Consolidating ZIP Codes for Small Area Fair Market Rents: A Method for Implementing the New Rule

Abstract

Fair Market Rents (FMRs), calculated for an entire metropolitan region, are used to establish payment standards for the Housing Choice Voucher (HCV) program. In response to recent criticism that FMRs do not represent rent disparity and restrict households from moving to high-opportunity areas, a new rule introducing Small Area Fair Market Rents (SAFMRs) has been issued. SAFMRs are based on ZIP codes to reflect local market rents and increase the number of payment standards used to administer the HCV program. The purpose of this research is to determine whether the number of payment standards can be reduced by consolidating ZIP codes, while adhering to the primary objectives of the SAFMR rule. The ZIP code grouping process conducted offers one method for reducing the number of payment standards needed to implement the new rule; however, the rent analysis reveals the over- and underestimation of SAFMRs for some ZIP codes.