Association for Public Policy Analysis & Management

In August of 2017, the U.S. Department of Housing and Urban Development (HUD) suspended a rule that mandated 24 metropolitan areas to use Small Area Fair Market Rents (SAFMRs) defined at the zip code level rather than metropolitan-wide Fair Market Rents (FMRs). FMRs are rent ceilings for how much landlords can charge Housing Choice Voucher recipients. This policy change follows findings from economic and sociological research showing that rent ceilings established at the zip code level rather than metropolitan level increase neighborhood quality by preventing landlords from overcharging households in lower quality neighborhoods where market rents are below the FMR, a phenomenon known as the voucher premium (Collinson and Ganong 2016; Desmond 2016). HUD’s interim evaluation of the SAFMR Demonstration showed an increased number of units available to voucher recipients in high-opportunity zip codes across the three demonstration Public Housing Authorities (PHAs), but there was a net three percent loss of units due to the spatial distribution of rental units across high and low-rent zip codes within metropolitan areas (HUD 2017).

NYU’s Furman Center released findings that challenged assumptions made by policymakers that because PHAs in the SAFMR demonstration experienced a net loss in availability of affordable housing, so would the 24 metropolitan PHAs listed in the SAFMR rule. They found that implementing SAFMRs would actually increase the number of affordable units in the designated 24 metropolitan areas, precisely because of the market characteristics that led HUD to identify them as sites to implement SAFMRs. HUD’s Interim Evaluation, however, made another important claim about the impacts of SAFMRs that has not received as much attention—namely, that tenant contribution during the SAFMR demonstration increased between 11 and 22 percent during the five-year period. This paper examines the following questions to strengthen researchers, policymakers, and practitioners’ understanding of the impacts of SAFMRs on tenant contribution in the 24 metropolitan areas: (1) How does the shift from FMRs to SAFMRs impact average tenant contribution in the designated 24 metropolitan areas; and (2) What is the relationship between demographic characteristics of the metropolitan areas and the impact of SAFMRs on tenant contribution?

The paper replicates the analyses of the interim evaluation and the NYU Furman Center to confirm that the shift from FMRs to SAFMRs leads to an increase in availability of affordable rental housing. Then, using Zip code Tabulation (ZCTA) files from the American Community Survey (ACS), I calculate the number of rental units in each zip code and designate affordability status based on whether the rent is below SAFMRs and FMRs, and link this data with neighborhood characteristics including racial composition, family structure, and median income data from the ACS, as well as data on tenant contribution from HUD’s Picture of Subsidized Housing. Using hedonic regression, I estimate the impact of these demographic characteristics on SAFMRs and changes to tenant contribution. Understanding the voucher premium in the context of SAFMRs and potential changes to tenant contribution of voucher holders is key to ensuring an equitable system of housing assistance.