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September 3, 2015
The Credential
HUD Makes Changes to Its Section 8 Renewal Policy Guide

NAHB has taken particular notice of the following changes to benchmarking procedures that may affect a Section 8 community’s rental rates under certain conditions:

Section 9-23 – Special Procedures When a Rent Comparability Study (RCS) Shows That a Project’s Median Market Rent Exceeds 140% of the Median Gross Rent for the Project’s ZIP Code.

This section (9-23.C) benchmarks rents in Section 8 rent comparability studies. HUD will hire a third-party appraiser to complete a HUD rent comparability study in the event that rents in the owner’s RCS exceed 140% of the median gross rent by ZIP code tabulation area. The effective date of this change is 150 days from the date of this transmittal.  

In an industry letter dated May 14, 2014, NAHB joined other industry groups in opposing the rent benchmarking, arguing that the market is the benchmark. The association urged HUD not to implement an artificial benchmark, but if they were determined to do so, 140% of the median gross rent by zip code (computed by the census) was more appropriate than the 110% HUD had proposed. Here are excerpts from that letter:

  • “The data collected by the industry groups suggest that 140% of the median ACS data would be more appropriate than the 110% suggested in the draft renewal guidebook. Our preference would be to use a better comparison, particularly as there is no evidence that zip codes in any way correlate to real estate markets.”

  • “A more appropriate comparison would be the actual rents from comparable properties used for the last 10 years trended."

  • “Recognizing that creating such a database, while optimal, would take a year or more, we suggest in the interim another trigger to determine whether a second RCS may be necessary. We will call it the “5% test.” In other words, if the owners’ rent comp study shows that the new proposed rent is 5% more or 5% less than the current rents for that particular project, the field office could elect to contract for a second rent comp study.

  • In an earlier version of the benchmarking policy which HUD proposed in May 2012, appraisers would have had to provide additional justification if the gross rent potential in the RCS exceeded 110% of the Fair Market Rent in rural areas or the Small Area Fair Market Rent in urban areas.

  • There are no appeals of the RCS in the new final policy.

The final language from the Section 8 renewal guide, Section 9-23.C, is as follows:

C. If the median rent in the project’s RCS exceeds 140% of the “Gross Rent By Zip Code Tabulation Area,” HUD will use the following process to establish comparable market rents:

1. HUD will hire an independent third-party appraiser through its Contracting Officer. Since the RCSs will be done for both insured and uninsured properties, contract funds to pay for the studies will come from the sources below.
     a.    FHA Insured: Technical Discipline Contract PAS Code: MTF
     b.    Noninsured: Section 8 program funds. PAS Code: CRE

2. Differences in Comparability Studies. There are no negotiations allowed nor is there an appeal process when there are differences between comparability studies.

     a.    When the HUD comparable gross rent potential is greater than the owner’s comparable gross rent
            potential, the final comparable market rents will be the owner’s comparable market rents.
     b.    When the HUD comparable gross rent potential is less than the owner’s comparable gross rent
            potential, if the owner’s comparable rent potential is:
               i. less than 105% of the HUD comparable rent potential, the final comparable market rents will be
                  the owner comparable market rents;
              ii. greater than or equal to 105% of the HUD comparable rent potential, the final comparable market
                  rents will be 105% of the HUD comparable gross potential rents.
     c.    An owner may request a copy of the HUD RCS without going through the Freedom of Information
            Act process.