The U.S. Department of Housing and Urban Development (HUD) is mandated by Section 8 laws and procedures to procure and scrutinize Rent Comparability Studies (RCS) during the renewal of most Section 8 contracts. The market rents derived from these studies dictate the rents that owners can charge under the program. These rents significantly impact an owner's decision to renew and continue offering affordable housing or to opt-out of the Section 8 contract and switch to market rent housing. The market rents established in these studies also determine HUD’s expenditures for Section 8 project-based subsidies.
In March 2023, HUD unveiled a new Section 8 Renewal Policy Guide, which revised the mandatory market rent threshold. Instead of using the HUD 140% median gross rent as a benchmark, the new threshold is now pegged at 150% of the Small Area Fair Market Rents (SAFMRs) gross rent for the property’s Zip code.
SAFMRs are Fair Market Rents that are computed for Zip Codes within Metropolitan Areas and are published annually. They are adjusted to take effect on October 1 of each federal fiscal year.
The mandatory market rent threshold test involves a 3-step process:
- Step 1: Calculate the Subject Project’s gross renewal rent as determined by RCS
- Step 2: Determine the 150 percent SAFMR Rent Threshold by the Subject Project’s Zip Code
- Step 3: Compare the Project’s gross renewal rent to 150 percent of SAFMR Gross Rent
According to the HUD Section 8 Renewal Guide, if the RCS-based gross renewal rent for the subject project’s assisted units surpasses 150 percent of the SAFMR gross rent for the project’s ZIP code, then a HUD-commissioned RCS will be necessitated. In such a case, HUD will employ independent third-party appraisal services procured through its Contracting Officer to prepare an RCS for the subject project.
For an RCS that encompasses both “as-is” and “post-rehabilitation” market rent estimates, if either the “as-is” estimate or the “post-rehabilitation” estimate exceeds the threshold, then a HUD-commissioned RCS will be necessitated. If the “as-is” rents do not surpass the mandatory market rent threshold, then a HUD-commissioned RCS will be procured solely for the “post-rehabilitation” condition of the property.
The HUD 150% Mandatory Market Rent Threshold Test will be applicable for any RCS signed by the owner’s appraiser on or after May 1, 2023.
Investigate this page to search for rental rates by city or zip code and utilize them in the mandatory market rent threshold test for Rent Comparability Studies.