Contrasting Different Geographies in Fair Market Rents: Implications for the Housing Choice Voucher Program in Pittsburgh, PA

Mike Blackhurst
Chris Briem
Sabina Deitrick
Center for Social and Urban Research, University of Pittsburgh

Local public housing authorities define the payment standards–the voucher amounts paid to landlords—for renting their property under the Housing Choice Voucher (HCV) Program. Payment standards have been historically based on 40th percentile Fair Market Rents (FMRs) calculated by the U.S. Department of Housing and Urban Development (HUD) for metropolitan areas and non-metro counties. To better align payment standards with market rents, HUD has developed 40th percentile Small Area Fair Market Rents (SAFMRs) at the ZIP-Code level and have mandated their use in 24 metropolitan areas. Public housing authorities using SAFMRs in lieu of FMRs must maintain payment standards within 10 percent of the SAFMR. This study compares the efficacy of SAFMRs with rents listed for Pittsburgh, PA, by Rent Jungle, a commercial aggregator of rental data. Correlations between SAFMRs and the sampled rents were relatively low at 37 percent. Results indicate that small area markets defined using a combination of clustering and nearest neighbor algorithms are better predictors of market rents than ZIP Codes and require fewer market delineations, as shown by the adjusted R-squared exceeding 60 percent with only three clusters (compared with the 26 ZIP Codes in Pittsburgh). Results suggest that SAFMR achieves its goal of increasing the eligible units relative to FMR. Those increases were disproportionately in low-rent areas, however, where the proposed SAFMR is competitive with market rents. In contrast, in high-rent areas, the SAFMR is more than 50 percent lower than market rents, on average, resulting in few eligible units. These observations suggest SAFMRs are likely to increase the number of landlords interested in the HCV program in low-rent areas, but not in highrent areas. To increase the use of vouchers in high-rent areas, payments to landlords should adequately compete with market rents. Otherwise, only landlords in high-rent areas that have trouble renting in the private market, such as those that offer properties of marginal quality, are likely to participate in the HCV program.