Tomorrow, HUD will publish, in the Federal Register, a notice titled “Proposed Changes to the Methodology Used for Estimating Fair Market Rents.” The Housing Opportunity Through Modernization Act of 2016 (HOTMA) requires HUD to seek comment for material changes to FMR methodology. Responding to NAHRO’s prior comment letter, HUD has agreed to an expansive definition of what constitutes a material change. This notice follows through on HUD’s agreement to seek comment on changes. Comments will be due 30 days after tomorrow’s publication. [5/26/17 Edit – Comments are due June 26, 2017.]
HUD currently calculates FMRs by assigning each area a two-bedroom standard quality base rent from a five year American Community Survey (ACS) tabulation. The base rent is then updated with a recent mover adjustment factor from the latest one year ACS data. The recent mover factor is adjusted “to be ‘as of'” the year which the FMRs are being calculated by using local or regional Consumer-Price-Index-measured changes in gross rents for two years and then a nationally forecasted trend factor measuring estimated expected growth for another two years.
HUD proposes three changes to the FMR methodological method. The first two changes apply to all FMRs, while the third applies only to Small Area FMRs.
- HUD is proposing to only use an ACS estimate, if each ACS estimate is based on at least 100 survey responses. This is in addition, to the current criterion, where HUD only uses the estimate if the error of the estimate is less than half the size of the estimate. If the data does not meet both criteria, then HUD will use an average of the three most recent years of data.
- HUD is proposing a change to the “recent mover factor” where HUD uses “all-bedroom” recent mover rents, when the two-bedroom recent mover rents are not statistically reliable.
- HUD is proposing moving away from the “ratio” method used to tabulate Small Area FMRs to using gross rent estimates calculated by ZIP Code Tabulation Areas.
HUD will make documentation of the impact of these methodological changes and hypothetical FY 2017 FMRs available. (If they are not posted, they should be posted within the next 24 hours.) NAHRO will continue to examine these methodological changes and discuss it with our membership before coming to any conclusions about their effectiveness in creating more accurate FMRs.
When posted, hypothetical FY 2017 FMRs calculated using the new methodology and hypothetical FY 2017 Small Area FMRs calculated using the new methodology can be found here and here respectively.
The pre-publication notice can be found here.
[5/26/17 Edit – The published document can be found here.]