On Monday, August 15, NAHRO submitted comments on HUD’s proposed Small Area Fair Market Rent (SAFMR) rule titled “Establishing a More Effective Fair Market Rent System; Using Small Area Fair Market Rents in Housing Choice Voucher Program Instead of the Current 50th Percentile FMRs.” This rule would mandatorily impose the use of SAFMRs for PHAs with Housing Choice Vouchers (HCVs) in certain metropolitan areas. In its comment letter, NAHRO stated that all PHAs should have the option to voluntarily implement SAFMRs–including for Project-Based Vouchers (PBVs)–according to the needs of their local communities.

NAHRO’s comment letter outlined three broad areas of concern, including tenant welfare concerns, tenant choice concerns, and administrative burden concerns. The comment letter also addressed why additional research is needed before the mandatory imposition of SAFMRs and responded to specific solicitations from HUD.

Tenant Welfare Concerns

The mandatory imposition of SAFMRs would have many deleterious effects on voucher program participants without necessarily having the intended effect of incentivizing people to move into “high opportunity” areas. Barriers limiting entry to “high opportunity” areas exist other than low payment standards. These other barriers include low vacancy rates (making it difficult for voucher holders to find available units), lack of housing mobility counseling, and lack of supplemental fees for security deposits.

Another concern was that using SAFMRs for PBVs would lower projected PBV revenue streams in many areas where PHAs are thinking about building developments. These future revenue streams allow access to financing for construction and building costs. In areas where PBVs would have higher revenue streams because of higher SAFMRs, the increased revenue is usually not enough to build a development. The end result is that in SAFMR areas with lower subsidies, there will be less affordable housing built, and in areas with higher SAFMRs, there won’t be additional affordable housing construction, resulting in a net loss of affordable housing construction.

NAHRO had additional tenant welfare concerns. First, NAHRO was concerned that more expensive zip codes did not necessarily translate to actual higher opportunity neighborhoods and that there were better metrics for measuring opportunity than expensive rent. Second, there was a concern that mandatorily imposing SAFMRs may contradict PHA and regional compliance with consolidated planning and Fair Housing requirements, including the mandate to affirmatively further fair housing. According to HUD guidance, it is up to local discretion how to best affirmatively further fair housing, and forcing PHAs to implement SAFMRs may not integrate with a PHA’s plan.

Another tenant welfare concern was that the imposition of SAFMRs would cost-burden families that choose to stay or cannot move because of barriers to entry in “high opportunity” areas. There needs to be more clarity around how a provision in the Housing Opportunity Through Modernization Act of 2016 (HOTMA) that allows PHAs the discretion to hold harmless payment standards when there are reductions in FMRs and SAFMRs will be implemented. It should be implemented before the final SAFMR rule so that those families that will be subjected to lower SAFMRs do not have their payment standards reduced. Finally, NAHRO noted that many in our membership have expressed skepticism about how accurately FMRs or SAFMRs track the true price of rental housing in many neighborhoods. It has been the experience of NAHRO members that FMRs and SAFMRs tend to undervalue metropolitan neighborhoods, so a subsidy cut in certain neighborhoods could impact tenants even more than the original FMR that undervalued the rental market.

Tenant Choice Concerns

NAHRO believes that the mandatory imposition of SAFMRs on metropolitan areas will lead to disincentivizing program participants from living in certain neighborhoods. Disincentivizing living in certain neighborhoods constrains tenant choice, which is antithetical to the spirit of federally assisted housing in general.

Administrative Burden Concerns

The SAFMR rule will impose additional administrative burdens. As we noted, the rule will require large up-front investments in Information Technology (IT) upgrades to deal with potentially hundreds or thousands of new payment standards. Additionally, HOTMA’s provision that allows payment standards to be held harmless during a reduction in FMRs or SAFMRs will add additional burdens as scenarios may occur where there are multiple payment standards in the same building. NAHRO noted that the none of the proposed administrative fee formulas take into account the administrative burden on using SAFMRs and that mandatorily imposing SAFMRs on PHAs results in a formula with less predictive value. Other administrative burdens that NAHRO mentioned include: SAFMRs are difficult to explain to landlords and may cause landlords to leave the program; SAFMRs are difficult to explain to tenants; and that PHAs will have to spend additional time explaining to their local community leaders why HUD is favoring one neighborhood over another.

Additional Research

In NAHRO’s letter, we emphasized that HUD should not rely solely on the results of a mobility program in Dallas when deciding whether to mandatorily apply SAFMRs to metro areas for three reasons. First, the Dallas rental housing market is not representative of the rest of the country. Second, the Dallas implementation of SAFMRs is not representative of the implementation discussed in HUD’s proposed rule (i.e., the Dallas implementation has mobility counseling, funding for which is not being offered in this proposed rule). Third, the implementation of HOTMA’s provision to allow PHAs the discretion to hold harmless payment standards when there has been a reduction in the FMR or SAFMR makes the cost estimate from studies about Dallas incorrect.

Finally, NAHRO also responded to several of HUD’s specific solicitations for comment.

NAHRO’s full comment letter on the proposed rule titled “Establishing a More Effective Fair Market Rent System; Using Small Area Fair Market Rents in Housing Choice Voucher Program Instead of the Current 50th Percentile FMRs” can be read here.

Questions? Contact Tushar Gurjal at tgurjal@nahro.org.

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