Proposed Fair Market Rents for Fiscal Year 2006 for Housing Choice Voucher, Moderate Rehabilitation Single Room Occupancy and Certain Other HUD Programs, 32402-32467 [05-10882]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 70, Number 105 (Thursday, June 2, 2005)]
[Notices]
[Pages 32402-32467]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-10882]



[[Page 32401]]

-----------------------------------------------------------------------

Part II





Department of Housing and Urban Development





-----------------------------------------------------------------------



Proposed Fair Market Rents for Fiscal Year 2006 for Housing Choice 
Voucher, Moderate Rehabilitation Single Room Occupancy and Certain 
Other HUD Programs; Notice

Federal Register / Vol. 70 , No. 105 / Thursday, June 2, 2005 / 
Notices

[[Page 32402]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4995-N-01; HUD-2005-0010]


Proposed Fair Market Rents for Fiscal Year 2006 for Housing 
Choice Voucher, Moderate Rehabilitation Single Room Occupancy and 
Certain Other HUD Programs

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of proposed Fiscal Year (FY) 2006 Fair Market Rents 
(FMRs).

-----------------------------------------------------------------------

SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937 
(USHA) requires the Secretary to publish FMRs periodically, but not 
less than annually, adjusted to be effective on October 1 of each year. 
Today's notice proposes FMRs for FY2006. The proposed numbers would 
amend FMR schedules used to determine payment standard amounts for the 
Housing Choice Voucher program, to determine initial renewal rents for 
some expiring project-based Section 8 contracts, and to determine 
initial rents for housing assistance payment (HAP) contracts in the 
Moderate Rehabilitation Single Room Occupancy program. Other programs 
may require use of FMRs for other purposes.
    The proposed FY2006 FMRs in this notice differ from the final 
FY2005 and previous year FMRs in that they were calculated using the 
revised Office of Management and Budget (OMB) area definitions that 
were issued in 2003. For FY2006, HUD is using the county-based 
statistical areas as defined by OMB, with some modifications. The FMR 
estimates have been trended to April 2006, the midpoint of FY2006.

DATES: Comments Due Date: August 1, 2005.

ADDRESSES: Interested persons are invited to submit comments regarding 
HUD's estimates of the FMRs as published in this notice to the Office 
of the General Counsel, Rules Docket Clerk, Room 10276, Department of 
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 
20410-0001. Communications should refer to the above docket number and 
title and should contain the information specified in the ``Request for 
Comments'' section. To ensure that the information is fully considered 
by all of the reviewers, each commenter is requested to submit two 
copies of its comments, one to the Rules Docket Clerk and the other to 
the Economic and Market Analysis Staff in the appropriate HUD field 
office. A copy of each communication submitted will be available for 
public inspection and copying during regular business hours (8 a.m. to 
5 p.m. Eastern Time) at the above address.

FOR FURTHER INFORMATION CONTACT: For technical information on the 
methodology used to develop fair market rents or a listing of all fair 
market rents, please call the HUD USER information line at 800-245-2691 
or access the information on the HUD Web site at https://
www.huduser.org/datasets/fmr.html. FMRs are listed at the 40th or 50th 
percentile in Schedule B. For informational purposes, a table of 40th 
percentile recent mover rents for the areas with 50th percentile FMRs 
will be provided on the same Web site noted above. Any questions 
related to use of FMRs or voucher payment standards should be directed 
to the respective local HUD program staff. Questions on how to conduct 
FMR surveys or further methodological explanations may be addressed to 
Marie L. Lihn or Lynn A. Rodgers, Economic and Market Analysis 
Division, Office of Economic Affairs, Office of Policy Development and 
Research, telephone 202-708-0590. Persons with hearing or speech 
impairments may access this number through TTY by calling the toll-free 
Federal Information Relay Service at 800-877-8339. (Other than the HUD 
USER information line and TDD numbers, telephone numbers are not toll 
free.)

SUPPLEMENTARY INFORMATION

I. Background

    Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing 
assistance to aid lower income families in renting safe and decent 
housing. Housing assistance payments are limited by FMRs established by 
HUD for different areas. In the Housing Choice Voucher program, the FMR 
is the basis for determining the ``payment standard amount'' used to 
calculate the maximum monthly subsidy for an assisted family (see 24 
CFR 982.503). In general, the FMR for an area is the amount that would 
be needed to pay the gross rent (shelter rent plus utilities) of 
privately owned, decent, and safe rental housing of a modest (non-
luxury) nature with suitable amenities. In addition, all rents 
subsidized under the Housing Choice Voucher program must meet 
reasonable rent standards. The interim rule published on October 2, 
2000 (65 FR 58870), established 50th percentile FMRs for certain areas.
    Electronic Data Availability: This Federal Register notice is 
available electronically from the HUD news page: https://
www.hudclips.org. Federal Register notices also are available 
electronically from the U.S. Government Printing Office Web site at 
https://www.gpoaccess.gov/fr/.

II. Procedures for the Development of FMRs

    Section 8(c) of the USHA requires the Secretary of HUD to publish 
FMRs periodically, but not less frequently than annually. Section 8(c) 
states in part as follows:

    Proposed fair market rentals for an area shall be published in 
the Federal Register with reasonable time for public comment and 
shall become effective upon the date of publication in final form in 
the Federal Register. Each fair market rental in effect under this 
subsection shall be adjusted to be effective on October 1 of each 
year to reflect changes, based on the most recent available data 
trended so the rentals will be current for the year to which they 
apply, of rents for existing or newly constructed rental dwelling 
units, as the case may be, of various sizes and types in this 
section.

    HUD's regulations at 24 CFR part 888 provide that HUD will develop 
proposed FMRs, publish them for public comment, provide a public 
comment period of at least 30 days, analyze the comments, and publish 
final FMRs. (See 24 CFR 888.115.)
    In addition, HUD's regulations at 24 CFR 888.113 set out procedures 
for HUD to assess whether areas are eligible for FMRs at the 50th 
percentile and, for areas that were formerly eligible for FMRs at the 
50th percentile three years ago, whether these areas continue to remain 
eligible to use 50th percentile FMRs. The regulations provide that once 
an area is determined eligible for 50th percentile FMRs, that area is 
eligible to use 50th percentile FMRs for a period of three years. The 
three-year period for the first areas determined eligible to receive 
the 50th percentile FMRs, following promulgation of the regulation in 
Sec.  888.113, has come to a close. HUD has commenced the assessment 
for eligibility and continued eligibility for the 50th percentile FMRs 
as provided in the regulations. In view, however, of HUD's proposal to 
apply new metropolitan area definitions for FY2006, this assessment is 
not yet complete and ready for publication with this notice. HUD will 
publish a separate notice in approximately six weeks that will identify 
any areas newly eligible for 50th percentile FMRs and those areas that 
remain eligible or no longer remain eligible for continued use of 50th 
percentile FMRs and the applicable proposed FY2006 FMRs for these 
areas.

III. Metropolitan Area Definitions

    The proposed FY2006 FMRs reflect a change in metropolitan area 
definitions.

[[Page 32403]]

HUD is using the county-based statistical areas as defined by OMB, with 
some modifications. The new definitions have been implemented with 
modifications intended to minimize changes in FMRs due solely to the 
use of the new definitions. All proposed metropolitan FMR areas consist 
of areas within new OMB metropolitan areas. In general, any parts of 
old metropolitan areas, or formerly nonmetropolitan counties, that 
would have more than a 5 percent increase or decrease in their FMRs as 
a result of implementing the new OMB definitions, are defined as 
separate FMR areas. In general, HUD applies the same update factors 
(such as random digit dialing (RDD) or consumer price index (CPI) data) 
to the rents of all FMR areas within the same new metropolitan area.
    Despite these efforts, the changes in area definitions have 
resulted in different proposed FMRs than if an area were subject to the 
normal updating of last year's FMRs, particularly, for example, in 
counties that were in old metropolitan areas that are now considered 
nonmetropolitan under the new OMB definitions. This approach, however, 
makes HUD FMR area definitions more consistent with those used by most 
other federal agencies and facilitates use of the extensive new Census 
data that will become available from the American Community Survey 
(ACS) and which will replace the decennial census ``long form'' 
starting in 2010.

A. Background

    In June 2003, OMB issued new metropolitan area definitions based on 
2000 Census data and a revised methodology that placed increased weight 
on commuting patterns. This methodology had been developed and made 
subject to public comment prior to and after the 2000 Census data 
collection, and reflected the consensus thinking of numerous experts. 
HUD economists and demographers were involved in this process and 
believe that the new definitions are technically superior to the old 
definitions and better reflect how local housing markets should be 
evaluated.
    OMB metropolitan definitions are important for two reasons. One is 
that they are the basis on which the federal government collects and 
reports data (e.g., new Census data collections will base samples and 
issue reports using the new definitions). For instance, the ACS, which 
the Census Bureau began administering in full in 2005 to replace 
decennial census sample data (the current source of Base Rent data), 
will, starting in 2006 provide extensive and relatively current data on 
rents and incomes using the new OMB definitions. The other reason OMB 
definitions are important is that federal agencies are expected to use 
these definitions in administering their programs unless there is some 
strong program reason to do otherwise.
    HUD proposed using the new OMB definitions in an August 6, 2004 (69 
FR 48040), Federal Register publication that issued proposed FY2005 
FMRs. That publication introduced use of both the new OMB definitions 
and 2000 Census data and contained an unusually large number of 
proposed increases and decreases related to use of the new data and 
definitions. In response to the limited timeframe available for public 
comments and the number of comments received opposing use of the new 
definitions, HUD reverted to using the old definitions in its final 
FY2005 FMR publication and in the FY2005 income limit publication. HUD 
subsequently received a number of complaints from members of the public 
and the Congress related to its failure to implement the new OMB 
definitions.
    For FY2006, HUD is implementing a modified version of the new OMB 
definitions that further reduces the number and scope of FMR changes 
that will occur. HUD believes that it is important to implement the new 
definitions for the following reasons: (1) The new definitions better 
reflect local housing market relationships; (2) inconsistencies with 
other federal program standards will be minimized; (3) the new 
definitions will facilitate the use of the extensive new ACS data that 
the Census will begin releasing next year that is collected and 
processed based on the new OMB definitions; and (4) it is responsive to 
complaints received after issuance of the final FY2005 FMRs from areas 
regarding HUD's failure to implement the new OMB definitions.
    According to OMB guidance on the use of metropolitan area 
definitions for nonstatistical programs, such as setting FMRs for the 
Housing Choice Voucher program, HUD may alter OMB definitions of 
metropolitan areas to better suit program operations. As stated in OMB 
Bulletin 04-03 defining metropolitan areas:

    OMB establishes and maintains the definitions of Metropolitan * 
* * Statistical Areas * * * solely for statistical purposes. * * * 
OMB does not take into account or attempt to anticipate any non-
statistical uses that may be made of the definitions[.] In cases 
where * * * an agency elects to use the Metropolitan * * * Area 
definitions in nonstatistical programs, it is the sponsoring 
agency's responsibility to ensure that the definitions are 
appropriate for such use. An agency using the statistical 
definitions in a nonstatistical program may modify the definitions, 
but only for the purposes of that program. In such cases, any 
modifications should be clearly identified as deviations from the 
OMB statistical area definitions in order to avoid confusion with 
OMB's official definitions of Metropolitan * * * Statistical Areas.

B. Modified Implementation of New OMB Definitions

    HUD had three objectives in defining FMR areas for FY2006: (1) To 
incorporate new OMB metropolitan area definitions so the FMR estimation 
system can better use new data collected using those definitions; (2) 
to better reflect current housing markets; and (3) to minimize the 
number of large changes in FMRs due to use of the new OMB definitions. 
The proposed FMR area definitions were developed to achieve these 
objectives as follows:
     FMRs were calculated for each of the new OMB metropolitan 
areas using 2000 Census data.
     Subparts of any of the new areas that had separate FMRs 
under the old OMB definitions were identified, and 2000 Census Base 
Rents for these subparts were calculated. Only the subparts within the 
new OMB metropolitan area were included in this calculation (e.g., 
counties that had been excluded from the new OMB metropolitan area were 
not included).
     Metropolitan subparts of new areas that had previously had 
separate FMRs were assigned their own FMRs if their 2000 Census Base 
Rents differed by more than 5 percent from the new OMB area 2000 Census 
Base Rent.
     Formerly metropolitan counties removed from metro areas 
got their own FMRs. These areas accounted for many of the FMR decrease 
of more than 5 percent.
     Nonmetropolitan counties that were added to the new OMB 
metropolitan areas and did not have enough renters to calculate 
separate 2000 Census Base Rents accounted for most of the large 
increases in FMRs.
     Proposed FY2006 FMRs were calculated using the same 
information used to compute FY2005 Final FMRs plus additional update 
factors.
    Appendix I provides more detailed technical information about data 
sources and a summary of the impacts of the metropolitan area 
definitional changes. For nonmetropolitan areas, FMRs continue to be 
calculated at the county level. The area-specific data and computations 
used to calculate proposed FY2006 FMRs and FMR area definitions can be 
found at www.huduser.org/datasets/fmr/fmrs/.

[[Page 32404]]

C. Future FMR Annual Updates

    HUD believes the new OMB definitions of MSAs are reasonable 
definitions of housing markets and that their relevance will increase 
with time. That is, while HUD makes distinctions among housing markets 
within some of these areas based on differences in rents measured in 
2000, it believes that the new MSAs better reflect current rental 
housing markets than the 1990 Census-based metropolitan area 
definitions. Therefore, future updates to FMRs will be made at the 
metropolitan area level and applied to all FMR areas within 
metropolitan areas where they have been separately designated. HUD-
funded RDDs will be conducted at the metropolitan area level and 
compared to the metropolitan area rent estimate to see if adjustments 
need to be made. If an RDD indicates that a metropolitan area rent 
needs to be changed, the metropolitan area-level change factor will be 
computed and applied to all FMRs within the metropolitan area. HUD will 
accept information supplied by local housing authorities to make 
adjustments to FMRs. HUD will re-benchmark all FMR areas when 
sufficient ACS or other data are available to estimate rents at the 
same level of accuracy for all FMR areas. To the extent such detailed 
data are available, the FY2006 separation of FMR sub-areas within new 
OMB metropolitan areas will be re-examined to determine if the new 
survey FMR area base rents are sufficiently different to warrant their 
continued separation within the metropolitan area.

D. Impacts of FMR Area Changes

    The tables in this section present population totals for the parts 
of the country affected by various changes in FMRs. Table 1 shows the 
effect of the geographic definitional changes on the 2000 Census Base 
Rents. Note that 96.9 percent of the population is in areas where the 
2000 Census Base Rent changes by less than 5 percent. Larger changes in 
base rent are generally limited to places that have been dropped from 
major metropolitan areas (these areas now have their own, generally 
lower, Base Rents), or small candidate sub-areas with too little census 
rent data to estimate a sub-area FMR (these areas are subsumed in 
metropolitan areas or FMR areas that have generally much higher 2000 
Census Base Rents than the candidate sub-areas' old FMR-area Base 
Rents). A listing of the small candidate sub-areas is shown in Appendix 
II.

          Table 1.--Population-Weighted Effect of FMR Area Definition Changes on 2000 Census Base Rents
----------------------------------------------------------------------------------------------------------------
                                                                                                     Percent  of
                   2000 Census base rent change                      Number of    2000 population       total
                                                                       areas*                        population
----------------------------------------------------------------------------------------------------------------
15% or More Decline...............................................           37          1,560,972           0.5
10% to 14.9% Decline..............................................           23            751,880           0.3
5% to 9.9% Decline................................................           21          1,798,385           0.6
1% to 4.9% Decline................................................          346         37,794,535          13.2
Within +/-1%......................................................        3,817        209,401,324          73.1
1% to 4.9% Increase...............................................          357         30,341,010          10.6
5% to 9.9% Increase...............................................           47          3,244,608           1.1
10% to 14.9% Increase.............................................           16            192,499           0.1
15% or More Increase..............................................          100          1,332,179           0.5
                                                                   --------------
    All Areas.....................................................        4,764        286,417,392         100.0 
----------------------------------------------------------------------------------------------------------------
* Areas are counties or county-equivalent areas except in New England where areas are cities and towns.

    Table 2 shows population distribution of changes in FMRs that can 
be attributed to all differences between the revised final FY2005 FMRs 
and proposed FY2006 FMRs including the geographical area changes and 
the results of RDDs. Relative to Table 1, there is more dispersion in 
the changes, which reflects the overall national trend of a slight 
increase in rent on the one hand, and the large number of RDDs 
resulting in decreased FMRs on the other. This influence is most 
apparent in the much larger percentage of the population that has a 1 
percent to 4.9 percent increase in FMRs and the larger percentages with 
5 percent to 9.9 percent increases/decreases.

          Table 2.--Population Distribution by Changes in FMRs: Revised Final FY2005 to Proposed FY2006
----------------------------------------------------------------------------------------------------------------
                                                                                                     Percent  of
                            FMR change                               Number of    2000 population       total
                                                                       areas*                        population
----------------------------------------------------------------------------------------------------------------
15% or More Decline...............................................           32          1,091,769           0.4
10% to 14.9% Decline..............................................           29          5,721,614           2.0
5% to 9.9% Decline................................................           74         16,490,802           5.8
1% to 4.9% Decline................................................          131         22,005,803           7.7
Within +/-1%......................................................          132         32,600,796          11.4
1% to 4.9% Increase...............................................        3,956        164,012,622          57.3
5% to 9.9% Increase...............................................          238         37,355,878          13.0
10% to 14.9% Increase.............................................           57          4,539,642           1.6
15% or More Increase..............................................          115          2,598,466           0.9
                                                                   --------------
    All Areas.....................................................        4,764        286,417,392       **100.0 
----------------------------------------------------------------------------------------------------------------
* Areas are counties or county-equivalent areas except in New England where areas are cities and towns.
** Individual percentages may not sum to 100 percent due to rounding.


[[Page 32405]]

IV. FMR Methodology

    As detailed in Appendix I, the proposed FY2006 FMRs use previously 
accumulated data differently than prior FMR publications. Because the 
Revised Final FY2005 FMRs are such an important source of accumulated 
information for the proposed FY2006 FMRs, discussion of the sources and 
methods used to develop the Revised Final FY2005 FMRs is included here 
along with the specific discussion of FY2006 FMR data and methods.

A. Data Sources: 2000 Census Base Rents

    FY2005 FMRs were benchmarked for most areas using 2000 Decennial 
Census data, which served to correct estimation errors that accumulated 
since 1994 when FMRs were benchmarked with 1990 Decennial Census data.
    At HUD's request, the Census Bureau prepared a special publicly 
releasable Census file that permits almost exact replication of HUD's 
2000 Base Rent calculations except for areas with few rental units. 
This data set is located on HUD's HUD USER Web site at https://
www.huduser.org/datasets/fmr/CensusRentData/. An area-specific 
explanation of how FY2005 FMRs were benchmarked to the 2000 Census and 
updated can be found at https://www.huduser.org/datasets/fmr/fmrs/.
    The proposed FY2006 FMRs are also benchmarked to the 2000 Census. 
The FY2006 Census Base Rents are computed for the new geography of 
metropolitan areas, candidate sub-areas of metropolitan areas (which 
may become HUD Metro FMR areas), and nonmetropolitan counties using the 
same computational techniques as the FY2005 benchmarking. The 2000 
Census Base Rents for old FMR areas are used, along with the Revised 
Final FY2005 FMRs, to determine the 2000-to-2005 portion of the 2000-
to-2006 update factor for metropolitan areas, new FMR areas, and 
nonmetropolitan counties. A publicly releasable version of the data 
used for the FY2006 Census Base Rent determinations will also be 
available at the above website.

B. FMR Updates: 2000 Census to 2005

    For the FY2006 FMR areas (metropolitan areas, HUD Metro FMR areas, 
and non-metropolitan counties), update factors from the 2000 Census 
Base Rent to 2005 are computed using weighted average update factors 
derived from old FMR area, Revised Final FY2005 FMRs, old FMR area 2000 
Census Base Rents and 2000 Census 100 percent population counts as 
described in Appendix I.
    After 2000 Census Base Rent estimates were established for each FMR 
area and bedroom size, they are updated from the estimated Census date 
of April 1, 2000, to April 1, 2005 (the midpoint of FY2005). Update 
factors for the 2000-through-end-of-2003 period were based either on 
the area-specific CPI survey data that were available for the largest 
metropolitan areas or on HUD regional RDD survey data.
    FMRs are updated using a combination of data. Annual CPI data are 
available for most of the largest metropolitan areas. Data from the 
Census Bureau's American Housing Survey are also available for some of 
the larger areas. For the 2000-to-2003 period, HUD conducted regional 
RDD surveys to obtain rent changes for the metropolitan and 
nonmetropolitan parts of the 10 HUD regions not covered by area-
specific CPI surveys. A 3 percent trending factor is used to cover the 
portions of time for which there are no better data.
    For areas with local CPI surveys, CPI annual data on rents and 
utilities were used to update the Census rent estimates. Three-quarters 
of the 2000 CPI change factor was used to bring the FMR estimates 
forward from April to December of 2000. Annual CPI survey data could 
then be used for Calendar Years 2001, 2002, and 2003. Trending to cover 
the period from December 2003, to April 1, 2005, was then needed. An 
annual trending factor of 3 percent, based on the average annual 
increase in the median Census gross rent between 1990 and 2000, was 
used to update estimates from the end of 2003 (i.e., the last date for 
which CPI data were available) until the midpoint of the fiscal year in 
which the estimates were used. The 15-month trending factor was 3.75 
percent (3 percent times 15/12).
    For areas without local CPI surveys, the same process was used 
except that regional RDD survey data were substituted for CPI data for 
the period through the end of 2003. Regional RDD surveys were done for 
20 areas--the metropolitan and nonmetropolitan part of each of the 10 
HUD regions. Areas covered by CPI metropolitan surveys were excluded 
from the RDD metropolitan regional surveys.
    HUD also conducted RDD telephone FMR surveys for selected areas and 
incorporated these into FMR update factors.

C. Updates From 2005 to Proposed FY2006

    After using the old FMR area data as described above to update 
metropolitan area, new FMR area, and nonmetropolitan county rents to 
2005, metropolitan area and nonmetropolitan county update factors from 
2005 to 2006 are applied to derive the proposed FY2006 FMRs. All new 
FMR areas that are part of a new metropolitan area are updated with the 
same metropolitan area-level 2005-to-2006 update factor.
    Specifically, local CPI data is used to move rents from the end of 
2003 to the end of 2004 and the same 15-month trending factor is then 
applied. Regional RDDs, however, were not conducted in 2004 in 
anticipation of the arrival of ACS data. Therefore, for proposed FY2006 
FMRs, Census region-level CPI data for Class B- and C-size cities is 
being used to update areas without local CPI update factors. Data from 
the 2004 ACS will be used to replace regional CPI data if it becomes 
available in time for inclusion in the final FY2006 publication. Once 
full-scale ACS data collections start to become available in the latter 
part of 2006, sample sizes will be large enough to estimate FMRs for 
the larger metropolitan areas on an annual basis and for other areas on 
a two- to four-year basis.

D. Additional RDD Surveys and Other Data

    RDDs covering 35 additional areas were conducted by HUD in the 
January-February period of 2005 and completed in time for use in this 
publication. In addition, PHA surveys were conducted for 5 area RDDs. 
Table 3 shows the results of the HUD and PHA surveys. The first column 
of Table 3 identifies the RDD survey area. Except where noted, RDD 
survey areas correspond to metropolitan areas as defined by OMB. In 
metropolitan areas where HUD defines HUD Metro FMR Areas (HMFAs), the 
percent change due to the RDD reported in the last column is applied to 
the unrevised FY2006 FMR of each HMFA in the metropolitan area. A 
change in FMR estimates is shown only if the RDD result shows a 
statistically significant difference from the FMR estimate based on 
non-RDD update factors. The ``Result of RDD'' column shows whether or 
not the RDD results were statistically different enough to justify 
replacing the unrevised estimates with the RDD results.
    The RDD results show an unusually high percentage of FMR decreases. 
These decreases are consistent with multifamily apartment complex time-
series data that also indicated decreases and were available for 
comparison for all of the larger metropolitan areas surveyed. 
Nationally, Census vacancy data continue to show rental vacancy rates 
at record highs, which, combined with loss of higher income renters to

[[Page 32406]]

homeownership, have adverse impacts on rents. The survey results were 
as follows:
BILLING CODE 4210-01-P
[GRAPHIC] [TIFF OMITTED] TN02JN05.004


[[Page 32407]]


[GRAPHIC] [TIFF OMITTED] TN02JN05.005


[[Page 32408]]


[GRAPHIC] [TIFF OMITTED] TN02JN05.006

BILLING CODE 4210-01-C

E. Large Bedroom Rents

    FMR estimates are calculated for two-bedroom units. This is the 
most common size of rental units, and, therefore, the most reliable to 
survey and analyze. After each Decennial Census, rent relationships 
between two-bedroom units and other unit sizes are calculated and used 
to set FMRs for other units. This is done because it is much easier to 
update two-bedroom estimates and to use pre-established cost 
relationships with other bedroom sizes than it is to develop 
independent FMR estimates for each bedroom size, which was last done 
using 2000 Census data. A publicly releasable version of the data file 
that permits derivations of rent ratios is available at https://
www.huduser.org/datasets/fmr/CensusRentData/.
    The rents for three-bedroom and larger units continue to reflect 
HUD's policy to set higher rents for these units than would result from 
using normal market rents. This adjustment is intended to increase the 
likelihood that the largest families, which have the most difficulty in 
leasing units, will be successful in finding eligible program units. 
The adjustment adds bonuses of 8.7 percent to the unadjusted three-
bedroom FMR estimates and adds 7.7 percent to the unadjusted four-
bedroom FMR estimates. The FMRs for unit sizes larger than four 
bedrooms are calculated by adding 15 percent to the four-bedroom FMR 
for each extra bedroom. For example, the FMR for a five-bedroom unit is 
1.15 times the four-bedroom FMR, and the FMR for a six-bedroom unit is 
1.30 times the four-bedroom FMR. FMRs for single-room occupancy units 
are 0.75 times the zero-bedroom (efficiency) FMR.
    A further adjustment was made using 2000 Census data in 
establishing rent ratios for areas with local bedroom-size intervals 
above or below what are considered to be reasonable ranges or where 
sample sizes are inadequate to accurately measure bedroom rent 
differentials. Experience has shown that highly unusual bedroom ratios 
typically reflect inadequate sample sizes or peculiar local 
circumstances that HUD would not want to utilize in setting FMRs (e.g., 
luxury efficiency apartments in New York City that rent for more than 
typical one-bedroom units). Bedroom interval ranges were established 
based on an analysis of the range of such intervals for all areas with 
large enough

[[Page 32409]]

samples to permit accurate bedroom ratio determinations. The following 
ranges were used: efficiency units were between 0.65 and 0.83 of the 
two-bedroom FMR, one-bedroom units were between 0.76 and 0.90 of the 
two-bedroom unit, three-bedroom units were between 1.10 and 1.34 of the 
two-bedroom unit, and four-bedroom units were between 1.14 and 1.63 of 
the two-bedroom unit. Bedroom rents for a given FMR area were then 
adjusted if the differentials between bedroom-size FMRs were 
inconsistent with normally observed patterns (e.g., efficiency rents 
were not allowed to be higher than one-bedroom rents and four-bedroom 
rents were set at a minimum of 3 percent higher than three-bedroom 
rents).
    For low-population, nonmetropolitan counties with small Census 
recent-mover rent samples, Census-defined county group data were used 
in determining rents for each bedroom size. This adjustment was made to 
protect against unrealistically high or low FMRs due to insufficient 
sample sizes. The areas covered by this new estimation method had less 
than the HUD standard of 200 two-bedroom, Census-tabulated 
observations.

V. Manufactured Home Space Surveys

    The FMR used to establish payment standard amounts for the rental 
of manufactured home spaces in the Housing Choice Voucher program is 40 
percent of the FMR for a two-bedroom unit. HUD will consider 
modification of the manufactured home space FMRs where public comments 
present statistically valid survey data showing the 40th percentile 
manufactured home space rent (including the cost of utilities) for the 
entire FMR area.
    All approved exceptions to these rents that were in effect in 
FY2005 were updated to FY2006 using the same data used to estimate the 
Housing Choice Voucher program FMRs if the respective FMR area's 
definition had remained the same. If the result of this computation was 
higher than 40 percent of the rebenchmarked two-bedroom rent, the 
exception remained and is listed in Schedule D. The FMR area 
definitions used for the rental of manufactured home spaces are the 
same as the area definitions used for the other FMRs. Areas with 
definitional changes that previously had exception, manufactured 
housing space rental FMRs have been requested to submit new surveys to 
justify higher than standard space rental FMRs if they believe higher 
space rental allowances are needed.

VI. Request for Public Comments

    HUD seeks public comments on FMR levels for specific areas. 
Comments on FMR levels must include sufficient information (including 
local data and a full description of the rental housing survey 
methodology used) to justify any proposed changes. Changes may be 
proposed in all or any one or more of the unit-size categories on the 
schedule. Recommendations and supporting data must reflect the rent 
levels that exist within the entire FMR area.
    For the supporting data, HUD recommends the use of professionally 
conducted RDD telephone surveys to test the accuracy of FMRs for areas 
where there is a sufficient number of Section 8 units to justify the 
survey cost of approximately $20,000 to $30,000. Areas with 500 or more 
program units usually meet this cost criterion, and areas with fewer 
units may meet it if actual rents for two-bedroom units are 
significantly different from the FMRs proposed by HUD. In addition, HUD 
has developed a version of the RDD survey methodology for smaller, 
nonmetropolitan public housing agencies (PHAs). This methodology is 
designed to be simple enough to be done by the PHA itself, rather than 
by professional survey organizations, at a cost of $5,000 or less.
    PHAs in nonmetropolitan areas may, under certain circumstances, 
conduct surveys of groups of counties. HUD must approve all county-
grouped surveys in advance. PHAs are cautioned that the resulting FMRs 
will not be identical for the counties surveyed; each individual FMR 
area will have a separate FMR based on the relationship of rents in 
that area to the combined rents in the cluster of FMR areas. In 
addition, PHAs are advised that counties whose FMRs are based on the 
combined rents in the cluster of FMR areas will not have their FMRs 
revised unless the grouped survey results show a revised FMR above the 
combined rent level.
    PHAs that plan to use the RDD survey technique should obtain a copy 
of the appropriate survey guide. Larger PHAs should request HUD's 
survey guide entitled, ``Random Digit Dialing Surveys; A Guide to 
Assist Larger Public Housing Agencies in Preparing Fair Market Rent 
Comments.'' Smaller PHAs should obtain the guide entitled, ``Rental 
Housing Surveys; A Guide to Assist Smaller Public Housing Agencies in 
Preparing Fair Market Rent Comments.'' These guides are available from 
HUD USER on 800-245-2691, or from HUD's Web site, in Microsoft Word or 
Adobe Acrobat format, at https://www.huduser.org/datasets/fmr.html.
    In providing data to support comments, other survey methodologies 
are acceptable if the survey methodology can provide statistically 
reliable, unbiased estimates of the gross rent. Survey samples should 
preferably be randomly drawn from a complete list of rental units for 
the FMR area. If this is not feasible, the selected sample must be 
drawn to be statistically representative of the entire rental housing 
stock of the FMR area. Surveys must include units at all rent levels 
and be representative by structure type (including single-family, 
duplex, and other small rental properties), age of housing unit, and 
geographic location. The Decennial Census should be used as a means of 
verifying if a sample is representative of the FMR area's rental 
housing stock.
    Most surveys cover only one- and two-bedroom units, which has 
statistical advantages. If the survey is statistically acceptable, HUD 
will estimate FMRs for other bedroom sizes using ratios based on the 
Decennial Census. A PHA or contractor that cannot obtain the 
recommended number of sample responses after reasonable efforts should 
consult with HUD before abandoning its survey; in such situations HUD 
is prepared to relax normal sample size requirements.
    HUD will consider increasing manufactured home space FMRs where 
public comment demonstrates that 40 percent of the two-bedroom FMR is 
not adequate. In order to be accepted as a basis for revising the 
manufactured home space FMRs, comments must include a pad rental survey 
of the mobile home parks in the area, identify the utilities included 
in each park's rental fee, and provide a copy of the applicable PHA's 
utility schedule.
    Accordingly, the Fair Market Rent Schedules, which will not be 
codified in 24 CFR Part 888, are proposed to be amended as shown in the 
Appendix to this notice:

    Dated: May 26. 2005.
Roy A. Bernardi,
Deputy Secretary.

Fair Market Rents for the Housing Choice Voucher Program

Schedules B and D--General Explanatory Notes

1. Geographic Coverage
    a. Metropolitan Areas--FMRs are market-wide rent estimates that are 
intended to provide housing opportunities throughout the geographic 
area in which rental-housing units are

[[Page 32410]]

in direct competition. The proposed FY2006 FMRs reflect a change in 
metropolitan area definitions. HUD is using the metropolitan Core-Based 
Statistical Areas (CBSA), which are made up of one or more counties, as 
defined by OMB, with some modifications. HUD is generally assigning 
separate FMRs to the component counties of CBSA Micropolitan Areas.
    b. Modifications to OMB Definitions--Following OMB guidance, the 
estimation procedure for the FY2006 proposed FMRs incorporates the 2003 
OMB definitions of metropolitan areas based on the new CBSA standards 
as implemented with 2000 Census data, but makes adjustments to the 
definitions to separate subparts of these areas where FMRs would 
otherwise change significantly if the new area definitions were used 
without modification. In CBSAs where sub-areas are established, it is 
HUD's view that the geographic extent of the housing markets are not 
yet the same as the geographic extent of the CBSAs, but may become so 
as the social and economic integration of the CBSA component areas 
increases. Modifications to metropolitan CBSA definitions are made 
according to a formula as described below.
    Metropolitan Areas CBSAs (referred to as Metropolitan Statistical 
Areas or MSAs) may be modified to allow for sub-area FMRs within MSAs 
based on the boundaries of old FMR areas (OFAs) within the boundaries 
of new MSAs. (OFAs are the FMR areas defined for the FY2005 FMRs)). 
Collectively, they include old definition MSAs/PMSAs, metropolitan 
counties deleted from old definition MSAs/PMSAs by HUD for FMR 
purposes, and counties and county parts outside of old definition MSAs/
PMSAs referred to as nonmetropolitan counties. Sub-areas of MSAs are 
assigned their own FMRs when the sub-area 2000 Census Base Rent differs 
by at least 5 percent from (i.e., is at most 95 percent or at least 105 
percent of) the MSA 2000 Census Base Rent. MSA sub-areas, and the 
remaining portions of MSAs after sub-areas have been determined, are 
referred to as HMFAs to distinguish these areas from OMB's official 
definition of MSAs.
    The specific counties (or New England towns and cities) within each 
state in MSAs and HMFAs are listed in the FMR tables.
2. Bedroom Size Adjustments
    Schedule B shows the FMRs for 0-bedroom through 4-bedroom units. 
The FMRs for unit sizes larger than 4 bedrooms are calculated by adding 
15 percent to the 4-bedroom FMR for each extra bedroom. For example, 
the FMR for a 5-bedroom unit is 1.15 times the 4-bedroom FMR, and the 
FMR for a 6-bedroom unit is 1.30 times the 4-bedroom FMR. FMRs for 
single room occupancy (SRO) units are 0.75 times the 0-bedroom FMR.
3. Arrangement of FMR Areas and Identification of Constituent Parts
    a. The FMR areas in Schedule B are listed alphabetically by 
metropolitan FMR area and by nonmetropolitan county within each state. 
The exception FMRs for manufactured home spaces in Schedule D are 
listed alphabetically by state.
    b. The constituent counties (or New England towns and cities) 
included in each metropolitan FMR area are listed immediately following 
the listings of the FMR dollar amounts. All constituent parts of a 
metropolitan FMR area that are in more than one state can be identified 
by consulting the listings for each applicable state.
    c. Two nonmetropolitan counties are listed alphabetically on each 
line of the nonmetropolitan county listings.
    d. The New England towns and cities included in a nonmetropolitan 
part of a county are listed immediately following the county name.

Appendix I--Detailed Explanation of How New FMR Areas Determined

A. Use and Modification of New OMB Metropolitan Area Definitions

    Following OMB guidance, the estimation procedure for the FY2006 
proposed FMRs incorporates the 2003 OMB definitions of metropolitan 
areas based on the new Core-Based Statistical Area (CBSA) standards 
as implemented with 2000 Census data, but makes adjustments to the 
definitions to separate subparts of these areas where FMRs would 
otherwise change significantly if the new area definitions were used 
without modification. In CBSAs where sub-areas are established, it 
is HUD's view that the geographic extent of the housing markets are 
not yet the same as the geographic extent of the CBSAs, but may 
become so as the social and economic integration of the CBSA 
component areas increases.
    The geographic baseline for the new estimation procedure is the 
CBSA Metropolitan Areas (referred to as Metropolitan Statistical 
Areas or MSAs) and CBSA Nonmetropolitan Counties (nonmetropolitan 
counties include the county components of Micropolitan CBSAs where 
the counties are generally assigned separate FMRs). The proposed 
HUD-modified CBSA definitions allow for sub-area FMRs within MSAs 
based on the boundaries of ``Old FMR Areas'' (OFAs) within the 
boundaries of new MSAs. (OFAs are the FMR areas defined for the 
FY2005 FMRs). Collectively, they include June 30, 1999, OMB 
definition Metropolitan Statistical Areas and Primary Metropolitan 
Statistical Areas (old definition MSAs/PMSAs), metropolitan counties 
deleted from old definition MSAs/PMSAs by HUD for FMR purposes, and 
counties and county parts outside of old definition MSAs/PMSAs 
referred to as non-metropolitan counties. Sub-areas of MSAs are 
assigned their own FMRs when the sub-area 2000 Census Base Rent 
differs significantly from the MSA 2000 Census Base Rent. MSA sub-
areas, and the remaining portions of MSAs after sub-areas have been 
determined, are referred to as ``HUD Metro FMR Areas (HMFAs)'' to 
distinguish these areas from OMB's official definition of MSAs. The 
proposed FY2006 FMRs are calculated using a three-step process 
designed to: (1) Identify MSAs that should be broken up into HMFAs 
because of quantified differences in OFA and CBSA rents; (2) capture 
information used to set the FY2005 Revised Final FMRs; and (3) 
update the FMRs to FY2006 and move the FMR estimation process toward 
a CBSA-based geography.

1. Step 1, Identifying Housing Markets

    To identify MSAs that should be broken up into HMFAs because 
rental-housing markets are not yet well integrated, HUD compares 
2000 Census Base Rents for the MSAs to 2000 Census Base Rent for the 
parts of each MSA that were in different OFAs and, therefore, had 
different FY2005 Revised Final FMRs. The parts of each MSA that were 
in different OFAs are referred to here as ``candidate sub-areas.'' 
If the 2000 Census Base Rent of a candidate sub-area differs from 
the MSA 2000 Census Base Rent by at least 5 percent (i.e., is at 95 
percent or less or 105 percent or more) of the MSA 2000 Census Base 
Rent, then the candidate sub-area is designated as an HMFA and is 
assigned its own 2000 Census Base Rent to be updated, as described 
below, to derive the proposed FY2006 FMR. HUD identifies the HMFA 
with a name based on its geography and ending with ``HUD Metro FMR 
Area'' to distinguish it from the parent MSA.
    The remaining candidate sub-areas within an MSA, having 
candidate sub-area 2000 Census Base Rents that differ from the MSA 
2000 Census Base Rent by less than 5 percent (i.e., are 95 percent 
or more and 105 percent or less of the MSA 2000 Census Base Rent), 
are combined to form an HMFA and are assigned the MSA 2000 Base Rent 
which is updated, as described below, to derive the proposed FY2006 
FMR. HUD identifies the HMFA with a name based on its geography and 
ending with ``HUD Metro FMR Area'' to distinguish it from the parent 
MSA.
    MSAs with no candidate sub-areas, or where all candidate sub-
areas have 2000 Census Base Rents within 5 percent of the MSA 2000 
Census Base Rent, are assigned the MSA 2000 Census Base Rent, which 
is updated, as described below, to derive the proposed FY2006 FMR. 
Since these areas do not vary from OMB's official metropolitan area 
definitions, HUD identifies them with their official MSA names as 
determined by OMB.
    Generally, 2000 Census Base Rents for MSAs, HMFAs, and 
nonmetropolitan counties are set at the 40th percentile rent of 
recent movers in standard quality two-

[[Page 32411]]

bedroom units. Base Rents are set at the 50th percentile recent 
mover rent if at least 75 percent of the population of the MSA, 
HMFA, or nonmetropolitan county was in an OFA with a 50th percentile 
FMR. In all cases except the Bergen-Passaic, NJ HMFA, the 40th 
percentile 2000 Census Base Rents are used to evaluate whether HMFAs 
are created from MSAs. The Bergen-Passaic, NJ HMFA was unique among 
the former FY2005 FMR areas with 50th percentile FMRs in that if the 
50th percentile rent had not been used as its 2000 Census Base Rent 
for establishing the HMFA, the Bergen-Passaic, NJ HMFA would have 
been made part of a larger HMFA with no mechanism within the formula 
established in this notice to continue its 50th percentile FMR.
    The 2000 Census data for any candidate sub-area must be 
sufficient to estimate a reliable FMR. HUD's standard is that at 
least 200 Census-tabulated cases are needed for a reliable 2000 
Census Base Rent estimate. Candidate sub-areas with insufficient 
samples are combined with adjacent candidate sub-areas and 2000 
Census Base Rents (as well as 2000-to-2005 update factors as 
described below) are computed for the combined areas. (See Table 3 
for a list of counties and New England towns combined with different 
candidate sub-areas because of insufficient sample size). 
Nonmetropolitan counties must also meet the 200-case standard to get 
their own 2000 Census Base Rent. Nonmetropolitan counties with fewer 
than 200 cases are assigned the 2000 Census Base Rent of contiguous 
county groups designated by the Census Bureau for purposes of 
releasing data under the Public Use Microdata Sample program.
    In New England, some towns that formerly were part of a 
metropolitan OFA are now in nonmetropolitan counties under the new 
OMB metropolitan area definitions. Because these towns were outlying 
parts of old metropolitan areas and were determined to have limited 
interaction with the old metropolitan areas, HUD did not include 
formerly metropolitan parts of now nonmetropolitan counties in 
developing HMFAs, but instead followed OMB's county-based area 
designations.

2. Step 2, Capturing 2000 to 2005 Update Information

    MSA, HMFA, and nonmetropolitan county FMRs are updated from the 
2000 Census Base Rents to 2005 using a population-weighted average 
aggregate update factor (WAUF). Within each component of a MSA, 
HMFA, or nonmetropolitan county having a different FY2005 Revised 
Final FMR (i.e., within a different OFA), the aggregate 2000-to-2005 
OFA update factor is computed by dividing the FY2005 Revised Final 
FMR by the 2000 Census Base Rent for the OFA. The WAUF is computed 
by multiplying each component OFA update factor by the part of the 
population of the MSA, HMFA, or nonmetropolitan county in each of 
the OFAs, summing these products, and dividing by the total 
population of the MSA, HMFA, or nonmetropolitan county. The WAUF is 
then applied to the 2000 Census Base Rent for the MSA, HMFA, or 
nonmetropolitan county to determine the 2005 Rent.

3. Step 3, Updating From 2005 to 2006 on an MSA Basis

    For each MSA and nonmetropolitan county, a 2005-to-2006 update 
factor is computed based on available information, such as local or 
regional CPI data, or the results of a local RDD survey. Most of the 
HMFA FMRs in an MSA are updated from 2005 to 2006 using MSA-wide 
update factors. Exceptions to this practice are areas where HUD 
conducted RDDs at the HMFA level, and where there are variations 
among HMFAs with local CPI update factors in the utilities-to-gross 
rent ratio. Numerical examples of this approach are provided in the 
following sections.

B. Numerical Examples of Proposed FY2006 FMR Computations

    FMRs are estimated for all MSAs as follows: the 40th percentile 
rent for renters who recently moved into two-bedroom standard 
quality units is estimated for each MSA using the 2000 Census. This 
is the MSA 2000 Census Base Rent. The MSA 2000 Census Base Rent is 
updated through 2005 by applying the population-weighted average of 
the update factors used to produce the Revised Final FY2005 FMRs for 
OFAs (or OFA parts) within the MSA. Multiplying the MSA 2000 Census 
Base rent by the blended 2005 update factor, and that result (the 
2005 intermediate rent) by an MSA-based 2005-to-2006 update factor, 
produces the proposed FY2006 FMR.
    For areas without RDDs, the FY2006 FMRs equal the Base 2000 FMR 
times the 2000-to-2005 update factor times the most recent year's 
local or regional CPI change. (Strictly speaking, a year of trending 
is removed, the most recent annual rent change factor is used as a 
replacement, and another year of trending is then added.) For areas 
with MSA RDDs, the same process is used, but the 2005-to-2006 update 
factor is based on the RDD change. For instance, a forward-trended 
April 2005 RDD result for an MSA would be compared with the FY2006 
evaluated rent calculated from the 2000 Census Base MSA Rent, the 
MSA 2000-to-2005 update factor, and the MSA 2005-to-2006 update 
factor. If the MSA 2006 evaluated rent is outside the 90 percent 
confidence interval of the RDD, then the MSA 2005-to-2006 update 
factor is set at the ratio of the RDD result to the 2005 MSA 
intermediate rent. This ratio is used as the 2005-to-2006 update 
factor for all HMFAs within the MSA in the event that the MSA has 
been split into more than one HMFA.
    The following paragraphs provide examples of different ways the 
proposed FY2006 FMRs are computed based on the differences in 
geography and 2000 Census Base Rents between the Revised Final 
FY2005 FMRs and the proposed FY2006 FMRs.

1. No Geographic Change

    The A MSA has the same geographic definition as OFA A. In this 
case, the proposed FY2006 FMR is simply an update of the OFA A 
Revised Final FY2005 FMR. That is because the 2000 Census Base Rent 
for the A MSA is identical to that of OFA A, and there is no need to 
compute a weighted average 2000-to-2005 update factor because there 
is only one OFA in the A MSA. This same logic applies to 
nonmetropolitan counties, and to any new MSA that consists of a part 
of a single OFA.

2. Candidate Sub-Areas in an MSA With Similar 2000 Census Base 
Rents

    HUD examined MSA sub-areas in establishing proposed FY2006 FMR 
areas. Candidate sub-areas considered for calculation of separate 
FMRs were generally determined from the way MSAs are divided by 
OFAs. Any candidate sub-area with a 2000 Census Base Rent that 
differs from the MSA Census Base Rent by 5 percent or more is 
designated an HMFA and receives a separate proposed FY2006 FMR based 
on its own 2000 Census Base Rent and OFA 2000-to-2005 update factor. 
Remaining candidate sub-areas with 2000 Census Base Rents that 
differ from their MSA Census Base Rent by less than 5 percent are 
combined into HMFAs, receive the MSA Base Rent, and are updated to 
2005 using a population-weighted average of their component OFA 
2000-to-2005 update factors. All HMFAs are updated from 2005-to-2006 
using the same MSA-wide update factor.
    The D-E MSA is made up of OFA D and part of OFA E. These two 
areas are candidate sub-areas of the D-E MSA. Suppose they had the 
following characteristics:

------------------------------------------------------------------------
                                                               2000-to-
                                                    2000       2005 FMR
               Area                    2000     census base     update
                                    population      rent     factor from
                                                               OFA FMRs
------------------------------------------------------------------------
Candidate Sub-area D.............      700,000         $700        1.250
Candidate Sub-area E.............      300,000          740        1.210
D-E MSA Total....................    1,000,000          710        1.238
------------------------------------------------------------------------

    The 2000 Census Base Rents of the candidate sub-areas D and E do 
not differ from the D-E MSA 2000 Census Base Rent by more than 5 
percent, and is calculated as follows:


[[Page 32412]]


($710-$700)/$710 = $10/$710 = 1.4% < 5%, and
($740-$710)/$710 = $30/$710 = 4.2% < 5%.

    Therefore, HUD does not establish sub-areas within the D-E MSA; 
the D-E MSA is a single proposed FY2006 FMR area.
    The update factor for the D-E MSA through 2005 is:

(1.250 x 700,000 + 1.210 x 300,000)/1,000,000
= (875,000 + 363,000)/1,000,000
= (1,238,000)/1,000,000 = 1.238

    The 2005 intermediate rent estimate for the D-E MSA is $710 x 
1.238 = $879. The 2005-to-2006 regional update factor for D-E MSA is 
1.03 for a proposed FY2006 FMR of:

$710 x 1.238 x 1.03
= $879 x 1.03 = $905.

3. Candidate Sub-areas in an MSA With Dissimilar 2000 Census Base 
Rents

    Next, consider the X-Y-Z MSA made up of three candidate sub-
areas with the following characteristics:

------------------------------------------------------------------------
                                                               2000-to-
                                                               2005 FMR
               Area                    2000     2000 census     update
                                    population   base rent   factor from
                                                               OFA FMRs
------------------------------------------------------------------------
Candidate Sub-area X.............      500,000         $700        1.280
Candidate Sub-area Y.............      300,000          715        1.230
Candidate Sub-area Z.............      200,000          625        1.200
X-Y-Z MSA Total..................    1,000,000          690        1.249
------------------------------------------------------------------------

    Suppose further that the regionally estimated 2005-to-2006 
update factor for the X-Y-Z MSA is 1.03. First, the 2000 Census Base 
Rents for candidate sub-areas X and Y differ from the MSA 2000 
Census Base Rent by less than 5 percent:

($700--$690)/$690 = $10/ $690 = 1.45 % < 5%, and
($715--$690)/$690 = $25/$690 = 3.62 % < 5%.

    Therefore, these two areas are assigned the MSA 2000 Census Base 
Rent and form the X-Y HUD Metro FMR Area. Their combined 2000-to-
2005 update factor is derived from the 2000 Census-to-Revised Final 
FY2005 FMR update factors for their OFAs:

(1.28 x 500,000 + 1.23 x 300,000)/800,000
= (640,000 + 369,000)/800,000
= 1,009,000/800,000 = 1.2613.

    The proposed FY2006 FMR for the X-Y HUD Metro FMR Area is 
therefore:

$690 x 1.2613 x 1.03
= $870 x 1.03 = $896.

    In candidate sub-area Z, the 2000 Census Base Rent differs from 
the X-Y-Z MSA 2000 Census Base Rent by more than 5 percent [($690--
$625)/$690 = $65/$690 = 9.42% > 5%], so it is designated the Z HUD 
Metro FMR Area. Because of its difference from the X-Y-Z MSA 2000 
Census Base Rent, the proposed FY2006 FMR for the Z HUD Metro FMR 
Area is estimated using that area's own 2000 Census Base Rent, a 
2000-to-2005 FMR update factor derived from its OFA 2000 Census Base 
Rent to Revised Final FY2005 FMR update factor, and the X-Y-Z MSA 
2005-to-2006 update factor. The proposed FY2006 FMR for the Z HUD 
Metro FMR Area is:

$625.00 x 1.20 x 1.03
= $750 x 1.03 = $773.

4. Application of an MSA RDD in an MSA With HMFAs

    Finally, suppose that an RDD survey was performed in X-Y-Z MSA. 
The results of the MSA RDD survey are compared to a 2006 evaluated 
rent for the MSA. The 2006 X-Y-Z MSA evaluated rent is computed from 
the X-Y-Z MSA 2000 Census Base Rent, the combined 2000-to-2005 
update factor for all of the candidate sub-areas, and the regionally 
estimated 2005-to-2006 update factor for the X-Y-Z MSA as follows:

$690 x [(1.28 x 500,000 + 1.23 x 300,000 + 1.20 x 200,000)/
1,000,000] x 1.03
= $690 x [(640,000 + 369,000 + 240,000)/1,000,000] x 1.03
= $690 x [1,249,000/1,000,000] x 1.03
= $690 x1.249 x 1.03
= $862 x 1.03 = $888

    The RDD finds, however, that the proposed FY2006 FMR for the X-
Y-Z MSA should be $800. So, the actual RDD-based 2005-to-2006 update 
factor for the X-Y-Z MSA is set at the ratio of the RDD result to 
the MSA 2005 intermediate rent:

$800/$862 = 0.9281.
    The FMRs for the X-Y HUD Metro FMR Area and the Z HUD Metro FMR 
Area are computed by applying the MSA RDD-based 2005-to-2006 update 
factor (0.9281) to the two HMFAs' 2005 intermediate rents. 
Therefore, the proposed FY2006 FMR for the X-Y HUD Metro FMR Area 
is:

$690 x 1.2613 x 0.9281
= $870 x 0.9281 = $808,
and the proposed FY2006 FMR for the Z HUD Metro FMR Area is:
$625.00 x 1.20 x 0.9281
= $750 x 0.9281 = $696.

          Appendix II.--Candidate MSA Sub-Areas With Insufficient FMR Sample Assigned to Adjacent Areas
----------------------------------------------------------------------------------------------------------------
                                     County or New England                             New MSA or HUD Metro FMR
               State                      city or town         Old FMR area (OFA)          area assigned to
----------------------------------------------------------------------------------------------------------------
Alabama...........................  Bibb County............  Bibb County...........  Birmingham-Hoover, AL MSA.
                                    Geneva County..........  Geneva County.........  Dothan, AL MSA.
                                    Greene County..........  Greene County.........  Tuscaloosa, AL MSA.
                                    Hale County............  Hale County...........  Tuscaloosa, AL MSA.
                                    Lowndes County.........  Lowndes County........  Montgomery, AL MSA.
Arkansas..........................  Cleveland County.......  Cleveland County......  Pine Bluff, AR MSA.
                                    Lincoln County.........  Lincoln County........  Pine Bluff, AR MSA.
                                    Madison County.........  Madison County........  Fayetteville-Springdale-
                                                                                      Rogers, AR-MO MSA.
                                    Perry County...........  Perry County..........  Little Rock-North Little
                                                                                      Rock, AR MSA.
Colorado..........................  Clear Creek County.....  Clear Creek County....  Denver-Aurora, CO MSA.
                                    Elbert County..........  Elbert County.........  Denver-Aurora, CO MSA.
                                    Gilpin County..........  Gilpin County.........  Denver-Aurora, CO MSA.
Connecticut.......................  Hartland town..........  Hartford County.......  Hartford-West Hartford-East
                                                                                      Hartford, CT MSA.
                                    Chester town...........  Middlesex County......  Hartford-West Hartford-East
                                                                                      Hartford, CT MSA.
                                    Clinton town...........  New Haven-Meriden, CT.  Southern Middlesex County,
                                                                                      CT HUD Metro FMR Area.
                                    Deep River town........  Middlesex County......  Southern Middlesex County,
                                                                                      CT HUD Metro FMR Area.
                                    Essex town.............  Middlesex County......  Southern Middlesex County,
                                                                                      CT HUD Metro FMR Area.
                                    Killingworth town......  New Haven-Meriden, CT.  Southern Middlesex County,
                                                                                      CT HUD Metro FMR Area.
                                    Old Saybrook town......  New London-Norwich, CT- Southern Middlesex County,
                                                              RI.                     CT HUD Metro FMR Area.
                                    Westbrook town.........  Middlesex County......  Southern Middlesex County,
                                                                                      CT HUD Metro FMR Area.
                                    Lyme town..............  New London County.....  Norwich-New London, CT MSA.

[[Page 32413]]