Webcast: Implementing HUD s Small Area Fair Market Rent Rule

Transcription

1 Webcast: Implementing HUD s Small Area Fair Market Rent Rule Rebecca Cohen: Welcome to this webcast on Implementing Small Area Fair Market Rents in the Housing Choice Voucher Program. The webcast is designed for the staff and leadership of public housing agencies that are implementing Small Area FMRs. By the end of the webcast, viewers should understand the requirements that must be met to implement Small Area FMRs and be prepared to start formulating a plan for making the local policy decisions needed to shape the implementation of Small Area FMRs. In addition to this webcast, HUD has developed a range of tools to help public housing agencies, or PHAs, in implementing Small Area FMRs. We ll direct you to those additional resources at the end of the webcast. During the webcast, you ll hear from me, Rebecca Cohen from Abt Associates and Jim Evans from Quadel Consulting. To begin, though, Dominique Blom and Todd Richardson from HUD will briefly explain the rule and what HUD aims to achieve through implementation of Small Area FMRs. Dominique Blom: I m Dominique Blom, General Deputy Assistant Secretary for Public and Indian Housing at HUD. In November 2016, HUD published in the Federal Register the Small Area FMR Final rule. The rule made a number of changes to the Housing Choice Voucher (or HCV) program, one of which was to implement Small Area FMRs. Small Area FMRs are fair market rents established at the ZIP code level, rather than the metropolitan area level. Small Area FMRs are HUD s current FMR tool for helping voucher families access low-poverty areas of opportunity and are required in areas where voucher families are highly concentrated in low income/high poverty areas. HUD now requires that Small Area FMRs be used in place of metropolitan wide FMRs by PHAs in 24 designated Small Area FMR areas by April 1, PHAs operating in these metropolitan areas must act as quickly as reasonably feasible to implement the use of Small Area FMRs in these designated areas. In addition, PHAs serving other metropolitan areas have a choice about whether to voluntarily adopt Small Area FMRs. We hope this and other training opportunities and tools available from HUD will help your agency implement Small Area FMRs and encourage voucher families to move into areas of low poverty. What are HUD s policy goals for Small Area FMRs? Todd Richardson: I m Todd Richardson, Acting General Deputy Assistant Secretary for Policy Development and Research at HUD. Small Area FMRs are fair market rents calculated at the ZIP code level rather than for the entire metropolitan region. Small Area FMRs recognize that rents can vary substantially within a single metropolitan area. In many metropolitan areas, neighborhoods with higher rents can be safer and provide better access to jobs and quality schools. Small Areas FMRs replace the previous policy that increased FMRs from the 40th percentile to the 50th percentile rent for the whole metropolitan area. HUD s research found the 50th percentile policy to largely be ineffective at deconcentrating vouchers Small Area FMRs are intended to provide a more effective means for HCV families to afford the higher rents in high-opportunity and low-poverty areas. To this end, HUD is now requiring the use of Small 1

2 Area FMRs in metropolitan areas where HUD s analysis shows: (1) relatively few voucher families are currently in higher income areas and (2) there are market conditions, such as higher vacancy rates, favorable to the Small Area FMR policy being effective. PHAs that adopt Small Area FMRs will need to modify their payment standards to ensure they fall within the basic range of the new Small Area FMRs for each ZIP code. Note that in many of the neighborhoods where current voucher tenants are leased, the payment standard will be reduced. PHAs have some choices on when and how to apply these reduced payments standards to currently leased families. It is very important that you carefully consider how this policy change will impact your budget and voucher issuance policies. And as you know, PHAs will need to educate families and owners about the PHA s new policies and procedures. The balance of this webcast will discuss how to approach each of these tasks. Which PHAs must implement Small Area FMRs? Jim Evans: As noted at the outset of this webcast, HUD has designated 24 metropolitan areas where use of the Small Area FMRs is mandatory. In these areas, ZIP code based Small Area FMRs must be used to determine payment standards rather than metropolitan area fair market rents, or Metro Area FMRs. PHAs that directly administer HCV assistance that is, execute HAP contracts for families within the 24 designated metropolitan areas are known as Designated Small Area FMR PHAs, or mandatory implementers. All designated Small Area FMR PHAs are expected to implement new Small Area FMRs determined by ZIP codes and, unless otherwise exempt, must begin immediate implementation of Small Area FMR payment standards. PHAs that believe they will be unable to implement the use of the Small Area FMRs by April 1, 2018 should immediately contact their local HUD field office. In some cases, a mandatory implementer s jurisdiction may include both designated Small Area FMR areas and metro areas where the use of Small Area FMRs is not mandatory. For these PHAs, use of SAFMRs outside of the designated Small Area FMR area is optional. If the PHA wishes to apply Small Area FMRs to those areas, they would need to follow the procedures for Opt-In PHAs that we are about to discuss. Opt-in Small Area FMR PHAs Rebecca Cohen: PHAs that are not required to adopt Small Area FMRs may voluntarily choose to do so by opting in with HUD approval. We call these PHAs Opt-in Small Area FMR PHAs. When considering whether to opt in and apply Small Area FMRs, a PHA must compare the applicable Small Area FMRs and Metro Area FMRs. In making this comparison, the PHA should: 2

3 Consider whether adoption of Small Area FMRs is likely to have an adverse effect on the availability of rental housing that is both affordable and available to tenants and applicants; Estimate the effect of Small Area FMR adoption on families currently under HAP contract and consider whether to adopt the hold harmless or reduction in subsidy options; Identify any areas where the difference between the Metro Area FMR and the lower Small Area FMR is exactly 10 percent. In this case, opt-in will therefore trigger the need for rent reasonableness determinations; Consider whether to apply Small Area FMRs to its project-based voucher, or PBV program, if applicable. We will discuss each of these considerations in greater detail later in this webcast. Rebecca Cohen: In addition, PHAs may want to assess the opportunities created by implementing Small Area FMRs, the adequacy of, and potential impact on, available budget resources, and the administrative resources and capacity. Refer to the Small Area FMR Guidebook for more information about these considerations. Rather than fully opting in to Small Area FMRs, which would require a PHA to adopt Small Area FMRs for its entire HCV program, any PHA that is not required to adopt Small Area FMRs may use new authority granted under the Final Rule to set exception payment standards for selected ZIP codes in its jurisdiction based on the applicable Small Area FMR. PHAs selecting this option may establish an exception payment standard for individuals ZIP code areas of up to and including 110 percent of the Small Area FMR determined by HUD for that ZIP code area. PHAs must notify HUD when adopting an exception payment standard based on the Small Area FMR, but HUD approval is not required. What housing types and programs are affected by the implementation of Small Area FMRs? Jim Evans: Small Area FMRs apply to all tenant-based vouchers, including special purpose vouchers such as Veterans Affairs Supportive Housing Program, commonly referred to as VASH or VASH vouchers, and Family Unification Program vouchers, or FUP. All special housing types are subject to the Small Area FMR rule, including the voucher homeownership program and manufactured home space rentals. All special housing types are subject to the Small Area FMR rule, including the voucher homeownership program and manufactured home space rentals. Designated Small Area FMR PHAs and Opt-in PHAs have the option of applying Small Area FMRs to PBVs. We will review PBVs in more detail later in the webcast. Jim Evans: Moving to Work, or MTW, agencies located in designated Small Area FMR areas must use Small Area FMRs unless the agency already has an alternative payment standards policy in its HUDapproved Annual MTW Plan. An alternative payment standards policy is a policy that involves payment standards that an MTW agency may adopt following HUD approval in the Annual MTW Plan. 3

4 For example, an MTW agency may adopt a policy establishing its own submarket-based payment standards, multi-tiered payment standards, or payment standards above the basic range. MTW PHAs in designated Small Area FMR areas should contact the MTW Office to confirm their MTW Requirement Status or if they wish to implement an alternative payment standards policy. Jim Evans: Small area FMRs only apply to the Housing Choice Voucher Program. The Final Rule did not amend the regulations or change the way that FMRs are used in any other program. We recommend you reach out to the appropriate HUD office to inquire about the use of Small Area FMRs for any other program, like HOME and HOPWA. How are Small Area FMRs defined and how are Designated Small Area FMR PHAs determined? Rebecca Cohen: Small Area FMRs are annual ZIP code-based estimates of rent, including utilities, and are set by HUD for use in administering tenant-based assistance under the HCV program. Rebecca Cohen: To determine which metropolitan areas to designate for required use of Small Area FMRs, HUD applied the following selection criteria: 1. At least 2,500 HCVs are under lease in the metropolitan FMR area. 2. At least 20 percent of the standard quality rental stock within the metropolitan area is located in ZIP codes where the Small Area FMR is more than 110 percent of the metropolitan FMR area. 3. At least 25 percent of families with housing vouchers live in concentrated low-income areas. 4. Families with housing vouchers are at least 55 percent more likely than renters in general to live in concentrated low-income areas; and 5. The vacancy rate for the metropolitan area is greater than 4 percent. Rebecca Cohen: HUD has not reevaluated the selection criteria that were applied at the time the Final Rule was published. This is because HUD s designation of metro areas where implementation of Small Area FMRs is mandated is permanent - as stated in both the regulatory text and the preamble to the regulation. HUD plans to review new data and update the list of areas where implementation of Small Area FMRs is required every 5 years. The specific selection criteria used to identify the first round of Designated Small Area FMR areas were specified in a separate Federal Register Notice and may be updated by HUD in the future. Once an area has been designated as Small Area FMR area, it remains so in perpetuity. What are the limits on reductions in Small Area FMRs in the first year and in subsequent years? Rebecca Cohen: HUD limits reductions in Small Area FMRs from year to year. Generally, HUD will set the FMRs at a level that is no lower than 90 percent of the previous year's FMR for the FMR area. In the year that a metropolitan area first implements Small Area FMRs, the Small Area 4

5 FMR for each ZIP code will be no less than 90 percent of the Metro Area FMR in the previous fiscal year. In subsequent years, the relationship between the Small Area FMRs and the Metro Area FMR will no longer be relevant. The only applicable restriction from that point forward is that the Small Area FMRs will be no lower than 90 percent of the previous year s Small Area FMRs for that ZIP code in the previous year. What actions or conditions may serve as the basis for suspension or temporary exemption of Small Area FMRs? Jim Evans: In certain cases, HUD may suspend Small Area FMRs for a metropolitan area or temporarily exempt individual PHAs from use of Small Area FMRs. This action may be initiated by HUD or at the request of a PHA. The suspension or exemption must be based on a documented determination by HUD that such action is warranted due to adverse rental housing market conditions currently affecting the area. These conditions may apply to the rental housing market as a whole, or they may be unique to the segment of the rental market that is affordable and available to families with vouchers. PHAs considering a request for a suspension or temporary exemption should contact their HUD field office representative. Jim Evans: The following are some examples of actions or conditions that may serve as the basis for suspension or temporary exemption from Small Area FMRs: - A Presidentially declared disaster area that results in the loss of a substantial number of housing units - Vacancy rates falling below four percent - A rapid increase in the PHA s per unit costs causing the PHA to experience a funding shortfall, or - A sudden influx of households into the metropolitan area Revising payment standards based on Small Area FMRs Rebecca Cohen: Payment standards determine the maximum subsidy amount a PHA can pay toward rent on behalf of a voucher family. Payment standards are based on FMRs set by HUD but are determined locally by PHAs. All PHAs must set payment standards for each unit size within the basic range between 90 and 110 percent of the FMR unless HUD has previously approved an exception payment standard for the area. We ll discuss payment standard exceptions later in the webcast. The shift to Small Area FMRs may mean that current payment standard amounts no longer fall within the basic range of the applicable FMR. When this is the case, it will be necessary for PHAs to revise their payment standard amounts to stay within the basic range of the new FMRs, unless the payment standard has previously been approved by HUD and falls below the basic range or is an exception payment standard. PHAs may only establish payment standards that fall outside the basic range in accordance with HUD requirements. 5

6 Revisions to payment standard schedules due to transitioning to Small Areas FMRs Rebecca Cohen: In fiscal year 2018, HUD expects PHAs in designated Small Area FMR areas to implement revised payment standards no later than April 1, In fiscal year 2019 and beyond, PHAs will have 3 months from the time newly posted FMRs are effective to revise payment standards if needed to stay within the basic range. For example, if HUD publishes FMRs that become effective on October 1, 2018, and the new FMRs result in existing payment standards falling outside the basic range, the PHA would need to implement a revised payment standard schedule that is effective no later than January 1, Rebecca Cohen: In ZIP codes where the payment standard amount is already within 90 to 110 percent of the Small Area FMR, the PHA may make revisions at any time as long as the revised payment standard amount remains within the basic range. HUD advises PHAs to provide both the current and the pending payment standard schedules to families who have been issued a voucher and whose search will be underway when the PHA transitions to the revised payment standard. It is important for the family to understand when the new payment standard will go into effect and its relationship to the effective date of any HAP contract executed on behalf of the family. The Small Area FMR Guidebook provides greater detail on when to apply the revised payment standard. Options available to PHAs: setting payment standard amounts within the basic range Jim Evans: PHAs have a great deal of flexibility when setting payment standards within the basic range. For example, in a ZIP code with a 1-bedroom Small Area FMR of $900, a PHA could set the payment standard as low as $810 or as high as $990. In some ZIP codes and for some unit sizes it may be advantageous to set payment standards at the top of the basic range, while in others a PHA may choose to set payment standards at the bottom or middle of the range. PHAs may use different percentages of the FMR for different bedroom sizes within the same ZIP code. For example, a PHA may set the payment standard for studio apartments and 1- and 2-bedroom apartments at 100 percent of the Small Area FMR, and use 110 percent of the Small Area FMR for 3 bedroom and larger units. Using different percentages for different bedroom sizes may be helpful in increasing access to certain type of housing, but adds administrative complexity for the PHA. Applying payment standards to individual ZIP codes and grouped ZIP codes Jim Evans: Another option available to PHAs implementing Small Area FMRs is to group ZIP codes to create a smaller number of areas in which different payment standards apply. PHAs can create payment standard groups that include multiple ZIP codes so long as the payment standards fall within the basic 6

7 range of the applicable Small Area FMR for each ZIP code area in the group. Alternatively, a PHA using Small Area FMRs could adopt a unique payment standard schedule for each ZIP code area within its jurisdiction. A PHA does not need to apply the same percentage of the Small Area FMR to each ZIP code area within a payment standard area. Rebecca Cohen: To illustrate this option, consider a PHA whose service area covers six ZIP codes, each with a different two-bedroom Small Area FMR. The PHA could choose to have six separate payment standards one for each of the ZIP code areas, as seen in Option A. Or, the PHA could group the ZIP codes into a smaller number of payment standard areas either three payment standard areas as in Option B, or two payment standard areas as in Option C. Other configurations are possible, but the PHA could not have fewer than two payment standard areas since the basic range for the lowest Small Area FMR does not overlap with the basic range of the highest Small Area FMR. PHAs whose jurisdiction includes both Designated and non-small Area FMR areas Jim Evans: Some PHAs have a jurisdiction covering both designated and metro areas. While they must implement the Small Areas FMRs in the designated areas, they have a choice to use them, or not, in the other metro areas that aren t designated. If they do so choose to do so, they must use the zip code level FMRs in all metro areas. HUD does not provide zip code level FMRs for non-metro counties Pros and cons of grouping ZIP codes for payment standards Rebecca Cohen: PHAs considering grouping zip codes will want to consider potential programmatic and administrative advantages and disadvantages of the approach. Small Area FMRs are based on ZIP codes, which are administrative areas that may not accurately reflect neighborhood boundaries or rental markets. When thinking about whether or not to group zip codes, PHAs may want to consider how well ZIP code boundaries reflect their local understanding of neighborhoods and the rental market dynamics in their community. PHAs should also consider challenges associated with implementing large numbers of separate payment standard areas. Grouping ZIP codes into a smaller number of payment standard areas can help create efficiencies and reduce opportunities for administrative errors, especially for PHAs with a large number of ZIP codes. On the other hand, by maintaining separate payment standards for each ZIP code, PHAs may help to maximize voucher families access to housing in high-cost areas, resulting in a greater programmatic impact. Each PHA administering Small Area FMRs will need to weigh these factors to determine the approach that works best for their local conditions. Establishing the PHA policy on decreases in the payment standard amount during the HAP contract term Jim Evans: The transition to Small Area FMRs will likely result in lower payment standards in the lowercost areas of a PHA s jurisdiction. HCV families searching for units will be impacted by this change if 7

8 adjustments in payment standard amounts affect the number and location of rental units available to them. HCV families who are already under HAP contract in areas where payment standards decrease may choose to move to higher-cost areas, but some will opt to stay in their current units and neighborhoods. The Final Rule amends the HCV program to reflect a provision of the Housing Opportunity Through Modernization Act of 2016, or HOTMA as it is commonly known. Under the Final Rule, no PHA is required to reduce a family s payment standard during the HAP contract term due to a reduction in the applicable FMR. This policy applies to all PHAs. It overturns the previous policy that required PHAs to use the lower payment standard to calculate a family s HAP beginning on the effective date of the family s second regular reexamination following the effective date of the decrease in payment standard. The Final rule further expanded the PHA s administrative discretion to any payment standard decrease, not just payment standard decreases that result from a decrease in the FMR. PHA options for applying payment standard decreases during the term of the HAP contract Jim Evans: Now, for families under HAP contract on the effective date of a decrease in the payment standard amount, PHAs have three options to choose from. A PHA could institute a hold harmless policy, they could reduce the subsidy based on payment standards above the basic range, or they could have no change in policy. The first option we mentioned is hold harmless which means there will be no reduction in subsidy for a family under HAP contract. Under this option, a PHA continues to use the existing higher payment standard when calculating the family s subsidy during the HAP contract term. PHAs choosing the hold harmless option will need to calculate subsidies based on the hold harmless payment standard for families currently under HAP, while applying the new payment standards based on Small Area FMRs for all new HAP contracts that the PHA executes after the effective date of the revised payment standard schedule. For example, the new payment standard would apply to families off the waiting list who are issued vouchers and any current participant who is moving to a new unit with continued HCV assistance. The second option involves limiting the reduction of the payment standard. In this case, a PHA reduces the payment standard to a level that is above the 110% limit of the basic range. It is still below the payment that was in effect prior to the decrease, but not as big a drop. This above-basic range payment standard may be held at this level indefinitely, or reduced over time until it reaches the normally-applicable payment standard amount. The third option is to make no change in policy. Under this option, a PHA uses the lower payment standard to calculate the family s HAP, which will mean a decrease in the family s subsidy. Jim Evans: If the PHA opts to reduce the payment standard amount used to calculate the family s subsidy whether on a limited basis or all at once, the initial reduction cannot take place before the effective date of the family s second regular reexamination following the effective date of the decrease in payment standard. Phased-in reductions may then proceed on an annual basis. 8

9 The PHA must provide the family with at least 12 months written notice that the payment standard is being reduced during the term of the HAP contract before the effective date of the reduced payment standard amount. This requirement applies whether the reduction is phased-in or taken all at once. Jim Evans: A PHA may establish different policies regarding a decrease in payment standards for different parts of the areas designated for Small Area FMR use within its jurisdiction, such as for different ZIP codes or grouped ZIP codes. Within each area, though, the policy must be applied uniformly to all families under HAP contract. PHAs may not, for example, establish a hold harmless policy limited to elderly households or those that include a person with a disability, although the effects on these households should be considered when a PHA determines which of the three approaches to apply in a given ZIP code. Regardless of the option a PHA selects, it must update its Administrative Plan to indicate how it will handle decreases in payment standard amounts for families under HAP contracts. We ll discuss Administrative Plan updates related to Small Area FMRs a bit later. Pros and cons of policy options for residents experiencing declines in payment standards Rebecca Cohen: When considering which of these three options to employ, PHAs should examine several factors: the rent burden to affected tenants, likely increases or decreases in the availability of units in other areas, PHA budget impacts, and the complexity of implementation. Policies that may present an advantage for one factor may pose a challenge for another. For example, if a PHA implements lower payment standards in lower-cost areas, the lower HAP payments in those areas may help to reduce average HAP costs. This may allow the PHA to serve more families or to offset increases in HAP as families relocate to higher cost areas. It may also provide an incentive for families to move to higher-cost areas. However, families who stay in lower-cost areas after payment standards have decreased may be among those who are least able to move or to afford a rent increase, such as elderly households or those that include a person with a disability. Those households may experience an unsustainable rent burden if the new payment standards are used to determine their HAP subsidy levels. On the other hand, PHAs that hold all families harmless from decreases in payment standards may find themselves in a difficult budgetary situation. Increases in HAP as families relocate to higher-cost areas, or initially lease up in these areas, may require the PHA to implement cost-cutting measures, such as reducing the number of families being served. Phasing in any payment standard decreases over time may allow for a balanced approach that protects residents and allows the PHA to realize some HAP savings in lower cost areas. These savings can help offset HAP increases in higher-cost areas. However, this is the most administratively difficult route to pursue. 9

10 How are exception payment standards affected by implementation of Small Area FMRs? Rebecca Cohen: Exception payment standards approved by HUD prior to the adoption of Small Area FMRS remain in effect following the adoption of Small Area FMRs, subject to conditions in the HUD approval letter. In some cases, existing exception payment standards will fall within the basic range following the adoption of Small Area FMRs, and thus will no longer be exceptions. Where existing exception payment standards remain above the basic range following adoption of Small Area FMRs, they must be maintained unless the PHA subsequently elects to reduce its payment standards. A PHA may revise its payment standard amount for a ZIP code at any time provided the revised payment standard amounts remain within the basic range. Rebecca Cohen: In some cases, market analysis or experience administering Small Area FMRs will indicate a need for subsidy amounts outside of payment standards in the basic range. HUD will issue a separate Federal Register notice proposing such conditions and procedures to for PHAs to request, and HUD to approve, exception payment standards for areas implementing Small Area FMRs. Do Small Area FMRs allow requests for exception payment standards within ZIP codes and for greater than 50 percent of the population? Rebecca Cohen: PHAs that currently use Metro Area FMRs may not establish exception payment standards for areas that include more than 50 percent of the population of the FMR area. The Final Rule recognizes that this cap may be impractical when applied within a ZIP code and eliminates the 50 percent threshold for PHAs that implement Small Area FMRs. Under the Final Rule, PHAs that implement Small Area FMRs may request exception payment standards for any part of a ZIP code or the entire ZIP code area. HUD has not yet implemented the criteria a PHA would use to make this request. Additional guidance from HUD will be forthcoming. How is voucher portability affected by the adoption of Small Area FMRs? Jim Evans: The portability process is unchanged in the implementation of Small Area FMRs. Families participating in the HCV program may continue to move from one PHA to another under the standard terms of portability. When a family moves under portability, the receiving PHA whose jurisdiction includes the area where the voucher family moves is responsible for administering the family s voucher. The receiving PHA may either absorb the family into its own program or bill the initial PHA for HAP and administrative costs. Nothing has changed. The policies of the receiving PHA determine how vouchers of porting families are administered. That means that the receiving PHA s payment standards are used to determine the family s subsidy calculation. If the receiving PHA uses Small Area FMRs, then a porting family s voucher will be administered using Small Area FMRs, regardless of whether the family is porting from a Designated Small Area FMR PHA or not. If the receiving PHA uses Metro Area FMRs, then the family s payment standard will be based on Metro Area FMRs regardless of the payment standard policies of the initial PHA. Again, nothing has changed. 10

11 Jim Evans: However, it is important to be mindful of the financial impacts portability may have on an initial PHA that will be billed by the receiving PHA. Porting families that locate and choose units in the higher cost payment standard areas will most likely cost more to subsidize. The initial PHAs should be mindful of the potential impact of being billed for the higher costs of participants locating to high cost zip codes. If a large number of voucher families port into high-cost Small Area FMRs, the per unit cost will rise in cases where the receiving PHA chooses to bill the initial PHA. In cases where the receiving PHA chooses to bill the initial PHA, the initial PHA will want to be mindful of the potential for such a cost impact. Do Small Area FMRs allow for reasonable accommodation requests? Rebecca Cohen: If required as a reasonable accommodation for a family that includes a person with a disability, any PHA implementing Small Area FMRs may, without HUD approval, establish an exception payment standard of up to and including 120 percent of the Small Area FMR. For example, a PHA with a Small Area FMR of $800 for a one-bedroom apartment could establish a payment standard between $720 and $880, or 90 to 110 percent of the Small Area FMR, without HUD approval. If needed as a reasonable accommodation for a family that includes a person with a disability, the payment standard could be increased to $960, or 120 percent of the Small Area FMR, without approval from HUD. PHAs may also request HUD approval to establish a payment standard that exceeds 120 percent of the Small Area FMR if needed as a reasonable accommodation for such a family. Note, however, that in all cases applicable units must still meet reasonable rent requirements. What is a Determination of Rent Reasonableness and how is it affected by Small Area FMRs? Jim Evans: To ensure that HCV rents are not more than rents charged for similar, unassisted units, a determination of rent reasonableness is made by PHAs as part of the PHA s approval of the unit. All units assisted under the HCV program must meet rent reasonableness standards as determined by PHAs. Jim Evans: The Final Small Area FMR rule makes changes to rent reasonableness requirements that apply to all PHAs administering the HCV program, regardless of whether the PHA operates in an area where Small Area FMRs have been adopted. Notably, under the Small Area FMR rule PHAs are now required to re-determine rent reasonableness when the applicable FMR decreases by 10 percent. This is a change from the previous requirement that rent reasonableness be re-determined following a 5 percent decrease in FMRs. This change should help to reduce the administrative burden on PHAs. Other scenarios in which all PHAs are required to re-determine rent reasonableness are: Before any increase in rent to an owner If directed by HUD Outside of these scenarios, PHAs may choose to re-determine rent reasonableness at any other time. 11

12 Jim Evans: Under Small Area FMR, PHAs may increasingly find that they are working with landlords in neighborhoods with higher demand for rental units. These landlords may be better positioned to negotiate for use of higher-cost units as comparables when the PHA conducts rent reasonableness determinations. Other than the threshold that triggers the need for a rent reasonableness determination, rent reasonableness requirements do not change with the implementation of Small Area FMRs. Location has always been a factor to consider when determining rent reasonableness and in many cases, a ZIP code may be too broad an area for evaluation As PHAs get ready to implement Small Area FMRs, they should evaluate their systems for determining rent reasonableness to assure that there are sufficient comparable unassisted units in the areas that voucher families will choose to rent. Depending upon the type of system or service that a PHA uses for its rent reasonableness determinations, there may not be enough comparable unassisted units. Many commercially available rent reasonableness systems used by PHAs pull data from multiple resources and might have a broader range of comparable units. PHAs that choose to use manual systems may need to expand the areas where they search for and identify comparable unassisted units. Use of Small Area FMRs with PBV program Rebecca Cohen: PHAs that administer PBVs are not required to use Small Area FMRs for their PBV program. PHAs that operate under Small Area FMRs must determine whether to apply Metro Area FMRs or Small Area FMRs to their PBV program. A PHA that chooses to apply Small Area FMRs to its PBV program must update its Administrative Plan to reflect this change. The PHA must apply Small Area FMRs uniformly for all projects within its jurisdiction where the use of Small Area FMRs are required and for which notice of owner selection was made after the PHA adopted Small Area FMRs and updated its Administrative Plan. For any project where the notice of owner selection was made before the PHA adopted Small Area FMRs and updated its Administrative Plan, the PHA and owner may agree mutually to apply Small Area FMRs to the project. If the PBV rent to owner increases as a result of this mutual agreement, then the rent increase will go into effect no earlier than the first anniversary of the HAP contract and must comply with the requirements set forth in the program regulations regarding rent increases in the PBV Program. It is important to note that a Designated PHA is not required to use SAFMRs for PBV projects located outside of mandatory SAFMR areas. If the PHA is an opt-in agency and applies SAFMRs to its PBV program, then it must apply SAFMRs to all of its PBV projects. Applying Small Area FMRs to the PBV Program Rebecca Cohen: In deciding whether to apply Small Area FMRs to the Project-Based Voucher program it is important to consider if this is needed to locate Project-based housing in higher opportunity areas. If metro area FMRs have not been been sufficient to achieve this outcome, adopting Small Area FMRs for Project-based Vouchers may be worth considering. 12

13 HUD recommends that PHAs compare the HAP contract rents of any existing PBV-assisted projects in their jurisdiction with prospective rents under Small Area FMRs policy to identify the extent to which there may be challenges related to this variation. The application of Small Area FMRs to the PBV program may create a significant discrepancy within individual ZIP codes between the rents of existing PBV-assisted projects and newly developed projects under a Small Area FMR policy. In this case, PHAs will want to consider the effect of applying Small Area FMRs to their PBV program on neighborhoods and HCV applicants and participants before making a decision. Jim Evans: Consider this example. A family can reside in any of these ZIP codes at a lower cost to the PHA under Metro Area FMRs than Small Area FMRs. If the PHA has existing project-based properties in these ZIP codes governed by Metro Area FMRs, the application of Small Area FMRs to new PBV projects could lead to a situation in which existing owners put pressure on the PHA to amend the agreement to allow for higher contract rents based on the new Small Area FMRs. If, however, the PHA has struggled to find owners willing to participate in the PBV program in these high-cost areas because the Metro Area FMR is below market rents, a shift to Small Area FMRs may allow for the development of PBV properties that provide access to areas with lower poverty, quality schools, and other important neighborhood resources. Jim Evans: In a different scenario, if a PHA adopts Small Area FMRs for its tenant-based program but not for its PBV program, and places properties in any of the ZIP codes seen here, the PHA may be called upon to justify why it is paying so much more for PBVs in these areas than for tenant-based vouchers. Applying Small Area FMRs to PBVs will help to equalize rents across the tenant-based and PBV programs, potentially helping to reduce HAP payments associated with PBV properties. Jim Evans: PBVs can be a tool to help PHAs create stable affordable housing opportunities throughout their jurisdiction, including in higher cost areas where the Metro Area FMR may not be high enough to secure rental units. However, in addition to the considerations above, there may be a number of circumstances in which a PHA may want to consider maintaining Metro Area FMRs for the PBV program. These include: If an owner has debt on a project and the appraised value has declined at the point of extension due to the adoption of Small Area FMRs. In this scenario, the adoption of Small Area FMRs could create problems for the ongoing viability of the property. If the PHA or community is seeking to encourage investment as part of a comprehensive community development plan in low cost neighborhoods where Metro Area FMRs would be greater than Small Area FMRs If the PHA has a goal of renovating properties in low cost neighborhoods to include more energyefficient materials and appliances. Continued use of the Metro Area FMR in these areas may allow for a higher maximum rent to owner to help cover the cost of these upgrades. 13

14 Administration Plan Changes Rebecca Cohen: PHAs are required to make some modifications to their Administrative Plans to reflect the use of Small Area FMRs. In lower-cost areas that transition to Small Area FMRs, the applicable payment standard may be reduced. In some instances the reductions in payment standards will affect families under HAP contract. Like all PHAs, PHAs implementing Small Area FMRs must amend their Administrative Plan to indicate the PHA s policy on how decreases in payment standards will be implemented for families under HAP contract. Whether a PHA holds existing voucher families harmless from any changes in payment standards, applies a reduction in subsidy, or makes no change in policy, it must note the effective policy for each ZIP code area in its Administrative Plan. Rebecca Cohen: In addition, modifications to the Administrative Plan will be necessary under the following circumstances: The PHA decides to apply Small Area FMRs to Project-based Vouchers. The PHA is an Opt-in Small Area FMR PHA that is administering Small Area FMRs on a voluntary basis. Rebecca Cohen: Depending on the policies included in a PHA s Administrative Plan prior to the adoption of Small Area FMRs, some PHAs implementing Small Area FMRs may need to make additional revisions to their plan. Some of these considerations and modifications to PHA Administrative Plans may include: Description of payment standard policies, such as multiple payment standards or ZIP code groupings When payment standards will become effective Changes to payment standard reduction phase-in policies Evaluation of rent burdens/effect of policy of tenant rent Exception payment standards Additional consideration when implementing Small Area FMRs Rebecca Cohen: PHAs have many additional considerations when implementing Small Area FMRs. This final section of the webcast includes strategic guidance for PHAs to consider above and beyond the requirements of the Final Rule. Financial Effects of Moving from Metro Area FMRs to Small Area FMRs Jim Evans: One of the first things PHAs in Designated Small Area FMR areas should do is estimate the financial effects of moving from Metro Area FMRs to Small Area FMRs. This includes considering how the change will affect the families assisted and the program cost impacts of implementation. The transition from Metro Area FMRs to Small Area FMRs may result in lower payment standards, and therefore, lower subsidy amounts in lower-cost ZIP codes. Current voucher families who are living in these ZIP codes are likely to be affected by the implementation of Small Area FMRs. PHAs should 14

15 develop internal procedures to monitor rent burdens in order to make informed decisions regarding PHA discretionary policies and payment standards.. Jim Evans: The implementation of Small Area FMRs will certainly have an impact on program budgets and HAP expenditures. PHAs may encounter budget problems if increases in HAP payments in highercost ZIP codes are not offset by decreases in HAP payments in lower-cost areas. HUD s Two-Year Forecasting Tool looks at how much money a PHA has to spend and how much money it has spent or is projected to spend, and calculates the difference. In addition to the Two-Year Forecasting Tool, HUD has also has a Payment Standard Tool that PHAs can use to test the budgetary and rent burden impact of different payment standard strategies. PHAs may also be able to do similar modeling using reports generated with their housing management software. Early findings from a Small Area FMR demonstration in five PHAs indicated that the adoption of Small Area FMRs was associated with a reduction in average HAP payments, though later analysis shows that HAP payments are rising and are approaching pre-demonstration levels. Budgetary impacts varied from one PHA to another, so each PHA should consider its own circumstances and make its own determination. In addition, the demonstration PHAs did not have the option of adopting a long-term hold harmless policy for families under HAP contract in lower-cost areas where payment standards decline, which if adopted would have likely affected the budgetary outcomes The availability of such protections may mean that per-unit costs are more likely to increase with formal implementation of Small Area FMRs than they were during the demonstration. It should be noted that generally when HAP payments declined in Demonstration PHAs, it was a result of reduced subsidy payments due to reduced payments standards, rather than, say, increased incomes. In other words, the flip side of the reduced HAP cost is a higher rent burden for some voucher holders, particularly those living in lower cost ZIP codes. Rebecca Cohen: In addition to changes in HAP costs, PHAs may experience changes in administrative costs related to Small Area FMRs. Administrative changes that may have a budgetary impact include, for example, the potential need to purchase new housing management software if a PHA s existing software cannot support multiple payment standards. Many vendors offer solutions that support multiple payment standard areas. Coordination with vendors, and possibly with other users is suggested. PHAs will also need to modify their Administrative Plan and PHA Plan to reflect implementation of Small Area FMRs. These updates may not be extensive. PHAs that participated in the Small Area FMR Demonstration Evaluation experienced only minor impacts from Administrative Plan updates related to the implementation of Small Area FMRs. The extent to which PHAs were required to make modifications depended on whether the PHA already had extensive procedural documentation in their Administrative Plan. Where that is the case, modifications are likely to be more extensive. Guidance for Residents Rebecca Cohen: PHAs will need to inform voucher holders who are not currently under HAP contract and current program participants about Small Area FMRs and the effect this change may have on them. There are several points that PHAs should emphasize in communicating with families including: 15

16 How Small Area FMRs affect payment standards and the family s assistance payment. PHAs should note that employing Small Area FMRs may make it easier for tenants to afford housing in high-cost areas. The advantages of moving to areas with low concentrations of low-income families. These areas often offer greater opportunity in terms of school quality, proximity to jobs, and neighborhood diversity and safety. The fact that Small Area FMRs have not always been in effect, and that some landlords may not be aware of new payment standards. Also, PHAs should communicate that the desirability of living in high-cost areas may increase competition for units. Small Area FMRs could provide great advantages to voucher families, but the transition might be disruptive or confusing if not addressed proactively. In communicating with families, PHAs should always be upfront about both the benefits and limitations of the new methodology. PHAs will need to update all materials distributed to prospective families and current participants, including briefing materials. In addition to explaining the Small Area FMR payment standards, briefing materials should provide guidance to tenants on the benefits of using vouchers in high-cost areas as well as how to work with landlords to increase the likelihood they will accept voucher families as tenants. For current participants in the HCV program, the implementation of Small Area FMRs might contrast with their understanding of how the program operates. PHAs should understand that these changes may be worrisome to families, and should strive to clearly communicate their policies to avoid confusing. During the process of notifying affected families, PHAs may consider scheduling meetings or briefings to explain the process and present the different options for families to consider. Rebecca Cohen: PHAs should review their current procedures and determine the best approach for conducting reexaminations, given the need to communicate new policies around Small Area FMRs. PHAs may choose to hold group briefings, one-on-one meetings, or provide information through a mail process. In all cases, PHAs should consider the advantages and disadvantages of each approach, as well as their capacity to conduct reexamination through each of these methods. Families may need help with this transition. To help families successfully secure housing in high-cost areas, PHAs can give them more time to find units, offer mobility counseling, and work with landlords to educate them about Small Area FMRs and the HCV program. Guidance for Landlords Jim Evans: Just as PHAs are learning about the new payment standards, current and prospective landlords also need to learn about them. PHAs will need to reach out to existing owners and inform them of how changes in the payment standard will affect them. To increase landlord participation in high-cost areas, the PHA will likely need to engage in outreach and provide comprehensive information about the benefits of the program. Collaborating with Nonprofits and Others Jim Evans: PHAs may benefit from collaboration with nonprofits, advocates and others to help families move to high opportunity areas. Small Area FMRs are an important financial tool to help families afford 16

17 rentals in these areas, but cost is often not the only barrier. PHAs should work with affordable housing proponents, fair housing advocacy agencies, and legal services providers, among others to remove fair housing barriers for tenants and maximize family opportunities to find housing in high opportunity areas. To facilitate work with local partners, PHAs may want to host meetings to discuss how policy decisions were made, including data used and public input received, to invite these groups into a collaborative and, hopefully, mutually-beneficial relationship. Staff Training Rebecca Cohen: As with any change in program implementation, PHA staff will need training on Small Area FMRs. Depending on roles, the level of needed training will vary. For individuals providing ancillary services or support to the HCV department, an agency-wide may provide enough information regarding the transition. For front-line staff, detailed guidance materials and a more formal training will be necessary. PHA board members also need to be briefed on the implementation of Small Area FMRs and what it means for the administration of the HCV program. Additional Resources Jim Evans: HUD is making available a number of resources to assist PHAs with implementation of Small Area FMRs, including: The Final Rule and PIH Notice Small Area FMR FAQs A Small Area FMR Guidebook, case studies, and sample implementation documents An address, Small Area FMRs@hud.gov, through which questions can be submitted to HUD Jim Evans: Five in-person regional trainings at the following locations and dates: a. March 6 in Ft. Worth b. March 8 in Chicago c. March 12 in Miami d. March 14 in Newark e. March 16 in Philadelphia On-call technical assistance You can find or learn more about these resources by searching for Small Area FMR on the HUD Exchange, or using the following link. Jim Evans: Thank you for joining this webcast on Implementing Small Area Fair Market Rents. 17