Section 8 Housing Assistance Payments Program-Annual Adjustment Factors, Fiscal Year 2025, 95806-95808 [2024-28314]

Download as PDF 95806 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices information documenting their qualifications as addressed in the Act and this notice. In furtherance of Executive Order 14035, Executive Order on Diversity, Equity, and Inclusion, and Accessibility in the Federal Workforce (E.O. 14035, 86 FR 34593), HUD seeks for the MHCC to reflect the diversity of stakeholders in the housing market. The nomination website listed above, therefore, contains questions to elicit demographic information. Nominees may briefly summarize why they want to be a member of the MHCC and include unique skills, knowledge, and experiences that they would bring to inform the work of the committee. Individuals may nominate themselves. HUD recommends that the application for nomination be accompanied by a resume. Additional Information The Department will make appointments and reappointments from nominations submitted in response to this Notice. Also, individuals that applied earlier this calendar year do not need to reapply; pursuant to this notice those applications are on file and may be considered for future appointments. Current MHCC members whose first term ends on December 31, 2024, are eligible for reappointment, but will need to submit their nomination to be considered. To be considered for appointment to a position of an MHCC member whose term will expire in December of 2024 or to fill any MHCC vacancy that currently exists, the application must be submitted by January 2, 2025. Appointments will be made at the discretion of the Secretary. Julia R. Gordon, Assistant Secretary for Housing—Federal Housing Commissioner. [FR Doc. 2024–28235 Filed 12–2–24; 8:45 am] BILLING CODE P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–6493–N–01] Section 8 Housing Assistance Payments Program—Annual Adjustment Factors, Fiscal Year 2025 Office of the Assistant Secretary for Policy Development and Research, Department of Housing and Urban Development, HUD. ACTION: Notice of fiscal year (FY) 2025 Annual Adjustment Factors (AAFs). lotter on DSK11XQN23PROD with NOTICES1 AGENCY: The United States Housing Act of 1937 requires that certain SUMMARY: VerDate Sep<11>2014 17:09 Dec 02, 2024 Jkt 265001 assistance contracts signed by owners participating in the Department’s Section 8 housing assistance payment programs provide annual adjustments to monthly rentals for units covered by the contracts. For owners subject to a Reserve for Replacement deposit requirement, HUD also requires that the amount of the required deposit be adjusted each year by the AAF. This notice announces FY 2025 AAFs for adjustment of contract rents on the anniversary of those assistance contracts. The factors are based on a formula using residential rent and utility cost changes from the most recent annual Bureau of Labor Statistics Consumer Price Index (CPI) survey and market rents from a total of six possible private sector rent data sources. AAFs continue to be based on the shelter and gross rent inflation factors methodology used in HUD’s Fair Market Rent calculation that was adopted in FY 2024. DATES: The FY 2025 AAFs are effective December 3, 2024. FOR FURTHER INFORMATION CONTACT: Ryan Jones, Director, Management and Operations Division, Office of Housing Voucher Programs, Office of Public and Indian Housing, 202–708–1380, for questions relating to the Moderate Rehabilitation programs (not the Single Room Occupancy program); Norman A. Suchar, Director, Office of Special Needs Assistance Programs, Office of Community Planning and Development, 202–402–5015, for questions regarding the Single Room Occupancy (SRO) Moderate Rehabilitation program; Jennifer Larson, Director, Office of Asset Management, Office of Multifamily Housing, 202–402–7769, for questions relating to all other Section 8 programs; and Adam Bibler, Director, Program Parameters and Research Division, Office of Policy Development and Research, 202–402–6057, for technical information regarding the development of the schedules for specific areas or the methods used for calculating the AAFs. The mailing address for these individuals is: Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410. HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/ consumers/guides/telecommunicationsrelay-service-trs. SUPPLEMENTARY INFORMATION: The AAFs are applied at the anniversary of Housing Assistance Payment (HAP) PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 contracts for which rents are to be adjusted using the AAF for those calendar months commencing after the effective date of this notice. The amount that an owner is required to deposit to the Reserve for Replacement account is also adjusted annually by the most recently published AAF, at the HAP contract anniversary. AAFs are distinct from, and do not apply to the same properties as, Operating Cost Adjustment Factors (OCAFs). OCAFs are annual factors used to adjust rents for project-based rental assistance contracts issued under Section 8 of the United States Housing Act of 1937 and renewed under section 515 or section 524 of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). HUD has published OCAFs for 2024 in the Federal Register at 88 FR 83571. The AAFs are also distinct from Renewal Funding Inflation Factors which help determine renewal funding for public housing agencies operating the Housing Choice Voucher program. A separate Federal Register notice, to be published following the passage of FY 2025 HUD appropriations, will contain the 2025 Renewal Funding Inflation Factors. Tables showing AAFs will be available electronically from the HUD data information page at https:// www.huduser.gov/portal/datasets/ aaf.html. I. Applying AAFs to Various Section 8 Programs AAFs established by this notice are used to adjust contract rents for units assisted in certain Section 8 housing assistance payment programs during the initial (i.e., pre-renewal) term of the HAP contract. There are two categories of Section 8 programs that use the AAFs: Category 1: The Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation programs; and Category 2: The Section 8 Loan Management Set-Aside (LMSA) and Property Disposition (PD) programs. Each Section 8 program category uses the AAFs differently. The specific application of the AAFs is determined by the law, the HAP contract, and appropriate program regulations or requirements. AAFs are not used in the following cases: Renewal Rents. AAFs are not used to determine renewal rents after expiration of the original Section 8 HAP contract. In general, renewal rents are established in accordance with the statutory provision in MAHRA, as amended, under which the HAP is renewed. After E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices renewal, annual rent adjustments will be provided in accordance with MAHRA. Budget-based Rents. AAFs are not used for budget-based rent adjustments. For projects receiving Section 8 subsidies under the LMSA program (24 CFR part 886, subpart A) and for projects receiving Section 8 subsidies under the PD program (24 CFR part 886, subpart C), contract rents are adjusted, at HUD’s option, either by applying the AAFs or by budget-based adjustments in accordance with 24 CFR 886.112(b) and 24 CFR 886.312(b). Budget-based adjustments are used for most Section 8/ 202 projects. Housing Choice Voucher Program. AAFs are not used to adjust rents in the Tenant-Based or the Project-Based Voucher programs. Reserve for Replacement. The amount that an owner is required to deposit to the Reserve for Replacement account is adjusted annually by the AAF at the HAP contract anniversary. lotter on DSK11XQN23PROD with NOTICES1 II. Adjustment Procedures This section of the notice provides a broad description of procedures for adjusting the contract rent. Technical details and requirements are described in HUD notices H 2002–10 (Section 8 New Construction and Substantial Rehabilitation, Loan Management, and Property Disposition) and PIH 97–57 (Moderate Rehabilitation). HUD publishes two separate AAF Tables, Table 1 and Table 2. The difference between Table 1 and Table 2 is that each AAF in Table 2 is 0.01 less than the corresponding AAF in Table 1. Where an AAF in Table 1 would otherwise be less than 1.0, it is set at 1.0, as required by statute; the corresponding AAF in Table 2 will also be set at 1.0, as required by statute. Because of statutory and structural distinctions among the various Section 8 programs, there are separate rent adjustment procedures for the three program categories: Category 1: Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation Programs In the Section 8 New Construction and Substantial Rehabilitation programs, the published AAF factor is applied to the pre-adjustment contract rent. In the Section 8 Moderate Rehabilitation program (both the regular program and the single room occupancy program), the published AAF is applied to the pre-adjustment base rent. For Category 1 programs, the Table 1 AAF factor is applied before determining comparability (rent reasonableness). Comparability applies if the pre-adjustment gross rent (pre- VerDate Sep<11>2014 17:09 Dec 02, 2024 Jkt 265001 adjustment contract rent plus any allowance for tenant-paid utilities) is above the published Fair Market Rent (FMR). If the comparable rent level (plus any initial difference) is lower than the contract rent as adjusted by application of the Table 1 AAF, the comparable rent level (plus any initial difference) will be the new contract rent. However, the preadjustment contract rent will not be decreased by application of comparability. In all other cases (i.e., unless the contract rent is reduced by comparability): • Table 1 AAF is used for a unit occupied by a new family since the last annual contract anniversary. • Table 2 AAF is used for a unit occupied by the same family as at the time of the last annual contract anniversary. Category 2: Section 8 Loan Management Program (24 CFR Part 886, Subpart A) and Property Disposition Program (24 CFR Part 886, Subpart C) Category 2 programs are not currently subject to comparability. Comparability will again apply if HUD establishes regulations for conducting comparability studies under 42 U.S.C. 1437f(c)(2)(C). The applicable AAF is determined as follows: • Table 1 AAF is used for a unit occupied by a new family since the last annual contract anniversary. • Table 2 AAF is used for a unit occupied by the same family as at the time of the last annual contract anniversary. Category 3: Reserve for Replacement The amount of the deposit to the Reserve for Replacement account must be increased annually using the most recently published ‘‘AAF with Highest Utility Excluded’’ for the Metropolitan/ Region in which the project is located as described in Section IV below. This adjustment must be made without regard to vacancies. III. When To Use Reduced AAFs (From AAF Table 2) In accordance with Section 8(c)(2)(A) of the United States Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), the AAF is reduced by 0.01: In Section 8 programs, for a unit occupied by the same family at the time of the last annual rent adjustment (and where the rent is not reduced by application of comparability (rent reasonableness)). The law provides that: [F]or any unit occupied by the same family at the time of the last annual rental PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 95807 adjustment, where the assistance contract provides for the adjustment of the maximum monthly rent by applying an annual adjustment factor and where the rent for a unit is otherwise eligible for an adjustment based on the full amount of the factor . . . 0.01 shall be subtracted from the amount of the annual adjustment factor (except that the factor shall not be reduced to less than 1.0), and the adjusted rent shall not exceed the rent for a comparable unassisted unit of similar quality, type and age in the market area. 42 U.S.C. 1437f(c)(2)(A). Legislative history for this statutory provision states that ‘‘the rationale [for lower AAFs for non-turnover units is] that operating costs are less if tenant turnover is less . . . .’’ (see Department of Veteran Affairs and Housing and Urban Development, and Independent Agencies Appropriations for 1995, Hearings Before a Subcommittee of the Committee on Appropriations 103d Cong., 2d Sess. 591 (1994)). The Congressional Record also states the following: Because the cost to owners of turnoverrelated vacancies, maintenance, and marketing are lower for long-term stable tenants, these tenants are typically charged less than recent movers in the unassisted market. Since HUD pays the full amount of any rent increases for assisted tenants in section 8 projects . . . HUD should expect to benefit from this ‘tenure discount.’ Turnover is lower in assisted properties than in the unassisted market, so the effect of the current inconsistency with market-based rent increases is exacerbated. (140 Cong. Rec. 8659, 8693 (1994)). IV. How To Find the AAF AAF Table 1 and Table 2 are posted on the HUD User website at https:// www.huduser.gov/portal/datasets/ aaf.html. Both tables provide the Regional and Metropolitan Component Areas to be used in selecting a project’s geographic area for the AAF. For projects located in non-metropolitan areas, select the Query Tool, AAF Documentation, State, then county to determine which Metropolitan Component Area to use when selecting the AAF for the project. There are two numeric columns in each AAF table. The first column is used to adjust contract rent for rental units where the highest cost utility is included in the contract rent, i.e., where the owner pays for the highest cost utility. The second column is used where the highest cost utility is not included in the contract rent, i.e., where the tenant pays for the highest cost utility. The applicable AAF is selected as follows: • Determine whether Table 1 or Table 2 is applicable. In Table 1 or Table 2, E:\FR\FM\03DEN1.SGM 03DEN1 95808 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 locate the AAF for the geographic area where the contract unit is located. • Determine whether the highest cost utility is or is not included in contract rent for the contract unit. • If highest cost utility is included, select the AAF from the column for ‘‘Highest Cost Utility Included.’’ If highest cost utility is not included, select the AAF from the column for ‘‘Highest Cost Utility Excluded.’’ V. Methodology AAFs are rent inflation factors. Two types of rent inflation factors are calculated for AAFs: gross rent factors and shelter rent factors. The gross rent factor accounts for inflation in the cost of both the rent of the residence and the utilities used by the unit; the shelter rent factor accounts for the inflation in the rent of the residence but does not reflect any change in the cost of utilities. The gross rent inflation factor is designated as ‘‘Highest Cost Utility Included’’ and the shelter rent inflation factor is designated as ‘‘Highest Cost Utility Excluded.’’ HUD calculates the AAFs based on the shelter and gross rent inflation factors used in FMR calculations. The source data for AAFs therefore come from the 23 local and 4 regional CPI components (rent of primary residence and household fuels and utilities), depending on the location of the AAF area, and are combined with available measures of private data sources in calculating a weighted average shelter and gross rent inflation factor. The private measures of rent used by HUD are the RealPage average effective rent per unit; Moody’s Analytics REIS average market rent; CoStar Group average effective rent; CoreLogic, Inc. single-family combined 3-bedroom median rent; Apartment List Rent Estimate; and Zillow Observed Rent Index. In calculating the AAF from these data, HUD first takes the annual average of each statistic, then its year-to-year change. HUD then takes the mean of changes from all available sources for each area. Next, HUD takes an average of this private-sector measure of rent inflation with rent inflation as captured by the CPI for the area, where the private-sector measure is weighted at approximately 75 percent and the CPI rent inflation measure is weighted at approximately 25 percent. HUD has determined these weights by comparing the national average of the private rent changes and changes in CPI rent of primary residence to changes in the national average of recent mover rents from the American Community Survey (ACS) from 2018 through 2022. HUD weights the private data averages and VerDate Sep<11>2014 17:09 Dec 02, 2024 Jkt 265001 overall CPI rent of primary residence in such a way as to minimize the root mean squared error between the resulting average and the ACS recent mover rents. For future AAFs, HUD will update the weights by adding the most recent years of ACS recent mover rents, private rent data, and CPI rent of primary residence to the analysis. HUD uses a local measure of private rent inflation for markets that are covered by at least three of the six available sources of private rent data. HUD combines this local measure of rent inflation with either the local metropolitan area CPI rent of primary residence for the 23 areas where such data exist or the regional CPI rent in areas without a local index. For areas without at least three of the six private rent data sources available, HUD uses a regional average of private rent inflation factors alongside the regional CPI rent of primary residence. HUD constructs the regional average by taking the rental unit weighted average of the change in rents of each area in a region that does have private rent data coverage. This ensures that smaller areas that are not directly covered by the private sources will still have current rental market conditions taken into account in the calculation of the rent inflation factor for such areas. The results of the above calculation are the ‘‘Highest Cost Utility Excluded’’ AAF. For the ‘‘Highest Cost Utility Included’’ AAF, HUD averages the result of this step with the year-to-year change in the CPI housing fuels and utilities index for the area in order to make the resulting inflation measure reflective of gross rents. VI. Area Definitions To make certain that they are using the correct AAFs, users should refer to the Area Definitions Table section at https://www.huduser.gov/portal/ datasets/aaf.html. Furthermore, users can also search for AAF area definitions using an online lookup tool available on HUD User at the link in the previous sentence. AAFs are based on the updated metropolitan area definitions published by the Office of Management and Budget (OMB) on September 14, 2018, and first incorporated by the U.S. Census Bureau into the 2019 ACS data and the corresponding FY 2022 FMRs. On July 21, 2023, OMB published Bulletin No. 23–01, which contains revisions to metropolitan area definitions. However, the U.S. Census Bureau has not yet incorporated these revisions into the data available to HUD, PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 and therefore HUD is not using these new definitions for FY 2025. Solomon Greene, Principal Deputy Assistant Secretary for Policy Development and Research. [FR Doc. 2024–28314 Filed 12–2–24; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–6474–N–01] Notice of Partial Claim Electronic Delivery Alternative Demonstration Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Notice, with request for comments. AGENCY: This notice announces the Partial Claim Electronic Delivery Alternative Demonstration (the Demonstration). Under the Demonstration, participating mortgagees will submit digital copies of partial claim promissory notes and subordinate mortgages (PC Documents) to HUD instead of originals, which they will retain and provide to HUD upon request. The Demonstration will include any mortgagees that elect to participate but will only include partial claim subordinate mortgages secured by mortgage properties where the use of digital copies is permissible under applicable law. When the Demonstration ends, HUD will evaluate its success, determine whether to permanently implement the Demonstration processes, and identify any other necessary changes. DATES: Comments are due no later than February 3, 2025. Following the conclusion of the 60-day comment period, HUD will fully evaluate submitted comments and may modify the design of the Demonstration. HUD will then issue another notice announcing the start date of the Demonstration and will also publish a mortgagee letter with further information. ADDRESSES: There are two methods for submitting public comments. All submissions must refer to the above docket number and title. 1. Electronic Submission of Comments. Comments may be submitted electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare SUMMARY: E:\FR\FM\03DEN1.SGM 03DEN1

Agencies

[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95806-95808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28314]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6493-N-01]


Section 8 Housing Assistance Payments Program--Annual Adjustment 
Factors, Fiscal Year 2025

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, Department of Housing and Urban Development, HUD.

ACTION: Notice of fiscal year (FY) 2025 Annual Adjustment Factors 
(AAFs).

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

SUMMARY: The United States Housing Act of 1937 requires that certain 
assistance contracts signed by owners participating in the Department's 
Section 8 housing assistance payment programs provide annual 
adjustments to monthly rentals for units covered by the contracts. For 
owners subject to a Reserve for Replacement deposit requirement, HUD 
also requires that the amount of the required deposit be adjusted each 
year by the AAF. This notice announces FY 2025 AAFs for adjustment of 
contract rents on the anniversary of those assistance contracts. The 
factors are based on a formula using residential rent and utility cost 
changes from the most recent annual Bureau of Labor Statistics Consumer 
Price Index (CPI) survey and market rents from a total of six possible 
private sector rent data sources. AAFs continue to be based on the 
shelter and gross rent inflation factors methodology used in HUD's Fair 
Market Rent calculation that was adopted in FY 2024.

DATES: The FY 2025 AAFs are effective December 3, 2024.

FOR FURTHER INFORMATION CONTACT: Ryan Jones, Director, Management and 
Operations Division, Office of Housing Voucher Programs, Office of 
Public and Indian Housing, 202-708-1380, for questions relating to the 
Moderate Rehabilitation programs (not the Single Room Occupancy 
program); Norman A. Suchar, Director, Office of Special Needs 
Assistance Programs, Office of Community Planning and Development, 202-
402-5015, for questions regarding the Single Room Occupancy (SRO) 
Moderate Rehabilitation program; Jennifer Larson, Director, Office of 
Asset Management, Office of Multifamily Housing, 202-402-7769, for 
questions relating to all other Section 8 programs; and Adam Bibler, 
Director, Program Parameters and Research Division, Office of Policy 
Development and Research, 202-402-6057, for technical information 
regarding the development of the schedules for specific areas or the 
methods used for calculating the AAFs. The mailing address for these 
individuals is: Department of Housing and Urban Development, 451 7th 
Street SW, Washington, DC 20410. HUD welcomes and is prepared to 
receive calls from individuals who are deaf or hard of hearing, as well 
as individuals with speech or communication disabilities. To learn more 
about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: The AAFs are applied at the anniversary of 
Housing Assistance Payment (HAP) contracts for which rents are to be 
adjusted using the AAF for those calendar months commencing after the 
effective date of this notice. The amount that an owner is required to 
deposit to the Reserve for Replacement account is also adjusted 
annually by the most recently published AAF, at the HAP contract 
anniversary. AAFs are distinct from, and do not apply to the same 
properties as, Operating Cost Adjustment Factors (OCAFs). OCAFs are 
annual factors used to adjust rents for project-based rental assistance 
contracts issued under Section 8 of the United States Housing Act of 
1937 and renewed under section 515 or section 524 of the Multifamily 
Assisted Housing Reform and Affordability Act of 1997 (MAHRA). HUD has 
published OCAFs for 2024 in the Federal Register at 88 FR 83571. The 
AAFs are also distinct from Renewal Funding Inflation Factors which 
help determine renewal funding for public housing agencies operating 
the Housing Choice Voucher program. A separate Federal Register notice, 
to be published following the passage of FY 2025 HUD appropriations, 
will contain the 2025 Renewal Funding Inflation Factors.
    Tables showing AAFs will be available electronically from the HUD 
data information page at https://www.huduser.gov/portal/datasets/aaf.html.

I. Applying AAFs to Various Section 8 Programs

    AAFs established by this notice are used to adjust contract rents 
for units assisted in certain Section 8 housing assistance payment 
programs during the initial (i.e., pre-renewal) term of the HAP 
contract. There are two categories of Section 8 programs that use the 
AAFs:
    Category 1: The Section 8 New Construction, Substantial 
Rehabilitation, and Moderate Rehabilitation programs; and
    Category 2: The Section 8 Loan Management Set-Aside (LMSA) and 
Property Disposition (PD) programs.
    Each Section 8 program category uses the AAFs differently. The 
specific application of the AAFs is determined by the law, the HAP 
contract, and appropriate program regulations or requirements.
    AAFs are not used in the following cases:
    Renewal Rents. AAFs are not used to determine renewal rents after 
expiration of the original Section 8 HAP contract. In general, renewal 
rents are established in accordance with the statutory provision in 
MAHRA, as amended, under which the HAP is renewed. After

[[Page 95807]]

renewal, annual rent adjustments will be provided in accordance with 
MAHRA.
    Budget-based Rents. AAFs are not used for budget-based rent 
adjustments. For projects receiving Section 8 subsidies under the LMSA 
program (24 CFR part 886, subpart A) and for projects receiving Section 
8 subsidies under the PD program (24 CFR part 886, subpart C), contract 
rents are adjusted, at HUD's option, either by applying the AAFs or by 
budget-based adjustments in accordance with 24 CFR 886.112(b) and 24 
CFR 886.312(b). Budget-based adjustments are used for most Section 8/
202 projects.
    Housing Choice Voucher Program. AAFs are not used to adjust rents 
in the Tenant-Based or the Project-Based Voucher programs.
    Reserve for Replacement. The amount that an owner is required to 
deposit to the Reserve for Replacement account is adjusted annually by 
the AAF at the HAP contract anniversary.

II. Adjustment Procedures

    This section of the notice provides a broad description of 
procedures for adjusting the contract rent. Technical details and 
requirements are described in HUD notices H 2002-10 (Section 8 New 
Construction and Substantial Rehabilitation, Loan Management, and 
Property Disposition) and PIH 97-57 (Moderate Rehabilitation). HUD 
publishes two separate AAF Tables, Table 1 and Table 2. The difference 
between Table 1 and Table 2 is that each AAF in Table 2 is 0.01 less 
than the corresponding AAF in Table 1. Where an AAF in Table 1 would 
otherwise be less than 1.0, it is set at 1.0, as required by statute; 
the corresponding AAF in Table 2 will also be set at 1.0, as required 
by statute. Because of statutory and structural distinctions among the 
various Section 8 programs, there are separate rent adjustment 
procedures for the three program categories:

Category 1: Section 8 New Construction, Substantial Rehabilitation, and 
Moderate Rehabilitation Programs

    In the Section 8 New Construction and Substantial Rehabilitation 
programs, the published AAF factor is applied to the pre-adjustment 
contract rent. In the Section 8 Moderate Rehabilitation program (both 
the regular program and the single room occupancy program), the 
published AAF is applied to the pre-adjustment base rent.
    For Category 1 programs, the Table 1 AAF factor is applied before 
determining comparability (rent reasonableness). Comparability applies 
if the pre-adjustment gross rent (pre-adjustment contract rent plus any 
allowance for tenant-paid utilities) is above the published Fair Market 
Rent (FMR).
    If the comparable rent level (plus any initial difference) is lower 
than the contract rent as adjusted by application of the Table 1 AAF, 
the comparable rent level (plus any initial difference) will be the new 
contract rent. However, the pre-adjustment contract rent will not be 
decreased by application of comparability.
    In all other cases (i.e., unless the contract rent is reduced by 
comparability):
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     Table 2 AAF is used for a unit occupied by the same family 
as at the time of the last annual contract anniversary.

Category 2: Section 8 Loan Management Program (24 CFR Part 886, Subpart 
A) and Property Disposition Program (24 CFR Part 886, Subpart C)

    Category 2 programs are not currently subject to comparability. 
Comparability will again apply if HUD establishes regulations for 
conducting comparability studies under 42 U.S.C. 1437f(c)(2)(C).
    The applicable AAF is determined as follows:
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     Table 2 AAF is used for a unit occupied by the same family 
as at the time of the last annual contract anniversary.

Category 3: Reserve for Replacement

    The amount of the deposit to the Reserve for Replacement account 
must be increased annually using the most recently published ``AAF with 
Highest Utility Excluded'' for the Metropolitan/Region in which the 
project is located as described in Section IV below. This adjustment 
must be made without regard to vacancies.

III. When To Use Reduced AAFs (From AAF Table 2)

    In accordance with Section 8(c)(2)(A) of the United States Housing 
Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), the AAF is reduced by 0.01:
    In Section 8 programs, for a unit occupied by the same family at 
the time of the last annual rent adjustment (and where the rent is 
not reduced by application of comparability (rent reasonableness)).

    The law provides that:

    [F]or any unit occupied by the same family at the time of the 
last annual rental adjustment, where the assistance contract 
provides for the adjustment of the maximum monthly rent by applying 
an annual adjustment factor and where the rent for a unit is 
otherwise eligible for an adjustment based on the full amount of the 
factor . . . 0.01 shall be subtracted from the amount of the annual 
adjustment factor (except that the factor shall not be reduced to 
less than 1.0), and the adjusted rent shall not exceed the rent for 
a comparable unassisted unit of similar quality, type and age in the 
market area. 42 U.S.C. 1437f(c)(2)(A).

    Legislative history for this statutory provision states that ``the 
rationale [for lower AAFs for non-turnover units is] that operating 
costs are less if tenant turnover is less . . . .'' (see Department of 
Veteran Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations for 1995, Hearings Before a Subcommittee of the 
Committee on Appropriations 103d Cong., 2d Sess. 591 (1994)). The 
Congressional Record also states the following:

    Because the cost to owners of turnover-related vacancies, 
maintenance, and marketing are lower for long-term stable tenants, 
these tenants are typically charged less than recent movers in the 
unassisted market. Since HUD pays the full amount of any rent 
increases for assisted tenants in section 8 projects . . . HUD 
should expect to benefit from this `tenure discount.' Turnover is 
lower in assisted properties than in the unassisted market, so the 
effect of the current inconsistency with market-based rent increases 
is exacerbated. (140 Cong. Rec. 8659, 8693 (1994)).

IV. How To Find the AAF

    AAF Table 1 and Table 2 are posted on the HUD User website at 
https://www.huduser.gov/portal/datasets/aaf.html. Both tables provide 
the Regional and Metropolitan Component Areas to be used in selecting a 
project's geographic area for the AAF. For projects located in non-
metropolitan areas, select the Query Tool, AAF Documentation, State, 
then county to determine which Metropolitan Component Area to use when 
selecting the AAF for the project.
    There are two numeric columns in each AAF table. The first column 
is used to adjust contract rent for rental units where the highest cost 
utility is included in the contract rent, i.e., where the owner pays 
for the highest cost utility. The second column is used where the 
highest cost utility is not included in the contract rent, i.e., where 
the tenant pays for the highest cost utility.
    The applicable AAF is selected as follows:
     Determine whether Table 1 or Table 2 is applicable. In 
Table 1 or Table 2,

[[Page 95808]]

locate the AAF for the geographic area where the contract unit is 
located.
     Determine whether the highest cost utility is or is not 
included in contract rent for the contract unit.
     If highest cost utility is included, select the AAF from 
the column for ``Highest Cost Utility Included.'' If highest cost 
utility is not included, select the AAF from the column for ``Highest 
Cost Utility Excluded.''

V. Methodology

    AAFs are rent inflation factors. Two types of rent inflation 
factors are calculated for AAFs: gross rent factors and shelter rent 
factors. The gross rent factor accounts for inflation in the cost of 
both the rent of the residence and the utilities used by the unit; the 
shelter rent factor accounts for the inflation in the rent of the 
residence but does not reflect any change in the cost of utilities. The 
gross rent inflation factor is designated as ``Highest Cost Utility 
Included'' and the shelter rent inflation factor is designated as 
``Highest Cost Utility Excluded.'' HUD calculates the AAFs based on the 
shelter and gross rent inflation factors used in FMR calculations. The 
source data for AAFs therefore come from the 23 local and 4 regional 
CPI components (rent of primary residence and household fuels and 
utilities), depending on the location of the AAF area, and are combined 
with available measures of private data sources in calculating a 
weighted average shelter and gross rent inflation factor. The private 
measures of rent used by HUD are the RealPage average effective rent 
per unit; Moody's Analytics REIS average market rent; CoStar Group 
average effective rent; CoreLogic, Inc. single-family combined 3-
bedroom median rent; Apartment List Rent Estimate; and Zillow Observed 
Rent Index.
    In calculating the AAF from these data, HUD first takes the annual 
average of each statistic, then its year-to-year change. HUD then takes 
the mean of changes from all available sources for each area. Next, HUD 
takes an average of this private-sector measure of rent inflation with 
rent inflation as captured by the CPI for the area, where the private-
sector measure is weighted at approximately 75 percent and the CPI rent 
inflation measure is weighted at approximately 25 percent. HUD has 
determined these weights by comparing the national average of the 
private rent changes and changes in CPI rent of primary residence to 
changes in the national average of recent mover rents from the American 
Community Survey (ACS) from 2018 through 2022. HUD weights the private 
data averages and overall CPI rent of primary residence in such a way 
as to minimize the root mean squared error between the resulting 
average and the ACS recent mover rents. For future AAFs, HUD will 
update the weights by adding the most recent years of ACS recent mover 
rents, private rent data, and CPI rent of primary residence to the 
analysis.
    HUD uses a local measure of private rent inflation for markets that 
are covered by at least three of the six available sources of private 
rent data. HUD combines this local measure of rent inflation with 
either the local metropolitan area CPI rent of primary residence for 
the 23 areas where such data exist or the regional CPI rent in areas 
without a local index. For areas without at least three of the six 
private rent data sources available, HUD uses a regional average of 
private rent inflation factors alongside the regional CPI rent of 
primary residence. HUD constructs the regional average by taking the 
rental unit weighted average of the change in rents of each area in a 
region that does have private rent data coverage. This ensures that 
smaller areas that are not directly covered by the private sources will 
still have current rental market conditions taken into account in the 
calculation of the rent inflation factor for such areas.
    The results of the above calculation are the ``Highest Cost Utility 
Excluded'' AAF. For the ``Highest Cost Utility Included'' AAF, HUD 
averages the result of this step with the year-to-year change in the 
CPI housing fuels and utilities index for the area in order to make the 
resulting inflation measure reflective of gross rents.

VI. Area Definitions

    To make certain that they are using the correct AAFs, users should 
refer to the Area Definitions Table section at https://www.huduser.gov/portal/datasets/aaf.html. Furthermore, users can also search for AAF 
area definitions using an online lookup tool available on HUD User at 
the link in the previous sentence. AAFs are based on the updated 
metropolitan area definitions published by the Office of Management and 
Budget (OMB) on September 14, 2018, and first incorporated by the U.S. 
Census Bureau into the 2019 ACS data and the corresponding FY 2022 
FMRs. On July 21, 2023, OMB published Bulletin No. 23-01, which 
contains revisions to metropolitan area definitions. However, the U.S. 
Census Bureau has not yet incorporated these revisions into the data 
available to HUD, and therefore HUD is not using these new definitions 
for FY 2025.

Solomon Greene,
Principal Deputy Assistant Secretary for Policy Development and 
Research.
[FR Doc. 2024-28314 Filed 12-2-24; 8:45 am]
BILLING CODE 4210-67-P
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