rental units in both the HOME Investment Partnerships Program and the 
Emergency Solutions Grants Program and a primary rent standard option 
for the Housing for Opportunities for Persons With AIDS (HOPWA) 
program. HUD also uses FMRs in the calculation of maximum award amounts 
for Continuum of Care grantees and in the calculation of flat rents for 
Public Housing units. To better determine payment standards and related 
parameters for HUD programs, HUD proposes changes in how FMRs are 
calculated in this notice and seeks public comment on the proposed 
changes. This notice also responds to public comments that were 
submitted on the publication of Fiscal Year 2023 FMRs.

DATES: Comment Due Date: July 24, 2023.

ADDRESSES: HUD invites interested persons to submit comments regarding 
the proposed changes to the calculation of the FMRs to the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0001. 
Communications must refer to the above docket number and title and 
should contain the information specified in the ``Request for 
Comments'' section.
    There are two methods for submitting public comments.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Due to security measures at all Federal 
agencies, however, submission of comments by mail often results in 
delayed delivery. To ensure timely receipt of comments, HUD recommends 
that comments submitted by mail be submitted at least two weeks in 
advance of the public comment deadline.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov website can be viewed by other commenters 
and interested members of the public. Commenters should follow 
instructions provided on that site to submit comments electronically.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the notice.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications regarding this notice submitted to HUD will 
be available for public inspection and copying between 8 a.m. and 5 
p.m. weekdays at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at 202-
708-3055 (this is not a toll-free number). 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. Copies of all comments submitted are available for inspection and

[[Page 41119]]

downloading at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Questions on this notice may be 
addressed to Adam Bibler, Director, Program Parameters and Research 
Division, Office of Economic Affairs, Office of Policy Development and 
Research, HUD Headquarters, 451 7th Street SW, Room 8208, Washington, 
DC 20410, telephone number (202)-402-6057; or via email at 
[email protected]. 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.
    This Federal Register notice will be available electronically from 
the HUD User page at https://www.huduser.gov/portal/datasets/fmr.html. 
Federal Register notices also are available electronically from https://www.federalregister.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing 
assistance to aid lower-income families in renting safe and decent 
housing. Housing assistance payments are limited by FMRs established by 
HUD for different geographic areas. In the Housing Choice Voucher (HCV) 
program, the FMR is the basis for determining the ``payment standard 
amount'' used to calculate the maximum monthly subsidy for an assisted 
family. See 24 CFR 982.503. HUD also uses the FMRs to determine initial 
renewal rents for some expiring project-based Section 8 contracts, rent 
ceilings for rental units in both the HOME Investment Partnerships 
program and the Emergency Solution Grants program, the primary rent 
standard for the HOPWA program, calculation of maximum award amounts 
for Continuum of Care recipients and the maximum amount of rent a 
recipient may pay for property leased with Continuum of Care funds, and 
calculation of flat rents in Public Housing units. In general, the FMR 
for an area is the amount that a tenant would need to pay the gross 
rent (shelter rent plus utilities) of privately owned, decent, and safe 
rental housing of a modest (non-luxury) nature with suitable amenities. 
HUD's FMR calculations represent HUD's best effort to estimate the 40th 
percentile gross rent \1\ paid by recent movers into standard quality 
units in each FMR area. In addition, all rents subsidized under the HCV 
program must meet reasonable rent standards.
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    \1\ HUD also calculates and posts 50th percentile rent estimates 
for the purposes of Success Rate Payment Standards as defined at 24 
CFR 982.503(e) (estimates available at: https://www.huduser.gov/portal/datasets/50per.html).
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II. Response to Comments on FY 2023 FMRs

    On September 1, 2022, HUD published a notice in the Federal 
Register, at 86 FR 53761 entitled ``Fair Market Rents for the Housing 
Choice Voucher Program, Moderate Rehabilitation Single Room Occupancy 
Program, and Other Programs Fiscal Year 2023.'' \2\ This notice 
announced the availability of FY 2023 Fair Market Rents (FMRs), 
described the methods used to calculate the FY 2023 FMRs, responded to 
comments submitted on proposed changes to the methodology for 
calculating FMRs, and detailed how Public Housing Agencies (PHAs) and 
other interested parties could request reevaluation of their FMRs. The 
public comment period for the September 1, 2022, notice closed on 
October 3, 2022, and HUD received 16 distinct comments relating to the 
notice. The comments were from PHAs, community development agencies, 
and individuals.
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    \2\ See FR-6334-N-01, https://www.federalregister.gov/documents/2022/07/13/2022-14913/proposed-changes-to-the-methodology-used-for-calculating-fair-market-rents.
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General Support for the FY2023 FMRs

    Some commenters generally supported the proposed 2023 FMRs. A 
commenter said they supported HUD's decision to change its methodology 
by introducing private sector rental data into the FMR calculation 
process to obtain more accurate gross rents. This commenter stated that 
calculating the FY2023 FMRs with the methodological change can ensure 
that FMRs accurately reflect recent steep rent increases in many 
communities and will make it easier for households in those communities 
to use their vouchers to rent affordable homes. Another commenter 
stated that the new methodology closely aligns with the aggregate 
rental housing market behavior.
    HUD Response: HUD appreciates the supportive comments.

Insufficient or Decreasing FMRs Impose Hardships

    Commenters expressed their concerns about rising rents. Many 
commenters expressed that recipients of Housing Choice Vouchers are 
facing decreasing success rates in finding housing at the current FMR 
rates due to steep rent increases. Some commenters stated that the gaps 
between the FMR and market rates are making it harder for assisted 
families to find affordable housing because FMRs fail to reflect actual 
rent prices and, as a result, more voucher holders are priced out of 
local rental housing inventories.
    Some commenters said that in 2022 some of their FMRs went down, but 
prices in general are rising, including the cost of utilities. One 
commenter said in 2022 they had to obtain permission from HUD to raise 
their payment standard to 120 percent of the FMR to get landlords to 
consider accepting vouchers and that they are unable to come close to 
the market rents that landlords are currently getting. Another 
commenter said that even though the proposed FMR for their area is 
higher than the 2022 FMR, the increase appears to lag behind local 
conditions, driven by landlords who are raising rents to make up for 
their inability to do so throughout the pandemic. A different commenter 
said that between 2021 and 2022, for an aggregate national two-bedroom, 
FMRs lost ground to local markets by eight percentage points. This 
commenter further expressed that if local 2023 FMRs kept pace with 
local market rates of change in 2022, those FMRs would remain below 
rents in their respective markets by a national average of eight 
percentage points that accrued in 2021.
    HUD Response: HUD understands the concerns noted by the commenters 
and the impact of steadily rising rent prices on everyday Americans. By 
regulation, HUD targets the 40th percentile of rents within each 
market. HUD agrees that measuring an accurate rate of rental inflation 
for recent mover rents is very important. In this Notice, HUD is 
proposing to use private sources of rent data in calculating the 
shelter rent inflation rate as described below. HUD is committed to 
addressing all aspects of the program's operation, including FMR 
calculation.

FMR Calculation Suggestions

    Some commenters recommended that HUD continue its use of private 
sector rental data in subsequent FMR calculations in the future. 
Commenters also suggested additional transparency about the use of 
private data sources when calculating the gross rent inflation 
adjustment factors. These commenters specifically recommended that HUD 
publish reports documenting FY2023 FMRs that were adjusted using 
private sector rental data as well as the geographies and the prior 
inflation adjustment where the private data are

[[Page 41120]]

used. Additionally, these commenters recommended that HUD evaluate the 
accuracy of private sector rental data by comparing them to future 
American Community Survey (ACS) data to gauge the accuracy of the 
inflationary factors and trending methodology.
    Another commenter suggested that HUD use the approach outlined in 
PIH Notice 2022-30 as a template to determine eligible FMR areas, while 
using private-market rental data to quickly identify rapidly changing 
rental markets on a rolling-basis throughout the year, as opposed to 
identifying one fixed point in time for the entire year.
    One commenter said that the average person cannot understand HUD's 
methodology for calculating rent and that rents should be based on 
advertised housing prices. Another commenter stated that the FMR does 
not consider actual rent prices and requested that HUD abandon their 
current FMR calculation method. The commenter suggested that HUD 
calculate FMRs by utilizing the average of the rent posted in the local 
newspaper for the last two years and adjust that number up for low 
availability of rental units and stop excluding new construction from 
the FMR, which makes the voucher number artificially low.
    HUD Response: Transparency is important to HUD. The Department 
maintains an online lookup tool that allows interested parties to view 
the calculation steps that HUD uses to determine each area's FMR. This 
includes viewing the shelter inflation rate calculated from private 
sources of rent data. HUD considers the transparency of each source's 
methods in evaluating whether to use the data and may make changes from 
year to year in which sources it uses. HUD also evaluates the data for 
accuracy, including through retrospective analysis and comparison with 
other sources of data including the ACS. HUD is committed to tracking 
the performance of its programs and making changes during the year in 
response to circumstances, with one significant example of this being 
PIH Notice 2022-30.
    In calculating each area's FMR, HUD uses actual market data on 
rents paid. Respondents report their actual rent through the ACS. 
Private sources of rent inflation measure rents directly from 
properties or through online listing services. These sources are 
collectively more comprehensive than relying on any single source such 
as a newspaper.

FMR Payment Standards

    Many commenters also supported increasing the payment standard 
above its current 40th percentile rent limits as a means for voucher 
holders to access high-opportunity neighborhoods and diminish 
concentrated poverty. A commenter noted the stringent and cumbersome 
process for PHAs to apply for success rate payment standards and 
recommended that HUD reduce the administrative burden imposed on PHAs 
to meet the stringent requirements considering the uptick of PHAs 
seeking approval for success rate payment standards. This commenter 
also suggested that HUD provide PHAs with discretion and flexibility to 
incorporate the use of 50th percentile rent levels to advance access to 
a broader range of housing opportunities throughout a metropolitan 
area. Another commenter suggested that HUD incorporate private-market 
rental data on a rolling basis for timely or automatic approval of 
exception payment standards. Another commenter suggested that HUD 
simplify the process for establishing payment standards between 110 and 
120 percent on a permanent basis in recognition of systemic market 
issues confronting voucher holders.
    A commenter encouraged HUD to seek statutory changes to give PHAs 
additional flexibility in setting payment standards.
    HUD Response: HUD extended the period for PHAs to receive expedited 
waivers of payment standard regulations in PIH Notice 2022-30. This 
allows for many PHAs to use payment standards of up to 120 percent of 
FMR in operating the Housing Choice Voucher program through December 
31, 2023. HUD will continue monitoring outcomes in the program and 
determine whether regulatory changes, such as setting the FMR at a 
higher percentile, publishing FMRs more frequently, or changing success 
rate payment standard criteria, are appropriate.

Requests for Reevaluations and More Time To Make Requests

    Some commenters also objected to HUD's FMR reevaluation process. A 
commenter stated that HUD's reevaluation process leads to PHAs' 
maintaining their previous year's FMRs, which tend to be substantially 
lower than what HUD's proposed FMRs are for the current year. To help 
PHAs that are in areas with rapidly rising rents, this commenter 
recommended that HUD allow PHAs or other parties to request that the 
higher proposed FMRs take effect on the same scheduled effective date 
as all other FMRs without reevaluations, while the PHA and HUD are 
undergoing the FMR reevaluation process. Another commenter requested 
additional funding for FMR reevaluations as rental cost surveys are 
costly and time-consuming.
    A commenter asked that HUD consider extending the January 6, 2023, 
reevaluation data submission due date to allow sufficient time for 
localities to conduct a local rent survey in the manner recommended by 
HUD. This commenter said ordinarily HUD publishes the FMRs in early 
August, however, this year they were published September 1, but the 
data due date remained the same. This commenter also stated that the 
timeframe does not allow for the required procurement processes to 
obtain an outside survey entity, nor does it really allow for adequate 
survey time given that mail surveys are now taking anywhere between 2-3 
months to allow for printing delays and slowed mail due to staffing and 
holidays.
    A commenter opposed the 2023 FMR as the methodology is not 
consistent with the demand on rental housing, though that commenter did 
not expressly request a reevaluation. Another commenter said they were 
writing to preserve the option to challenge the 2023 FMR for their FMR 
areas and that they are working on a study that would allow HUD to 
calculate updated 40th percentile rate calculations.
    HUD Response: The deadline of January 6 is intended to allow for 
revision of FMRs with enough time remaining in the current fiscal year 
such that the revision is useful and can be taken into account in 
determining an agency's renewal funding. PHAs may submit data to HUD at 
any point in the year and are not required to file a comment formally 
requesting reevaluation of an area's FMR and preventing a new FMR from 
going into effect in order to submit data. The costs for performing 
rental market surveys are driven by the market for such services. 
Congress determines the funding available to PHAs through its annual 
appropriations and has not allocated specific funds for use in local ad 
hoc rent surveys. HUD continues to allow the use of administrative fees 
for such surveys.

Section 8 Voucher Reform Act (SEVRA)

    A commenter suggested HUD revise the proposed legislation known as 
SEVRA, and the commenter noted several concerns regarding HUD's 
previously proposed FMR statutory amendment including: striking the 
statutory language from SEVRA requiring HUD to define market areas in 
areas sufficiently distinct as is necessary to avoid concentration of 
voucher holders; taking into consideration

[[Page 41121]]

factors such as the efficient administration of the program by PHAs and 
the administrative costs of HUD in establishing additional areas; the 
availability of data for a sufficient number of dwelling units to 
establish accurate fair market rentals; and the ability of PHAs to 
adjust the payment standard to more accurately reflect typical rental 
costs. This commenter also expressed concern about what the commenter 
said was HUD's proposed FMR statutory amendment to SEVRA that would 
remove a requirement for HUD to establish procedures to permit a PHA to 
request the establishment of separate market areas for either all or 
contiguous parts of the areas under the jurisdiction of such agency.
    HUD Response: HUD's annual calculations of FMRs represent the 
Department's best estimate of an accurate 40th percentile gross rent 
for recent movers within each market area. In this notice, HUD proposes 
modifications to its recent mover and inflation adjustments to improve 
this accuracy. Since FY 2017 HUD has allowed for the use of Small Area 
FMRs to allow for a wider range of payment standards within 
metropolitan market areas. HUD monitors the overall success of the 
Housing Choice Voucher program and recommends legislative or regulatory 
changes as circumstances dictate.

III. FMR Calculation Methodology Changes

A. Current Methodology

    From FY 2012 to FY 2022, HUD's methodology for calculating FMRs 
consisted of several steps (see: https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2022_code/select_Geography.odn for the calculations 
underlying each FY 2022 FMR). These steps were retained for FY 2023 
FMRs but modified as described below. FY 2024 FMRs are proposed to 
follow the same multistep process, with further modification described 
subsequently.
    1. Base Rent. First, HUD establishes a ``base rent'' for two-
bedroom units from the 5-year 40th percentile estimates of gross rent 
from the ACS.
    2. Recent Mover Adjustments. HUD then adjusts the base rent using a 
``recent mover adjustment factor'' that is based on the ratio of the 
estimate of gross rent paid by recent movers from the 1-year ACS to the 
estimate of gross rent paid by all renters from the 5-year ACS for the 
smallest level of geography containing the FMR area that contains 
statistically reliable 1-year data.
    The results of these two steps are estimates of 40th percentile 
rents for recent movers in two-bedroom units that are ``as of'' the 
current ACS year.
    3. Inflation Adjustment. HUD then accounts for inflation from the 
ACS year by applying a ``gross rent inflation factor,'' which is 
calculated from the Consumer Price Index (CPI) as produced by the 
Bureau of Labor Statistics (BLS).
    4. Trend Factor. Because it calculates FMRs ahead of each fiscal 
year, HUD provides a further inflation adjustment in the form of a 
``trend factor.'' The trend factor represents the expected future level 
of the gross rent CPI for the upcoming fiscal year compared to the most 
recent actual gross rent CPI.
    5. State minimum FMRs. Additionally, HUD calculates state minimum 
FMRs based on the median FMR for non-metropolitan portions of each 
state.
    6. Bedroom Ratios. HUD calculates FMRs for unit sizes other than 
two bedrooms by applying ``bedroom ratios'' calculated from the 
relationships between rents for units of different sizes according to 
the 5-year ACS.
    7. Limit on Decreases. Finally, HUD does not allow an area's FMR to 
decline by more than 10 percent.
    For FY 2023, HUD implemented several changes to its FMR 
methodology. This was done in part in response to the Census Bureau's 
decision not to release ACS 2020 1-year data, which HUD would 
ordinarily have used in FY 2023. HUD retained ACS 2019 1-year data and 
inflated those estimates using rent inflation factors to synthesize 
2020 recent mover adjustment data. These inflation factors consisted of 
a weighted average of the CPI rent of primary residence series that HUD 
has traditionally used in FMR calculation, along with additional 
measures of rent inflation as produced by several private companies for 
markets where such data were available. HUD produced similar rent 
inflation factors calculated from CPI rent of primary residence data 
and private company rent data for the inflation adjustment through 2021 
of the synthesized 2020 recent mover-adjusted rents.

B. Proposed Changes

    HUD is proposing two material changes to the calculation of FMRs. 
The first would be a change in the definition of ``recent mover'' as 
used in the recent mover adjustment described in Section A. The second 
would be to retain and expand the use of rent inflation factors 
calculated by private sector sources as was first done for FY 2023 
FMRs.

C. Definition of Recent Movers

    Because the 2021 ACS was not adversely affected by the COVID-19 
pandemic in the way the 2020 ACS data collection was, the Census Bureau 
has released the usual full spectrum of 2021 ACS 1-year tabulations, 
and HUD does not need to synthesize recent mover adjustment data as in 
the FY 2023 FMRs. The discussion of the proposed change to the 
definition of ``Recent Mover'' below is in the context of restored 
normal data availability.
    Prior to the creation of the American Community Survey, HUD relied 
in part on data collected through the ``long form'' of the decennial 
Census. This survey measured gross rents paid as of April 1 each year. 
HUD's definition of recent mover was a household that had moved into 
their unit in either the current decennial Census year or the year 
prior. This meant that the maximum length of time for a household to 
have lived in its current unit and still be considered a recent mover 
was 15 months.
    When it first used ACS estimates in its FMR calculation, HUD 
retained the same definition of recent mover as a household that had 
moved into the unit in either the current ACS year or the year prior. 
However, unlike the decennial Census, the ACS is conducted throughout 
the year on a rolling basis. This meant that the maximum length of time 
for a household to have lived in its current unit and still be 
considered a recent mover was 23 months (for example, in ACS 2021 data, 
a household might have taken the survey in December 2021 and moved into 
their unit in January 2020).
    To make its recent mover adjustment as reflective of current market 
conditions as possible, HUD is proposing to consider the rents of 
households who moved into their unit only in the current ACS year. For 
ACS 2021, this means that the maximum length of time for a household to 
have lived in its current unit and still be considered a recent mover 
under this definition would be 11 months.
    However, restricting the ACS universe to recent movers limits the 
sample size supporting the resulting estimates, potentially harming the 
statistical reliability of those estimates. HUD applies two statistical 
reliability checks to each ACS estimate. First, the estimate must be 
supported by at least 100 sample cases from the ACS. Second, the 
estimate must have a margin of error that is smaller than half the 
estimate itself. HUD would maintain these criteria for the new, single-
year definition of recent movers. For areas

[[Page 41122]]

without an ACS estimate meeting these criteria, HUD would then check 
the estimate tabulated from two-year recent movers, following its prior 
methodology.

D. Using Private Sector Rent Data To Update Rent Estimates

    HUD has historically updated the latest ACS-based rent estimates 
with one year of gross rent inflation measured with the 24 local and 4 
regional CPI components rent of primary residence and household fuels 
and utilities, depending on the location of the FMR area. Unlike the 
gross rent estimates HUD uses from the ACS, the CPI is produced by 
measuring the change in rents across all types of renters, ranging from 
households that have recently moved into their unit to those that have 
lived in their current unit for many years. Recent research has 
examined the difference between the overall CPI for shelter rent 
(overall rent CPI) and an alternative CPI constructed using only survey 
responses from households that are new tenants (new tenant CPI).\3\ The 
research shows that the two indices tracked closely over the period 
from 2005 to 2020; however, they diverged significantly since then as 
rent increases for new tenants outpaced overall rent inflation. The 
research further shows that the new tenant CPI tracks closely with the 
reported rent inflation as produced by two companies, CoreLogic and 
Zillow, despite the differences in scope and methodology among the 
three sources. Finally, the researchers quantify the difference between 
the new tenant CPI and the overall rent CPI and find that the overall 
rent CPI lags rent inflation for new tenants by one year.
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    \3\ Adams, Loewenstein, Montag, and Verbrugge. ``Disentangling 
Rent Index Differences: Data, Methods, and Scope'', 2022.
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    HUD has replicated the correlation between the new tenant CPI and 
private sources using the additional private rent data available to the 
Department and the results confirm that rent inflation factors derived 
from these data track the new tenant CPI closely. HUD is completing 
further analysis to determine if the use of rent inflation factors 
derived from these private data is the best course of action. 
Additionally, based on the lagged nature of the overall rent CPI, HUD 
is considering alternatives to including the CPI rent inflation factor 
alongside the private inflation factors as it did for FY 2023. One 
option HUD proposes is to calculate a shelter rent inflation factor 
consisting only of the average of multiple sources of private rent 
data. Alternatively, HUD could develop a new adjustment procedure for 
the CPI rent inflation factor based on private inflation factors. HUD 
proposes to maintain the FY 2023 requirement that an area must be 
covered by at least three private sources of rent data to use such an 
average. The average shelter rent inflation factor would be combined 
with the CPI fuels and utilities subindex to produce an overall gross 
rent inflation factor. This factor would be applied to the recent 
mover-adjusted ACS rent as in the Inflation Adjustment described in 
Section A.
    Although the data available to HUD would allow it to produce local 
inflation factors for a large majority of the country by population, 
not every area is represented individually in the private rent data. In 
FY 2023, HUD continued its practice of applying a Census Region based 
CPI rent inflation factor to these areas. For FY 2024, HUD proposes to 
use a rental unit weighted average of the private inflation factors for 
these areas, rather than the CPI rent inflation for the region. This 
would ensure the rent estimates for these areas are not subject to the 
bias of the lag associated with the CPI rent as described above. As an 
example of calculating a weighted average, if a given region contained 
areas A, B, and C with 4,000; 3,000; and 1,000 rental units 
respectively, and private inflation factors of 10 percent, 5 percent, 
and 1 percent, the regional inflation factor would be 10% * 0.5 + 5% * 
0.375 + 1% * 0.125 = 7 percent.

E. Aspects of FMR Methodology Not Proposed To Be Changed by This Notice

    HUD is not proposing any additional changes to the FMR calculation, 
meaning it would still use the 5-year ACS data to establish the base 
rent, and use forecasts of gross rent CPI as the trend factor. 
Similarly, the ``bedroom ratio'' methodology used to produce FMRs for 
unit sizes other than two bedrooms would remain unchanged.

F. Small Area Fair Market Rents

    HUD calculates FMRs for metropolitan areas, which comprise one or 
more counties (or towns, in the case of New England), and single, non-
metropolitan counties. Within metropolitan areas, HUD also publishes 
Small Area FMRs, which are delineated by ZIP Code and are required for 
use in the Housing Choice Voucher program in certain metropolitan 
areas. The proposed changes to FMR calculation would affect Small Area 
Fair Market Rents (SAFMRs) as well.
    Under its current SAFMR methodology, HUD calculates the SAFMR for 
areas with a statistically reliable ZIP Code-level base rent for 1-, 2-
, or 3-bedroom units by adjusting the base rent with the recent mover 
adjustment factor and gross rent adjustment factor. Therefore, changes 
to those factors as described above would apply to SAFMRs as well. For 
areas without statistically reliable 1-, 2-, or 3-bedroom rent 
estimates, HUD calculates the SAFMR using the ratio of the all-bedroom 
ZIP Code median rent (or the median rent for the larger county 
containing the ZIP Code) to the median rent for the FMR area, then 
multiplies this ratio by the metropolitan area FMR. The proposed 
changes, by affecting the metropolitan FMR, would affect this step as 
well.

IV. Request for Public Comment on Changes

    HUD is requesting public comment on the proposed changes to the FMR 
calculation methodology. HUD invites general comments on the 
appropriateness of changing the definition of recent movers as 
described above as well as the continued use of private rent data in 
calculating rent inflation factors. Additionally, HUD invites comments 
on the following questions:
     Should HUD continue to use overall rent CPI to control for 
possible selection bias in the private rent inflation data by scaling 
the local private rent inflation factors, using for example a national 
statistic like BLS's New Tenant Repeat Rent index currently under 
development so that the rental-unit weighted average inflation factor 
would match the national statistic?
     Should HUD adopt additional criteria beyond having at 
least 3 sources of private rent inflation data, such as a minimum 
population or rental unit count, to minimize undue volatility in year-
to-year changes in private rent inflation factors? Should HUD consider 
altering the criteria of having at least 3 sources of private rent 
inflation data?
     For the inflation adjustment (step 3), HUD proposes 
calculating Census Region-wide rental unit weighted average private 
inflation factors for areas without a local private factor. Is this the 
appropriate level of geography, or should HUD consider other weighting 
procedures such as a nearest neighbor approach? \4\
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    \4\ Under HUD's proposed approach, private inflation factors are 
given more weight for the regional calculation if area contains more 
rental units. In the nearest-neighbor alternative, you could assign 
higher weights to areas that are a closer ``distance'' to the 
location for which you want to calculate an inflation factor, where 
``distance'' could mean geographic proximity or other observable 
characteristics (for example, similar median incomes).

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[[Page 41123]]

V. Environmental Impact

    This notice proposes changes in the way FMRs are calculated. The 
establishment and review of Fair Market Rent schedules 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).

Solomon Greene,
Principal Deputy Assistant Secretary, Office of Policy Development and 
Research.
[FR Doc. 2023-13395 Filed 6-22-23; 8:45 am]
BILLING CODE 4210-67-P