[Federal Register Volume 89, Number 92 (Friday, May 10, 2024)]
[Notices]
[Pages 40500-40502]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10212]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6462-N-01]


Section 8 Housing Assistance Payments Program--Fiscal Year (FY) 
2024 Inflation Factors for Public Housing Agency (PHA) Renewal Funding

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

ACTION: Notice.

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SUMMARY: This notice establishes Renewal Funding Inflation Factors 
(RFIFs) to adjust Fiscal Year (FY) 2024 renewal funding for the Housing 
Choice Voucher (HCV) Program of each public housing agency (PHA), as 
required by the Consolidated Appropriations Act, 2024. The notice 
apportions the expected percent change in national Per Unit Cost (PUC) 
for the HCV program, 7.38 percent, to each PHA based on the change in 
Fair Market Rents (FMRs) for their operating area to produce the FY 
2024 RFIFs. HUD's FY 2024 methodology differs in part from that used in 
FY 2023. HUD has refined the national PUC forecast by changing the 
gross rent component in a manner that weights projected recent mover 
rents as measured by the FMR with an independent forecast of all-mover 
rents as measured by the Consumer Price Index (CPI).

DATES: Applicability Date: May 10, 2024.

FOR FURTHER INFORMATION CONTACT: Miguel A. Fontanez, Director, Housing 
Voucher Financial Division, Office of Public Housing and Voucher 
Programs, Office of Public and Indian Housing, Room 4222, U.S. 
Department of Housing and Urban Development, 451 Seventh Street SW, 
Washington, DC 20410; telephone (202) 422-0278 (this is not a toll-free 
number). Adam Bibler, Program Parameters and Research Division, Office 
of Policy Development and Research, Room 8208, U.S. Department of 
Housing and Urban Development, 451 Seventh Street SW, Washington, DC 
20410; telephone (202) 402-6057 (this is not a toll-free number), for 
technical information regarding the development of the schedules for 
specific areas or the methods used for calculating the inflation 
factors. 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:

I. Background

    Division F, Title II of the Consolidated Appropriations Act, 2024 
requires that the HUD Secretary, for the calendar year 2024 funding 
cycle, provide renewal funding for each public housing agency (PHA) 
based on validated voucher management system (VMS) leasing and cost 
data for the prior calendar year and by applying an inflation factor as 
established by the Secretary, by notice published in the Federal 
Register. This notice announces the availability of the FY 2024 
inflation factors and describes the methodology for calculating them. 
Tables in PDF and Microsoft Excel formats showing Renewal Funding 
Inflation Factors (RFIFs) by HUD Fair Market Rent Area are available 
electronically from the HUD data information page at: https://www.huduser.gov/portal/datasets/rfif/rfif.html.

II. Methodology

    RFIFs are used to adjust the allocation of Housing Choice Voucher 
(HCV) program funds to PHAs for local changes in rents, utility costs, 
and tenant incomes. To calculate the RFIFs, HUD first forecasts a 
national inflation factor, which is the annual change in the national 
average Per Unit Cost (PUC). HUD then calculates individual area 
inflation factors, which are based on the annual changes in the two-
bedroom Fair Market Rent (FMR) for each area. Finally, HUD adjusts the 
individual area inflation factors to be consistent with the national 
inflation factor.
    Since FY 2017, HUD's method of projecting the national average PUC 
has been based on independent forecasts of gross rent and tenant 
income. Each forecast is produced using historical and forecasted 
macroeconomic data as independent variables, where the forecasts are 
consistent with the Economic Assumptions of the Administration's FY 
Budget. The forecast for gross rent is itself based on forecasts of the 
Consumer Price Index (CPI) Rent of Primary Residence Index and the CPI 
Fuels and Utilities Index. Forecasted values of gross rent series were 
then applied to the relevant FY national average two-bedroom FMR to 
produce a CY value. Finally, a ``notional'' PUC is then calculated as 
the difference between gross rent value and 30 percent of tenant income 
(the standard for tenant rent contribution in the voucher program). HUD 
uses a notional PUC as opposed to the actual

[[Page 40501]]

PUC to project costs that are consistent with PHAs leasing the same 
number and quality of units.
    For FY 2024, HUD is continuing its overall methodology of 
forecasting notional PUC based on a combination of expected gross rent 
increases and tenant income increases. However, HUD has modified how it 
calculates the gross rent increase based on recent dynamics in rental 
markets. As previously mentioned, HUD has historically used the CPI 
Rent of Primary Residence series as its measure of shelter rent 
inflation. The CPI is constructed based on a survey of rents paid in a 
fixed sample of units over time. Recent research has shown that since 
2020, rents paid for newly leased units have increased at a 
significantly faster rate than overall rents. HUD attempted to address 
this dynamic in its calculation of FY 2024 FMRs by replacing the use of 
the CPI in part with rates of rental inflation as captured by private 
sector rent data. This was done as the FMR is required by regulation to 
reflect rents paid by ``recent movers.'' However, for purposes of 
forecasting Per Unit Costs, the gross rent component should represent 
all types of tenants in the Housing Choice Voucher program, including 
new admissions and recent movers, as well as those staying in place. 
Using both a baseline and projected CY FMR as the gross rent component 
of PUC as in prior years risks overstating program gross rents in a 
manner that only reflects rents paid by recent movers. HUD's analysis 
of tenant administrative data has found that the vast majority of HUD 
assisted households remain in place from year to year, and experience 
slower rates of rent inflation on average. Using an FMR-only rent, 
especially in times of large recent mover rent growth, would likely 
overstate per unit costs. In contrast, using a PUC based solely on an 
all-mover CPI Forecast would further risk underestimating per unit 
costs when PHA's are implementing large recent mover rent increases. 
Therefore, for FY 2024, HUD is calculating the gross rent component of 
PUC based on a weighted average of the expected change in national FMR 
(to represent recent movers) and the expected national change in Rent 
of Primary Residence CPI (to represent in-place tenants).
    For the reasons outlined above, HUD is considering two different 
approaches for weighting the FMR and CPI. Under the first approach, HUD 
develops a gross rent inflation factor using a weighted average of the 
established CY FMR projection and independent CY CPI gross rent index 
forecast methodology, where the FMR is weighted at approximately 56.7 
percent and the CPI gross rent inflation index measure is weighted at 
approximately 43.3 percent. HUD determined the weights empirically in a 
manner that best predicts the historical average voucher tenant gross 
rents.\1\ The change between the forecasted CY 2024 notional PUC and 
the CY 2023 notional PUC is the expected national change in PUC, or 
9.54 percent. The strengths of this approach are that by considering 
the time series of actual rents, these weights are likely capturing 
important dynamics of the real-world dynamics of the voucher program. 
The weaknesses are that there is no guarantee that these past trends 
will continue and, given that there was historically little difference 
between rates of recent mover and all mover inflation, the weights 
assigned to each component may be arbitrary.
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    \1\ Specifically, HUD attempted to predict each year's tenant 
gross rent using a weighted average of FMR and CPI change, then 
compared the predicted gross rent to the actual historical gross 
rent. HUD then generated an error measure as the difference between 
the predicted and actual rent. HUD then solved for the weights that 
minimize the root mean squared error of the predicted and actual 
rents.
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    Under the second approach, HUD takes a weighted average of the CY 
FMR projection and independent CY CPI gross rent index forecast, where 
the FMR is weighted at approximately 15 percent and the CPI gross rent 
index is weighted at approximately 85 percent. HUD determined these 
weights based on the historical composition of new admissions and 
recent movers based on HUD administrative data. The change between the 
forecasted CY 2024 notional PUC and the CY 2023 notional PUC for this 
approach is 5.22 percent. The strength of this approach is that weights 
based on the actual number of new leases in the program is a better 
theoretical approach to assigning recent mover rates of inflation than 
simply following past trends. However, there is also evidence to 
suggest that even non-movers in the voucher program may experience 
higher rates of rent inflation, such as existing tenants having rents 
exceeding payment standards or landlords pricing units based on FMR 
regardless of unit turnover.
    Given these uncertainties, HUD takes the average of the two factors 
produced by these approaches and gets a final CY2024 PUC estimate of 
7.38 percent. HUD's forecasts of the Consumer Price Index (CPI) Rent of 
Primary Residence Index, CPI Fuels and Utilities Index and HUD tenant 
incomes remain consistent with the Economic Assumptions of the 
Administration's FY 2025 Budget. For more information on HUD's forecast 
methodology, see 82 FR 26710 (June 8, 2017).
    The inflation factor for an individual geographic area is based on 
the annualized change in the area's FMR between FY 2023 and FY 2024. 
These changes in FMRs are then scaled such that the voucher-weighted 
average of all individual area inflation factors is equal to the 
national inflation factor, i.e., the expected annual change in national 
PUC from CY 2023 to CY 2024, and such that no area has a factor less 
than one. For PHAs operating in multiple FMR areas, HUD calculates a 
voucher-weighted average inflation factor based on the count of 
vouchers in each FMR area administered by the PHA as captured in HUD 
administrative data as of December 31, 2023.

III. The Use of Inflation Factors

    HUD subsequently applies the calculated individual area inflation 
factors to eligible renewal funding for each PHA based on VMS leasing 
and cost data for the prior calendar year.

IV. Geographic Areas and Area Definitions

    As explained above, inflation factors based on area FMR changes are 
produced for all FMR areas and applied to eligible renewal funding for 
each PHA. The tables showing the RFIFs, available electronically from 
the HUD data information page, list the inflation factors for each FMR 
area on a state-by-state basis. The inflation factors use the same OMB 
metropolitan area definitions, as revised by HUD, that are used in the 
FY 2024 FMRs. PHAs should refer to the Area Definitions Table on the 
following web page to make certain that they are referencing the 
correct inflation factors: http://www.huduser.org/portal/datasets/rfif/FY20234/FY2024_RFIF_FMR_AREA_REPORT.pdf. The Area Definitions Table 
lists areas in alphabetical order by state, and the counties associated 
with each area. In the six New England states, the listings are for 
counties or parts of counties as defined by towns or cities. HUD is 
also releasing the data in Microsoft Excel format to assist users who 
may wish to use these data in other calculations. The Excel file is 
available at https://www.huduser.gov/portal/datasets/rfif/rfif.html. 
Note that, as described earlier, the actual renewal funding inflation 
factor applied to agency funding will be the voucher-weighted average 
of the FMR area factors when the PHA operates in multiple areas.

V. Environmental Impact

    This notice involves a statutorily required establishment of a rate 
or cost determination which does not constitute

[[Page 40502]]

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 for Policy Development and 
Research.
[FR Doc. 2024-10212 Filed 5-9-24; 8:45 am]
BILLING CODE 4210-67-P