Small Area Fair Market Rent Demonstration

Small Area Fair Market Rent Demonstration

The Housing Choice Voucher (HCV) program is the largest rental assistance program that HUD administers, helping approximately 2.2 million households secure affordable housing in the private rental market. Through the program, participants can access housing in a variety of neighborhoods as long as the rent for the unit complies with an acceptable range of HUD’s fair market limit and the landlord will accept a housing voucher. Many households assisted through the HCV program, however, end up living in high-poverty neighborhoods with limited access to high-quality services and amenities because their voucher is insufficient to afford rents in higher-opportunity neighborhoods. This problem stems from the way the program is administered, with fair market rents (FMRs) calculated at the 40^th percentile of the rent distribution by metropolitan area for regions across the country.

In 2012, HUD launched the Small Area Fair Market Rent (SAFMR) Demonstration with five public housing agencies (PHAs) across the United States to expand access to housing in high-opportunity neighborhoods. Through the demonstration, HUD set FMRs in the selected areas at the ZIP Code level rather than at the metropolitan level, which increased subsidies in higher-cost neighborhoods and reduced subsidies in lower-cost neighborhoods.

As part of the demonstration, HUD sponsored an evaluation of the HCV program to better understand how these changes to the way FMRs are set affect where voucher holders live. The evaluation took place in the Chattanooga Housing Authority, Housing Authority of Cook County, the Housing Authority of the City of Laredo, the City of Long Beach Housing Authority, and the Town of Mamaroneck Housing Authority as well as two housing authorities in the Dallas metropolitan area (Housing Authority of the City of Dallas and the Housing Authority of Plano) that began using SAFMRs in 2011 as part of a legal settlement. The evaluation examined the following effects:

• Potential access to opportunity — the extent to which SAFMRs change the number of units with rents that are affordable to voucher holders and the number and share of such units in high-opportunity areas.
• Actual access to opportunity — the extent to which voucher holders in SAFMR PHAs are more likely to locate in or move to higher-opportunity areas after implementing SAFMRs.
• Costs and rents — the extent to which subsidy expenditures, administrative expenses, total rent levels, and tenant contributions to rents change after implementing SAFMRs.
• Impacts on voucher holders and landlords — changes in voucher holders’ housing search patterns and understanding of the program as well as landlords’ awareness of changes in the HCV program and their response to them.

To understand the program’s effects, researchers examined PHA administration data from 2010 (before the demonstration) and at two periods after implementing the demonstration (2015 and 2017). They then compared these results with outcomes over the same period for PHAs that did not participate in the SAFMR demonstration.

Expanding and Accessing Opportunity

The research suggests that implementing SAFMRs successfully expanded the pool of available rentals in quality neighborhoods. Overall, under metropolitan-level FMRs, approximately one-quarter of rental units in high-opportunity neighborhoods had rents below the FMR. In lower-rent ZIP Codes (those with median rents below 90% of median rent for the metropolitan area), approximately 75 percent of units were below the FMR. Under SAFMRs, the number of units in higher-rent neighborhoods and lower-rent neighborhoods were much more evenly distributed than in metropolitan-level FMRs. As a result, the number of units available in high-opportunity neighborhoods increased and the number of units available in lower-opportunity areas decreased.

The shift from metropolitan area-wide FMRs to SAFMRs changes the distribution of available units in various neighborhoods, possibly resulting in a net decrease or increase in the number of units within the SAFMR across a jurisdiction. For example, the City of Long Beach Housing Authority experienced a 10 percent decrease in the number of units available, whereas the City of Dallas Housing Authority experienced a 4 percent decrease. This is the result of the SAFMRs in some ZIP Codes being reduced, thereby reducing the number of units that can be rented through the HCV program. Across the seven PHAs being evaluated, the shift to SAFMR resulted in a net loss of 22,000 units that previously were within the FMRs established by the HCV program, underscoring the need to evaluate the impacts of SAFMRs across entire metropolitan areas.

Following the implementation of SAFMRs, voucher holders were more likely to live in higher-rent neighborhoods. The percentage of voucher holders residing in higher-rent neighborhoods increased from 17 percent before the demonstration to 22 percent after implementing the demonstration. The comparison PHAs did not experience any changes over the same period. Increased access to higher-rent neighborhoods translated into access to higher-opportunity neighborhoods, as measured by poverty rate, school proficiency, job proximity, and environmental quality. The research, shows that voucher holders were about 10 percent more likely to move to a neighborhood with a higher opportunity score as a result of the implementation of SAFMRs. This effect was particularly strong for households with children. In interviews, HCV holders in SAFMR PHAs who considered moving reported that a desire for a neighborhood providing greater opportunity, such as a good school district, was the primary factor in their decision on where to move.

Program Costs, Rent Levels, and Program Implementation

Transitioning to SAFMRs resulted in a modest decrease of 2 percent in average per-unit payment standards in real terms between 2010 and 2017. The implementation of SAFMRs also decreased the housing assistance payments made to landlords by approximately 6 percent from 2010 to 2017. Housing assistance payments to landlords in the comparison PHAs decreased by 4 percent between 2010 and 2015 and remained flat between 2015 and 2017. HCV holder contributions to average monthly rent increased by 11 percent between 2010 and 2017.

Implementing the SAFMRs required investments in new information technology to calculate and administer payment standards and train staff in the SAFMR PHAs. Additional staff time was also required to administer contracts and inspect properties for their adherence to housing quality standards. Overall, PHAs reported that the additional staff time required to implement the SAFMR was justified by residents’ increased access to housing opportunities.

Conclusion

The SAFMR demonstration illustrates its potential to improve the ability of voucher holders to live in higher-rent neighborhoods without raising overall subsidies and to improve the ability of voucher holders to move to higher-opportunity neighborhoods. The research highlights the benefits of implementing SAFMR as well as future considerations for HUD and local PHAs.