Rental Housing:

HUD Can Improve Its Process for Estimating Fair Market Rents

GAO-05-342: Published: Mar 31, 2005. Publicly Released: May 2, 2005.

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The Department of Housing and Urban Development (HUD) annually estimates fair market rents (FMR) for standard quality rental units throughout the United States. Among other uses, FMRs help determine subsidies for almost 2 million low-income families in the nation's largest rental assistance program. However, concerns exist that FMRs can be inaccurate--often, too low, preventing program participants from finding affordable housing. Also, HUD will soon derive FMRs from a new source, the American Community Survey (ACS), which processes data somewhat differently than HUD's current data sources, including the decennial census. You asked us to review (1) how HUD estimates FMRs, (2) how accurate FMRs have been, (3) how ACS data may affect accuracy, and (4) other changes HUD can make to improve the estimates.

According to HUD, the typical process for estimating FMRs includes benchmarking, or developing baseline rents for each FMR area (generally county-based) using census data or other surveys for the years between censuses; adjusting those rents to bring them up to date; and seeking public comment before finalizing the numbers. HUD generally uses Consumer Price Index and telephone survey data to adjust baseline rents--that is, to account for rent changes since data used for baseline estimates were collected and to project the estimates into the next fiscal year (when they will be in use for subsidy purposes). HUD then lists the proposed FMRs in the Federal Register for public comment. These comments can lead to changes in FMRs, but only when they include new data or lead HUD to conduct a new survey. About 69 percent of all areas had FMR estimates in use in 2000 that were within 10 percent of rents indicated by the 2000 decennial census--the most accurate comparison data available for each FMR area. This represents an improvement over HUD's 1990 estimates. Similarly, about 73 percent of 153 areas whose FMRs HUD rebenchmarked after 2000 were within 10 percent of rents derived from recent surveys. In general, GAO found that areas that are rebenchmarked with more recent data tended to have FMRs in the most accurate range (within 10 percent). Using ACS data could improve the accuracy of FMRs by allowing HUD to benchmark more areas more frequently than is possible with current data sources, using more recent data--a factor that GAO's analysis suggests is related to accuracy. HUD's first use of ACS data will be to update existing baseline estimates for the fiscal year 2006 FMRs; HUD expects to use ACS data to set baseline rents for some fiscal year 2008 FMRs. HUD could improve its FMR estimation process by consistently following its guidelines relating to the transparency of FMRs and ensuring that it can assess the accuracy of ACS-based FMRs. Transparency would be improved by fully documenting the estimation process so that FMRs can be independently reproduced. Even ACS-based FMRs may not always be accurate, and HUD's policies require mechanisms to correct information it disseminates.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to GAO's recommendation to fully document its FMR (Fair Market Rent)estimation method by following all of its data quality guidelines, particularly those pertaining to the transparency and reproducibility of its methodology, HUD recently developed a system that provides detailed FMR calculations for every FMR area as well as accompanying narrative. The FMR Documentation System makes use of publicly releasable versions of Title XIII protected data to describe each FMR area, show the benchmarking and updating calculation for each local FMR estimate, as well as to describe the decision rules used to compute each FMR. The system currently provides information for both the revised final FY 2005 FMRs and the proposed FY 2006 FMRs for all FMR areas. HUD intends to update the system with all calculations and accompanying narrative for all subsequent FMRs.

    Recommendation: To improve the usefulness of its FMR estimates, the Secretary of HUD should ensure that HUD fully documents its method for estimating FMRs by following all of its data dissemination quality guidelines, particularly those pertaining to the transparency and reproducibility of its methodology.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: Although HUD did not use ACS data to update fiscal year 2006 FMRs, citing that the data were unavailable for inclusion in the 2006 FMRs, the agency now routinely uses data from the ACS to update FMRs. HUD first used ACS data to update fiscal year 2008 FMRs and more recently the agency used them to update fiscal year 2009 FMRs.

    Recommendation: Although HUD did not use ACS data to update fiscal year 2006 FMRs, citing that the data were unavailable for inclusion in the 2006 FMRs, the agency now routinely uses data from the ACS to update FMRs. HUD first used ACS data to update fiscal year 2008 FMRs and more recently the agency used them to update fiscal year 2009 FMRs.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: HUD officials were planning to discontinue using the Random Digital Dialing (RDD)surveys as a mechanism for assessing the accuracy of Fair Market Rents (FMRs), after HUD starts using the American Community Survey (ACS) data to estimate FMRs. Although HUD officials were concerned about the costs of the RDD surveys, HUD did not have an alternative mechanism to assess the accuracy of FMRs. After considering DOD's Basic Allowance for Housing (BAH) as an alternative rent estimation option, HUD officials decided that it was not a suitable alternative to the RDD surveys because of the differences in the methodologies used to estimate BAHs and FMRs are too great. HUD decided to continue to rely on the RDD surveys as the best way to provide post-American Community Survey (ACS) updates to FMR estimates that are identified as potentially inaccurate by public comment, field economists, and/or program administrators. On December 21, 2007, HUD requested comments on its proposal to use the RDD surveys to estimate FY 2009 FMRs for areas not covered by the ACS annual reports and in areas where FMRs are believed to be incorrect.

    Recommendation: To improve the usefulness of its FMR estimates, the Secretary of HUD should develop a mechanism to assess the accuracy of future FMRs, including those that are based on the ACS, in instances where HUD learns of information suggesting it needs to do so.

    Agency Affected: Department of Housing and Urban Development

 

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