Association for Public Policy Analysis & Management

This paper provides new evidence about the effects of replacing traditional metropolitan area-wide rent ceilings with subsidy limits that vary with ZIP Code rent levels. We study the the Small Area Fair Market Rent demonstration that the United States Department of Housing and Urban Development (HUD) launched in 2012. The Housing Choice Voucher program, the largest housing assistance program administered by HUD, provides subsidies to households that rent units on the private market. In theory, voucher holders can locate in a wide variety of neighborhoods. In practice, however, they are frequently concentrated in high-poverty neighborhoods with limited access to the amenities and services associated with economic opportunity. One factor that has likely contributing to this concentration is that ceiling rents have been set for each metropolitan area. Typically under these metropolitan area-wide ceiling rents, voucher holders cannot afford units in higher opportunity neighborhoods.

We explore the efficacy of one particular policy reform aimed at encouraging moves to higher opportunity neighborhoods: setting ceiling rents at the level of the neighborhood—Small Area Fair Market Rents—rather than the metropolitan area. We evaluate the effectiveness of Small Area FMRs, implemented in late 2012 in the five public housing authorities (PHAs) that participated in the demonstration (Chattanooga Housing Authority (TN), Housing Authority of Cook County (IL), Housing Authority of the City of Laredo (TX), Housing Authority of the City of Long Beach (CA), Town of Mamaroneck Housing Authority (NY)). We also include two housing authorities in the Dallas, TX metropolitan area, where Small Area FMRs were introduced in 2011. We compare how voucher holder location outcomes changed from before the implementation of Small Area FMRs to at least five years after implementation (through 2017) in PHAs where the policy change was in effect to changes in a large set of similar PHAs where there was no policy change.

The paper shows that, as intended, Small Area FMRs increase the pool of units potentially available to housing choice voucher holders in high-opportunity neighborhoods and decrease the number available in low-opportunity neighborhoods. Further, we find that the shift to Small Area FMRs changes where voucher holders actually live. Among voucher holders who move, the share locating in ZIP Codes with relatively high rents increases by 10 percentage points after the introduction of Small Area FMRs, whereas no such change is observed in a set of comparison jurisdictions. Over time, this change in where voucher holder movers locate results in a higher share of voucher holders that live in higher opportunity neighborhoods. Results are particularly strong for households with children. And we find these effects are achieved at no additional cost to the government.

Our findings suggest that the recent expansion of Small Area FMRs to 24 metropolitan areas will likely increase the share of voucher holders living in higher-opportunity neighborhoods over time.