[Federal Register Volume 89, Number 63 (Monday, April 1, 2024)]
[Notices]
[Pages 22436-22438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06798]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6443-N-01]


Section 8 Housing Assistance Payments Program--Annual Adjustment 
Factors, Fiscal Year 2024

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

ACTION: Notice of fiscal year (FY) 2024 Annual Adjustment Factors 
(AAFs).

-----------------------------------------------------------------------

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 2024 AAFs for adjustment of 
contract rents on the anniversary of those assistance contracts. 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 and market rents from a total of six 
possible private sector rent data sources. AAFs were historically based 
on the shelter and gross rent inflation factors used in HUD's Fair 
Market Rent (FMR) calculation, and this notice maintains that practice 
by updating the AAF methodology in line with the FMR methodology 
changes that HUD adopted for FY 2024.

DATES: The FY 2024 AAFs are effective April 1, 2024.

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 
Moderate Rehabilitation programs (not the 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 Single Room Occupancy (SRO) 
Moderate Rehabilitation program; Katherine Nzive, Director, OAMPO 
Program Administration Office, Office of Multifamily Housing, 202-402-
3440, 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: The 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 
AAF effective date listed in 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 2024 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 
2024 HUD appropriations, will contain the 2024 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 LMSA 
program (24 CFR part 886, subpart A) and for

[[Page 22437]]

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 Program. 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 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 three 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:

    [F]or 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 annual 
adjustment factor (except that the factor shall not be reduced to 
less than 1.0), and the adjusted rent shall not exceed the rent for 
a comparable unassisted unit of similar quality, type and age in the 
market area. 42 U.S.C. 1437f(c)(2)(A).

    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 . . . .'' (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)). The 
Congressional Record also states the following:

    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

[[Page 22438]]

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.'' In the past, 
HUD has calculated AAFs based on the shelter and gross rent inflation 
factors used in FMR calculations. The source data for AAFs therefore 
came from the 23 local and 4 regional CPI components (rent of primary 
residence and household fuels and utilities) depending on the location 
of the AAF area. HUD maintains the practice of updating the AAF 
methodology in line with the FMR methodology changes that HUD adopted 
for FY 2024. For FY 2024, HUD augmented the CPI data described above by 
including available private data sources along with the CPI data in 
calculating a weighted average shelter and gross rent inflation factor. 
The private measures of rent used by HUD are the RealPage average 
effective rent per unit, Moody's Analytics REIS average market rent, 
CoStar Group average effective rent, CoreLogic, Inc. single-family 
combined 3-bedroom median rent, Apartment List Rent Estimate, and 
Zillow Observed Rent Index.
    In calculating the AAF from these data, HUD first takes the annual 
average of each statistic, then its year-to-year change. HUD then takes 
the mean of changes from all available sources for each area. Next, HUD 
takes an average of this private-sector measure of rent inflation with 
rent inflation as captured by the CPI for the area, where the private-
sector measure is weighted at approximately 55.8 percent and the CPI 
rent inflation measure is weighted at approximately 44.2 percent. HUD 
has determined these weights by comparing the national average of the 
private rent changes and changes in CPI rent of primary residence to 
changes in the national average of recent mover rents from the ACS from 
2017 through 2021. HUD weights the private data averages and overall 
CPI rent of primary residence in such a way as to minimize the root 
mean squared error between the resulting average and the ACS recent 
mover rents. For future AAFs, HUD will update the weights by adding the 
most recent years of ACS recent mover rents, private rent data, and CPI 
rent of primary residence to the analysis.
    HUD uses a local measure of private rent inflation for markets that 
are covered by at least three of the six available sources of private 
rent data. HUD combines this local measure of rent inflation with 
either the local metropolitan area CPI rent of primary residence for 
the 23 areas where such data exist, or the regional CPI rent in areas 
without a local index. For areas without at least three of the six 
private rent data sources available, HUD uses a regional average of 
private rent inflation factors alongside the regional CPI rent of 
primary residence. HUD constructs the regional average by taking the 
rental unit weighted average of the change in rents of each area in a 
region that does have private rent data coverage. This ensures that 
smaller areas that are not covered by the private sources directly 
still have current rental market conditions taken into account in the 
calculation of the rent inflation factor for such areas.
    The results of the above calculation are the ``utility excluded'' 
AAF. For the ``utility included'' AAF, HUD averages the result of this 
step with the year-to-year change in the CPI housing fuels and 
utilities index for the area in order to make the resulting inflation 
measure reflective of gross rents.

VI. 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. Furthermore, users can also search for AAF 
area definitions using an online lookup tool available on HUD User at 
https://www.huduser.gov/portal/datasets/aaf.html. AAFs are based on the 
updated metropolitan area definitions published by the Office of 
Management and Budget (OMB) on September 14, 2018, and first 
incorporated by the Census Bureau into the 2019 American Community 
Survey (ACS) data and the corresponding FY 2022 FMRs. On July 21, 2023, 
OMB published Bulletin No. 23-01, which contains revisions to 
metropolitan area definitions. However, the Census Bureau has not yet 
incorporated these revisions into the data available to HUD, and 
therefore HUD is not using these new definitions for FY 2024.

Solomon Greene,
Principal Deputy Assistant Secretary for Policy Development and 
Research.
[FR Doc. 2024-06798 Filed 3-29-24; 8:45 am]
BILLING CODE 4210-67-P