By: Tushar Gurjal, Senior Policy Manager
On August 14, HUD published in the Federal Register a notice titled “Fair Market Rents for the Housing Choice Voucher Program, Moderate Rehabilitation Single Room Occupancy Program, and Other Programs; Fiscal Year 2025.” Fair Market Rents (FMRs) are defined, in general, as “the amount that a tenant would need to pay the gross rent (shelter rent plus utilities) of privately owned, decent, and safe rental housing of a modest (non-luxury) nature with suitable amenities.” Comments and requests for Fair Market Rent (FMR) reevaluations must be submitted by October 1, 2024. The FMRs become effective on October 1, 2024, but PHAs have three months to adjust their payment standards.
The notice also reminds PHAs that mandatory Small Area FMR use has been expanded to include 41 additional metropolitan areas and provides a list of those areas.
Calculating Fair Market Rents
The Department uses the U.S. Census Bureau’s five-year American Community Survey (ACS) data from 2018 to 2022 as base rents in FMR calculations. To use this data, it must pass both a margin of error test (the margin of error of the ACS estimate must be less than half the size of the estimate itself) and a requirement that the estimate is based on more than 100 observations. In instances where the five-year data does not pass the test, HUD will use an average of the base rents over the three most recent years (if there is data for at least two years). If there is no data, HUD will use the two-bedroom rent data with the next largest geographic area.
Next, HUD applies a recent-mover factor to these rents. It calculates the recent-mover factor as the change between the five-year standard quality two-bedroom gross rent and the one-year 2022 recent mover gross rent. If the five-year standard quality rent is larger than the one-year data, HUD sets the recent-mover factor to one. The Department again applies its two statistical reliability tests (i.e., the margin of error test and the observations over 100 test) and if the two-bedroom recent mover data fails either of these tests, HUD considers units of all bedroom sizes, checks the estimate from two-year recent movers, and finally considers the estimates for increasingly larger areas of geography. The Department uses certain other methods to calculate FMRs for American Samoa, the Northern Mariana Islands, and the Virgin Islands. For Guam, HUD uses survey data.
The Department then takes these values representing 2022 rental prices and applies an inflation factor to bring them to 2023 values. In doing this, HUD uses both the Consumer Price Index (CPI) and private measures of rent. Finally, the Department “trends forward” this estimate from 2023 to 2025 using a trend factor that is “based on local or regional forecasts of CPI gross rent data.” Additionally, HUD primarily calculates FMRs for two-bedroom units and ratios for smaller and larger units relative to two-bedrooms. The ratios are calculated using three five-year ACS data series and only uses data from estimates with a margin of error ratio that is less than 50% (otherwise data is taken from a larger geography).
Fair Market Rents are never below a minimum rent based on state or national non-metropolitan area median rent. Additionally, FMRs may be no less than 90% of the previous year’s FMR (this includes Small Area FMRs). Certain other rules apply for the floors of Small Area FMRs, especially if they are new areas where Small Area FMRs are mandatory.
Small Area FMR Methodology
The Department is now calculating small area FMRs for both metropolitan and non-metropolitan areas. Small Area FMRs are calculated from ZIP Code Tabulation Areas (ZCTAs). Again, HUD tests each ZCTA’s data for statistical reliability (based on at least 100 observations and margins of error ratios below 50%), then calculates the two-bedroom equivalent 40th percentile gross rents using data from two-, one-, and three-bedroom gross rents. The Department converts the one- and three-bedroom gross rents to two-bedroom gross rents using the bedroom ratios previously calculated for the ZCTA’s parent metropolitan or non-metropolitan area. The Department averages the last three years of gross rent estimates.
For ZCTAs without usable gross rent data by bedroom count, HUD calculates Small Area FMRs using the “rent ratio method.” This is calculated by dividing the ZCTA median gross rent across all bedrooms by the median gross rents across all bedrooms for the metropolitan or non-metropolitan area of the ZCTA. If there is not reliable rent data at the all-bedroom level, HUD will see if the ZCTA has bordering ZCTAs that have reliable rent data. If at least half of the bordering ZCTAs have reliable data, then HUD will create a weighted average as the basis for the Small Area FMR. In instances where neighboring ZCTAs are not statistically reliable, HUD substitutes the median gross rent for the county containing the zip code in the rent ratio calculation. The Department then multiplies this ratio by the two-bedroom FMR for the metropolitan or non-metropolitan area. The Department uses an average of the past three five-year ACS estimates to calculate the rent ratio. Finally, HUD limits each two-bedroom Small Area FMR to no more than 150% of the two-bedroom area where the zip code is located.
FMR Reevaluations
The notice provides instructions for how PHAs may request FMR reevaluations.
The full notice may be found here.
The Fiscal Year 2025 FMRs may be found here.
