On April 15, HUD published the 2016 inflation factors to adjust FY 2016 renewal funding for the Housing Choice Voucher (HCV) Program. The Department uses Renewal Funding Inflation Factors (RFIFs) to “incorporate economic indices to measure the expected change in per unit costs (PUC) for the HCV program” or, put another way, calculate how much it should inflate HAP renewals each year.
To determine the inflation factor, HUD uses a multi-step process. First, it calculates a national inflation factor using certain national economic indices. Then, it calculates inflation factors for individual areas based on the area’s Fair Market Rents (FMRs) change over the past two years. Finally, the individual area inflation factors are scaled so that their voucher weighted average equals the national inflation factor and that no individual area inflation factor is less than one (a factor less than one would result in a smaller HAP renewal). HUD applies these scaled factors to eligible renewal funding to determine individual PHA HAP funding.
To measure the national inflation factor, HUD tries to measure the change in the average PUC as captured in the Voucher Management System (VMS) using three economic indices to explain the change:.
● Seasonally-adjusted unemployment rate (lagged twelve months);
● The Consumer Price Index from the Bureau of Labor Statistics; and
● The “wages and salaries” component of personal income from the National Income and Product Accounts from the Bureau of Economic Analysis.
The model also incorporates “economic variables from the Administration’s economic assumptions.” The national annual change in PUC has been calculated as 0.8 percent.
The inflation factor for an individual geographic area is based on the annualized change in the area’s FMR between FY 2014 and FY 2016. The individual geographic area changes in FMR are scaled so that “the voucher-weighted average of all individual area inflation factors is equal to the expected annual change in national PUC from 2015 to 2016.” The individual geographic area FMRs are also scaled so that no individual area has an inflation factor less than one (thus, HAP renewal funding will not go down because of an inflation factor). HUD then applies the individual area inflation factors to eligible renewal funding for each PHA based on VMS leasing and cost data for the prior calendar year.
Next year, HUD will employ a new methodological technique that calculates the national inflation rate based “on a new model of Per Unit Cost . . . that is based on independent forecasts of gross rents and tenant incomes without relying on historical values of Per Unit Cost, and will apportion this change based on the change in individual areas FMRs between FY 2016 and FY 2017.”
Although the FY 2016 Appropriations Act did not require HUD to seek comment before publishing these inflation factors, NAHRO is disappointed that HUD did not seek stakeholder comments, as it did last year. In this year’s notice, HUD notes that it made methodological changes in response to those comments, which indicates that there is value in receiving stakeholder feedback. NAHRO hopes that HUD will seek commentary on their methodological change in calculating inflation factors next year.
The full notice can be read here.
The inflation factor tables can be found here.
Questions? Contact Tushar Gurjal at email@example.com.