The Department of Housing and Urban Development (HUD) issued its final rule for the implementation of Small Area Fair Market Rents (SAFMRs) in November of 2016 (Federal Register, 2016). In August of 2017, HUD attempted to suspend the SAFMR rule, but in December of 2017 a U.S. District Court judge ordered it to be reinstated (Open Communities Alliance v. Carson, 2017). The new rule became effective in January of 2018, with implementation in mandatory areas beginning in April of 2018. There are currently 24 metropolitan areas mandated to implement SAFMRs. The adoption of SAFMRs is voluntary in all other metropolitan areas.
The SAFMR rule is intended to better align the setting of payment standards for the Housing Choice Voucher (HCV) program with the goals of promoting residential choice and mobility. The rule is needed since the traditional method of setting payment standards based on the 40th or 50th percentile of rents in a metropolitan region (“Fair Market Rents or FMRs”) has contributed to the concentration of HCVs in low-income and minority neighborhoods. The SAFMR rule bases payment standards on average rents in ZIP codes, a geography more sensitive to rental variation across metropolitan areas. Basing payment standards on SAFMRs is argued to provide voucher holders with greater access to employment, quality schools, transportation, and other desired amenities (i.e. high-opportunity neighborhoods). SAFMRs expand access to housing in ZIP codes where average rents are higher than metropolitan FMRs. They also avoid overpaying landlords in low-rent areas like those examined by Desmond and Wilmer (2019).
In this article we summarize core findings from the more detailed report we authored for PRRAC about the initial implementation of the SAFMR rule. In particular, we highlight the degree to which the setting of payment standards by public housing authorities (PHAs) falls short of aligning with SAFMR equity goals. At the end of this article, we make recommendations for future HCV program implementation where PHAs use SAFMRs.
The Rationale for Small Area Fair Market Rents
HUD’s new SAFMR rule was developed in response to a number of concerns about the effectiveness of the HCV program in deconcentrating poverty and providing low-income households with access to upward mobility. These concerns date back to issues raised in cases like Gautreaux v. Chicago Housing Authority (1969), Walker v. HUD (1990), and Thompson v. HUD (2005). Housing mobility programs were developed as part of the court-ordered remedies in these three cases, permitting recipients of housing vouchers to move out of segregated, high poverty neighborhoods. These programs have continued to thrive in Chicago, Dallas, and Baltimore. The development of policies scaling up these programs in other cities has become increasingly salient, since HCVs are one of HUD’s primary tools to provide affordable housing to low-income households. For example, there were over 2.2 million rental units subsidized with HCVs in 2017 (U.S. Department of Housing and Urban Development, 2017). HCV units represented over 48% of all rental units subsidized across the eight federal programs designed to subsidize rental housing. Almost 5.3 million people were housed using HCVs in 2017, comprising almost 55% of all renters receiving housing assistance across the eight federal rental subsidy programs.
In addition to programs and policies adopted in response to court decisions, advocates have pressed HUD to pursue administrative rule changes to address shortcomings in HCV implementation. In particular, advocates have long been critical of how the use of metropolitan-wide FMRs, and the calculation of payment standards based on them, impede geographic mobility and housing searches in high-opportunity neighborhoods (Thrope, 2018).
One of the more poignant critiques of metropolitan-wide FMRs is that they fall short of providing tenants with adequate subsidies to rent in high-opportunity neighborhoods. Researchers have identified this as problematic since metropolitan-wide FMRs, whether set at the 40th or 50th percentile rent, by definition fall below average rents in relatively high-cost submarkets in metropolitan areas (Palm, 2018; Treat, 2018; Thrope, 2018). This limitation of FMRs is compounded by data lag, since FMRs are calculated using data from the American Community Survey (ACS) which is released two years from its date of collection. One rationale for HUD allowing PHAs to set payment standards within a 90%-110% range of its published FMRs it to address some of these limitations. However, in many high-opportunity areas, the ability to set payment standards at 110% of FMRs still does not close the affordability gap. To address this issue, SAFMRs were introduced as a tool to promote housing opportunity on a metropolitan-wide scale.
The first test of this tool came in 2011 as a result of a court settlement that resolved a complaint charging that payment standards based on FMRs in the Dallas metropolitan areas resulted in the concentration of vouchers in low-income areas (Ellen, 2018; Treat, 2018). Under the settlement, all PHAs in metropolitan Dallas agreed to use SAFMRs when setting payment standards. An early analysis of outcomes in Dallas suggested that the adoption of SAFMRs resulted in improved neighborhood quality for HCV recipients and modest cost savings for PHAs (Collinson & Gannong, 2014). Shortly after the Dallas settlement, HUD created its own SAFMR demonstration program. Five new PHAs along with two PHAs from the Dallas metropolitan area that were already implementing SAFMRs were included in the demonstration program. At the end of the SAFMR demonstration program, HUD released an evaluation report (Dastrup et al., 2018). The report indicated that the switch to SAFMRs made HCV holders slightly more likely to live in high-opportunity ZIP codes. The report also found that the switch to SAFMRs resulted in modest reductions in overall costs for PHAs.
In November of 2016, HUD published the final version of the SAFMR rule and it began implementing it in April of 2018. At that time, PHAs in 24 metropolitan areas were mandated to adopt SAFMRs. Across those metropolitan areas, 180 PHAs administered 413,591 vouchers, which accounted for about 19% of all HUD vouchers (see Table 1).
The Alignment of Payment Standards with SAFMR Goals
One of our goals in this research was to assess how faithful PHAs were to the goals of the SAFMR rule in their local implementation. Under the new rule, PHAs can set payment standards between 90% and 110% of SAFMRs. In part, this range allows PHAs to account for local market conditions when adjusting payment standards. For example, in areas where fair market rents are changing rapidly and published SAFMRs are not in line with current trends, the 90%-110% range gives
PHAs flexibility to address data lag issues. The 90% to 110% range also gives PHAs flexibility to pursue more aggressive strategies to expand renters’ access to high-opportunity areas, particularly if they adopted payment standards at 90% in low-rent ZIP codes and payment standards at 110% in high-rent ZIP codes. This approach to setting payment standards incentivizes moves to high-opportunity areas since it tilts the ceiling for subsidies in the manner described by Collinson and Ganong (2014). Tilting the ceiling for subsidies entails setting subsidies below FMRs in low-rent ZIP codes and setting subsidies above FMRs in high rent ZIP codes.
While taking these issues into consideration, at minimum, one would expect payment standards to cluster near 100% of published SAFMRs if a PHA has fidelity to the equity goals of the new rule. Under this scenario, a PHA would strike a metropolitan-wide balance between ZIP codes where SAFMRs were less than metropolitan-wide FMRs and ZIP codes where SAFMRs were greater than metropolitan-wide FMRs. This is an important balance to strike, since it generates program cost savings in low-rent ZIP codes, removes incentives for voucher concentration in low-rent ZIP codes, and frees up resources needed to enhance HCVs in high-rent ZIP codes. Striking this balance is critical to maintaining a PHA’s volume of HCVs while expanding housing options in opportunity areas.
If a PHA diverges from payment standards clustering near 100% of published SAFMRs, how payment standards are set can be viewed as an indication of relatively high or low fidelity to the new rule. In instances where there is high fidelity, a PHA would set payment standards in low-rent ZIP codes closer to 90% of SAFMRs while setting payment standards closer to 110% of SAFMRs in high-rent ZIP codes. Setting payment standards in this manner would maximize the incentive for tenants to move to high opportunity areas while reducing possible overpayments to landlords in low rent ZIP codes. In contrast, low fidelity would be most pronounced in instances where a PHA sets payment standards in low-rent ZIP codes closer to 110% of SAFMRs while setting payment standards closer to 90% of SAFMRs in high-rent ZIP codes. Set ting payment standards in this manner would minimize the incentive for tenants to move to high-opportunity areas while increasing overpayments to landlords in low-rent ZIP codes. This scenario would effectively undercut the equity goal of the SAFMR rule by bringing payment standards back in line with something approximating metropolitan-wide FMRs.
Our analysis suggests that in the aggregate PHAs in the 24 metropolitan areas had low fidelity to the equity goals of the SAFMR rule. Although average payment standards hovered around 100% of published SAFMRs, there was a divergence between the setting of payment standards in low opportunity and high-opportunity areas. In low-opportunity areas, payment standards were consistently above 100% of published SAFMRs. In high-opportunity areas payment standards were consistently below 100% of published SAFMRs. This reflected the opposite pattern of setting payment standards that would be predicted if PHAs had high fidelity to the equity goals of the SAFMR rule. Setting payment standards in this manner creates disincentives for moves to high-opportunity neighborhoods and reinforces existing patterns of HCV concentration in low-opportunity areas. Moreover, setting payment standards in this manner increases the likelihood that landlords will be overpaid in low-rent areas and PHAs will forego cost-savings that can be used to enhance payment standards in high-opportunity ZIP codes. This reinforces existing geographic patterns of voucher distribution and results in the use of fewer HCVs in high-rent ZIP codes. It is important to note, of course, that there was variation in the degree to which payment standards diverged between high-opportunity and low-opportunity ZIP codes in individual metropolitan areas.
There were four main trends observed at the metropolitan level. The first was in metropolitan areas where payment standards followed a similar pattern to the aggregate data reflected in Table 2, or “low fidelity” to the goals of the SAFMR rule. Eleven of the 24 metropolitan areas fell into this category. They included the following metropolitan areas: Atlanta-Sandy Springs-Roswell, Colorado Springs, Fort Lauderdale, Fort Worth-Arlington, Hartford-West Hartford-East Hartford, Jacksonville, Monmouth-Ocean, Pittsburgh, Sacramento-Roseville-Arden-Arcade, Tampa-St. Petersburg-Clearwater, and Urban Honolulu.
The second trend in payment standards involved eight metropolitan areas where payment standards were at or above 100% of SAFMRs in both high-opportunity and low-opportunity zips codes. This trend was found in the following metropolitan areas: Charlotte-Concord-Gastonia, Chicago-Joliet-Naperville, Dallas, Gary, Jackson, North Port-Sarasota-Bradenton, Philadelphia-Camden-Wilmington, and Washington-Arlington-Alexandria. These metropolitan areas exhibited a relatively high degree of fidelity to the equity goals of the SAFMR rule in the sense that they erred on the side of adopting payment standards that were at or higher than 100% of SAFMRs across the board.
The third trend in payment standards involved five metropolitan areas where payment standards were below 100% of SAFMRs in both high-opportunity and low-opportunity zips codes. This trend was found in the following metropolitan areas: Bergen-Passaic, Palm Bay-Melbourne-Titusville, San Antonio-New Braunfels, and San Diego-Carlsbad. These metropolitan areas exhibited a relatively low degree of fidelity to the equity goals of the SAFMR rule in the sense that they adopted payment standards that were below 100% of SAFMRs across the board. This may have the effect of encouraging the concentration of HCVs in low-opportunity areas, particularly in metropolitan areas with tightening rental markets.
The Alignment of Tenant and Landlord Notification Materials with SAFMR Goals
Notification materials were used in our analysis to measure how well information conveyed to tenant and landlords aligned with SAFMR goals. Tenant notification materials were provided by 22 PHAs. Landlord notification materials were provided by 12 PHAs. Findings indicated that the thrust of tenant notifications was to alert tenants about the upcoming reductions in payment standards in low rent neighborhoods, and to what extent they would be held harmless if payment standards were reduced in their area due to the adoption of SAFMRs.
In addition to notifying tenants that SAFMRs were being adopted and that this may impact their level of rental assistance in the future, nine PHAs also included language explaining the equity goals of the new policy, but this type of notice appeared to be the exception rather than the rule. A good example was the Sacramento Housing and Redevelopment Agency’s notification that, “with the SAFMRs you will be able to use your voucher in more places than would have been possible before—including neighborhoods that have high-performing schools, reduced crime, access to grocery stores, parks, medical facilities, childcare, transportation, and other amenities.”
The Alignment of HUD Monitoring with SAFMR Goals
In addition to issues related to the setting of payment standards and notification materials, our analysis found that the implementation of the SAFMR rule was hampered by a lack of proactive monitoring by HUD. For example, PHAs are not required to submit their administrative plans, payment standards, or materials used to notify tenants and landlords about SAFMRs to HUD. Instead, they are expected to keep these records in-house and available if HUD requests to inspect them. This is problematic since there is no central repository where these materials are stored and made publically available for inspection. This impedes researchers and advocacy groups from accessing information about the implementation of the SAFMR rule and shifts the burden of public disclosure from HUD to members of the general public. The lack of a public repository for implementation materials also hinders the free flow of information between PHAs interested in identifying best practices to adopt when planning their implementation strategies.
Recommendations for PHAs that use SAFMRs
The successful implementation of SAFMRs hinges on the degree to which PHA administrators show fidelity to the equity goals of the SAFMR rule, and notify tenants about their new opportunities under the rule. These goals focus on setting payment standards that create incentive structures to enable moves to high-opportunity neighborhoods while removing incentives to move to or stay in low-opportunity neighborhoods. Importantly, the reduction of payment standards in low rent areas provides PHAs with the cost savings needed to pay for higher payment standards in high-rent areas. The reduction in payment standards in low rent areas also corrects for the tendency to overpay landlords when FMRs are used. In essence, payment standards based on SAFMRs bring HCV subsidies in line with market-based rents across a metropolitan area.
The results presented in this article indicate that PHA administrators lack high levels of fidelity to the equity goals of the SAFMR rule. This has led to less than optimal implementation. Despite these findings, there are signs that once PHAs gain experience in the use of SAFMRs they apply the policy with greater efficacy. For example, some of the highest levels of fidelity to SAFMRs were found in the place with the most experience using them to set payment standards, the Dallas metropolitan area. Still, there is a need to fine-tune the SAFMR rule in anticipation of its use by a larger group of PHAs in the future. To this end, we offer the following three recommendations
Recommendation #1: HUD must enhance its emphasis on the equity goals of SAFMRs. To foster this commitment to promoting HCV holders’ mobility, HUD must invest more resources in educating PHAs, tenants, and landlords about these goals and their relationship to the setting of payment standards in high rent and low rent areas. In addition, using SAFMRs to set payment standards that promote residential choice and mobility should be the central focus of the tenant notification process. At minimum, materials circulated during the tenant notification process should include information about the availability of housing units and quality of neighborhood amenities in high-opportunity neighborhoods.
Recommendation #2: HUD must strengthen the guidelines for setting payment standards so they are in line with the equity goals of the SAFMR rule, which includes the goals of enhancing the cost-effectiveness of SAFMRs. These guidelines should be more explicit about the value of lowering payment standards over time in low-rent areas for new tenants (while holding existing tenants harmless) and to increase payment standards in high rent areas. Revised guidelines should emphasize setting payment standards in a manner that tilts the ceiling for subsidies as described by Collinson and Ganong (2014). In other words, guidelines should encourage PHAs to set subsidies at 90% of SAFMRs in low-rent ZIP codes and set subsidies at 110% of SAFMRs in high-rent ZIP codes. These types of guidelines can be reinforced with incentives to PHAs, such as awarding additional vouchers and funding for mobility counseling to authorities that adopt this strategy.
Recommendation #3: HUD must increase its monitoring and reporting requirements for the implementation of the SAFMR rule. Under its current administrative practices, PHAs are not required to submit their administrative plans, payment standards, or materials used to notify tenants and landlords about their internal implementation policies related to the SAFMR rule to HUD. A central repository needs to be created where these materials are stored and made publically available for inspection. This repository can be used as a resource: by HUD when monitoring the implementation of the SAFMR rule, by researchers and advocacy groups, by PHAs interested in identifying best practices, and by the general public.