Setting the Standard: How PHAs Determine Payment Levels
While the “Basic Range” of 90% to 110% of the Fair Market Rent (FMR) governs most Payment Standards, it’s not the end of the story. Public Housing Authorities (PHAs) have specific policies and tools they can use to fine-tune these standards, moving them outside the normal range to meet strategic goals or deal with financial realities.
For an astute investor, understanding how and why a PHA sets its standards can reveal critical insights into the health of the local program and highlight potential opportunities or risks for your portfolio.
Establishing the Payment Standard Schedule
First, it’s important to understand that the PHA doesn’t just pick a single percentage to apply everywhere. They publish an official Payment Standard Schedule. This document lists the final, approved dollar amount for each unit size (0-BR, 1-BR, 2-BR, etc.) for a specific area.
The decision to set the standard at, for example, 95% or 105% of the FMR is a policy choice.
A PHA trying to expand housing options might set its standards at the higher end of the 90-110% range. A PHA focused on fiscal prudence or operating in a very affordable market might set them closer to the lower end.
Tip
This schedule is the ultimate source of truth for all rent calculations. Always refer to the PHA’s most recently published Payment Standard Schedule for the correct figures.
When the Basic Range Isn’t Enough: Exception Standards
Sometimes, even the 110% ceiling isn’t high enough, or the 90% floor is too generous. In these cases, the PHA can request HUD’s approval to set an Exception Payment Standard outside the basic range.
Pushing Higher: Standards Above 110%
A PHA can request approval from its local HUD field office to establish Payment Standards above 110% of the FMR for a designated “exception area.” According to the HCV Guidebook, HUD will approve this request only if the higher standard is needed for one of two key reasons:
- To help families find housing outside of high-poverty areas.
- Because voucher holders are having significant trouble finding housing to lease within their voucher term.
Important
There is a critical limit: The total population of all combined exception areas cannot exceed 50% of the population of the entire FMR area. This prevents a PHA from simply raising rents across its entire jurisdiction.
Tip
INVESTOR NOTE: A PHA requesting an exception to go above 110% is a powerful signal. It tells you the PHA is actively trying to recruit landlords in specific, often more desirable, neighborhoods. If your property is in a designated exception area, you are in a prime position to command a higher, fully subsidized rent.
Cutting Lower: Standards Below 90%
On the other end of the spectrum, a PHA can request a waiver to set a Payment Standard below 90% of the FMR. This is a much rarer and more serious event.
The primary reason a PHA would do this is due to financial distress. According to the handbook, HUD will scrutinize these requests and will not approve them if it would cause the rent burden for more than 40% of participating families to exceed 30% of their income. A waiver might only be granted for “good cause,” such as proving the reduction is necessary to avoid terminating HAP contracts for existing families.
Caution
A PHA requesting to go below 90% is a major red flag for an investor. It signals that the agency is facing a significant budget shortfall. This could lead to lower HAP payments, delayed payments, or increased difficulty for tenants, potentially impacting the stability of your investment.
A Legacy Policy: “Success Rate” 50th Percentile Rents
In the past, PHAs had another tool for raising standards. They could request to use the 50th percentile rent (instead of the 40th) if they could demonstrate that voucher holders had a low “success rate” in finding housing. This effectively raised the FMR benchmark itself.
Note
The official Payment Standards guidebook clarifies that the regulations governing this policy were eliminated by the SAFMR final rule. Today, this is largely a legacy policy. A PHA cannot newly apply to use 50th percentile rents.
You may still encounter a PHA that is transitioning away from a previously approved 50th percentile FMR. In this case, their Payment Standards might seem unusually high but will likely be adjusted downwards over time as they move to the standard 40th percentile FMR or adopt SAFMRs. For new investors, this tool is a relevant path to higher rents no longer available.