Beyond the Basics: How FMRs and SAFMRs Shape Your Market

Understanding the rent potential of your property within the Housing Choice Voucher (HCV) program requires looking beyond just your specific street or building. You need to understand the larger economic landscape defined by HUD and your local Public Housing Authority (PHA). This landscape is built on Fair Market Rents (FMRs).

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The Traditional Model: Metropolitan Area FMRs

As we covered in the “Payment Standards” article, the entire subsidy system begins with the Fair Market Rent (FMR). Traditionally, HUD establishes one FMR for an entire metropolitan area or county. This single FMR averages the rents across a vast geographical area, lumping together high-rent downtowns, affordable suburbs, and rural outskirts.

For an investor, this one-size-fits-all approach has significant drawbacks:

• In High-Cost Areas: If your property is in a desirable neighborhood where rents are above the metro average, the traditional FMR is often too low. This makes it financially impossible for you to participate in the HCV program, as the subsidy isn’t enough to cover a reasonable market rent.
• In Low-Cost Areas: If your property is in a more affordable neighborhood, the metro-wide FMR might actually be higher than local market rents. This can lead to PHAs overpaying for units, which is an inefficient use of limited government funds.

This system can inadvertently limit housing choices for families and create participation barriers for investors in key submarkets.

The Modern Solution: Small Area Fair Market Rents (SAFMRs)

To solve this problem, HUD developed a more granular and precise system: Small Area Fair Market Rents (SAFMRs).

According to the HCV Guidebook, SAFMRs are established at the ZIP Code level.

Instead of one FMR for an entire county, the PHA can use dozens of different FMRs, each one specifically tailored to the economic reality of a single ZIP code.

The stated purpose of this policy is to “provide HCV-assisted families with access to ‘areas of high opportunity and lower poverty.’"
— HCV Guidebook

For an investor, SAFMRs create a more accurate and equitable system. They allow the Payment Standard to align closely with the actual market rents of a specific neighborhood, rather than a broad, diluted average.

FMR vs. SAFMR: A Quick Comparison

Feature	Traditional FMR	Small Area FMR (SAFMR)
Granularity	Metropolitan Area / County	ZIP Code Level
Effect on High-Cost Areas	Can be too low, discouraging participation	More accurate, making participation viable
Effect on Low-Cost Areas	Can be too high, leading to overpayment	More accurate, preventing overpayment
Goal	Establish a broad baseline	Provide access to ‘areas of high opportunity’

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Mandatory vs. Opt-In: Who Uses SAFMRs?

Not every PHA uses SAFMRs. Their implementation falls into two categories:

1. Mandatory SAFMR PHAs

HUD requires certain PHAs to use SAFMRs. These are known as “designated SAFMR PHAs.” According to the handbook, this designation is mandatory for metropolitan areas that meet specific thresholds, including:

• Having at least 2,500 vouchers under lease.
• A significant percentage of voucher holders are concentrated in low-income areas.
• A notable portion of the rental stock is in high-cost ZIP codes where the SAFMR is at least 110% of the metro-wide FMR.

If your property is located in the jurisdiction of a mandatory SAFMR PHA, this system is not optional. The Payment Standard for your unit will be based on its ZIP code, period.

2. Opt-In SAFMR PHAs

A PHA that is not required to use SAFMRs can choose to adopt them voluntarily. A PHA might do this to strategically deconcentrate poverty, encourage moves to neighborhoods with better schools or services, or make the program more attractive to landlords in specific, targeted submarkets. This is an administrative choice the PHA makes to better manage its local housing market.

The Bottom Line for Your Investment Strategy

The use of SAFMRs has a powerful dual effect that you must account for in your planning:

• Benefit in High-Cost ZIPs: If your property is in a more expensive ZIP code, the SAFMR will almost certainly be higher than the old metro-wide FMR. This increases the Payment Standard, which in turn increases the maximum subsidy the PHA can provide. This change can be the difference that makes participating in the HCV program financially viable, allowing you to secure a reliable government-backed subsidy while still achieving a rent that reflects your property’s true market value.

• Reduction in Low-Cost ZIPs: Conversely, if your property is in a less expensive ZIP code, the SAFMR will be lower than the metro-wide FMR. The PHA will use this lower figure to set the Payment Standard. This prevents the PHA from overpaying relative to the local market.