Fair Market Rent

Fair market rent (also known as FMR) is an estimate of monthly contractual gross rent and a utility allowance necessary to lease a habitable and modest apartment unit. FMR is set by the U.S. Department of Housing and Urban Development (HUD) for a specific county or metropolitan statistical area. HUD typically assigns FMRs to ensure that 40% of rental units will have rents below FMR. However, in markets where there is a shortage of affordable units, HUD can approve an increase to FMRs to ensure that 50% of rental units will qualify with rents below FMR. The final FMRs are used by HUD's Housing Choice Voucher program, the Moderate Rehabilitation program, the project-based voucher program, and other programs that require location-specific economic data.

The U.S. Housing Act of 1937 provides for housing assistance to lower income families in renting safe and habitable housing. FMRs provide a limit of aid for housing assistance payments and the basis for calculating the payment standard amount used to determine the maximum monthly subsidy for an assisted family. FMR covers the amount a family would need to pay for rent and utilities for decent, safe, and modest rental housing with suitable amenities. Units subsidized within the voucher program [Page 208]must meet reasonable rent standards—that is, they cannot grossly exceed FMR.

FMRs set limits on a subsidy provided to a household. The primary federal housing program providing assistance to low-income renters is the voucher program. Low-income renters, including the elderly, the disabled, and families with children, utilize vouchers to subsidize the difference between FMR for a unit and 30% of the recipient's income. Properties with market rents that exceed FMR are considered unaffordable due to the enrollee's being responsible for any portion of market rent that exceeds FMR. Participants in the voucher program can choose to live in units with gross rent higher than FMR, but they must pay the full cost of the difference between the gross rent and FMR, plus 30% of their income.

To calculate FMRs, HUD generates base rents from the 2000 Census long-form survey data. HUD updates base rents with American Community Survey (ACS) data and Bureau of Labor Statistics’ consumer price index (CPI) rent and utility indexes. However, HUD initially calculates FMR for a two-bedroom unit, the most common size of rental unit. HUD then determines the cost relationships between other unit sizes and establishes rents for one-, three-, and four-bedroom units. HUD also adjusts the three-and four-bedroom units to be more costly in order for the largest families to be successful in leasing these units out of necessity instead of smaller families choosing a larger unit.

Most FMRs are marketwide rent estimates that are calculated using metropolitan Core Based Statistical Areas (CBSAs), which comprise one or more counties. CBSAs are defined by the Office of Management and Budget (OMB). FMRs are estimated at 40th and 50th percentile rent levels. Some areas are awarded higher FMRs (based on the 50th percentile rather than the 40th percentile of local rent distribution) to minimize a concentration of voucher units in high-poverty areas. An area that qualifies for a 50th percentile is granted that level for 3 years, after which mixed-income progress is evaluated. Section 8(c)(1) of the U.S. Housing Act of 1937 requires the Secretary of HUD to publish FMRs periodically, but not less than annually, to be effective on October 1 of each year.

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