HUD Calculates Renewal Funding Inflation Factors for HCV Program

Tomorrow, June 8, HUD will publish a notice in the Federal Register titled “Section 8 Housing Assistance Payments Program-Fiscal year (FY) 2017 Inflation Factors for Public Housing Agency (PHA) Renewal Funding.” The notice outlines the methodology for calculating Renewal Funding Inflation Factors (RFIFs). These factors are applied to leasing and cost data to determine current year Housing Choice Voucher (HCV) program eligibility (i.e., these factors determine how much additional money PHAs need to maintain the same number and quality of vouchers as the previous year). Tables showing RFIFs will be available from HUD here (when posted after this notice is published in the Federal Register). The pre-publication notice can be found here.

HUD calculates RFIFs with a three-step process. First, HUD forecasts a national inflation factor. Second, HUD calculates individual area inflation factors (using annual changes in the two-bedroom Fair Market Rent [FMR] for the area). Third, HUD scales the individual area inflation factors so that the weighted average equals the national average, but ensures that each area has an inflation factor of no less than one. This year, 2017, HUD has changed its methodology so that the first step uses forecasts to calculate per unit costs (PUCs) instead of relying on backward-looking historical data.

[6/8/17 Edit – The published notice can be found here.]

Click the link below to read a more detailed description of the methodology.

Step 1 – Calculating the National Inflation Factor – The national inflation factor is the predicted current calendar year (2017) national average PUC divided by the prior year (2016) national average PUC. The prior year (2016) PUC is calculated from HUD data. The predicted current calendar year (2017) national average is calculated by subtracting a forecast of the national average of monthly tenant rent contribution (i.e., 30 percent of forecast of the national average tenant income) from a forecast of the national average monthly gross rent (unit rent plus utilities).

Step 2 – Calculating Individual Geographic Area Inflation Factors – Inflation factors for individual areas are based on an annualized change in the area’s FMR between FY 2016 and FY 2017.

Step 3 – Scaling – These changes in FMRs are scaled so that the voucher-weighted average of individual area inflation factors is equal to the national inflation factor. This is done to account for relative differences in the changes of local rents. HUD ensures that each area has an inflation factor of no less than one.[1] For PHAs operating in multiple FMR areas, HUD calculates a voucher-weighted inflation factor based on the number of vouchers in each area.

NAHRO is pleased that HUD has shifted to a forward-looking methodology in its first step. As HUD notes, this ensures that when rents are increasing, HUD is not looking at old data, possibly from times of economic downturns, when rents may have been stagnating.

The pre-publication notice provides a more detailed description of the methodology and can be found here. When HUD publishes them, tables for the RFIFs can be found here.

[1] – I suspect this is done to make sure that no area is eligible for less money than the year before.

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