HUD PIH Notice § 2011-46

                       U.S. Department of Housing and Urban Development
                            Office of Public and Indian Housing
________________________________________________________________________
Special Attention of: Section 8 Public       Notice PIH 2011-46 (HA)
Housing Agencies; HUD Office of
Public Housing Directors; Section 8                Issued:   August 17,
2011
Financial Management Center;

                                       Expires:  Effective until Amended,

                       Superseded, or Rescinded

                                         __________________________
                                  Cross References:  Notice PIH 2009-51,
                                  PIH Notice 2010-18


________________________________________________________________________
Subject:  PHA Determinations of Rent Reasonableness in the Housing Choice
Voucher (HCV) Program–Replacement of PIH Notices 2009-51 and 2010-18

1.  Purpose.   This Notice combines current relevant policy of PIH Notices
   2009-51 and 2010-18 concerning rent reasonableness requirements in the
   Housing Choice Voucher (HCV) program and removes obsolete provisions of
   PIH Notice 2009-51 relative to the definition of assisted and unassisted
   housing.

2. Background.  Notice PIH 2009-51 was issued on December 11, 2009.  The
   Notice provided guidance on the rent reasonableness requirements in the
   Housing Choice Voucher (HCV) program, including what constitutes an
   unassisted as opposed to an assisted unit.  Notice PIH 2009-51 provided
   that an assisted unit is a unit that is assisted under a Federal, State,
   or local government program.  The Notice also provided that in the case
   of a multifamily property undergoing a Housing Conversion Action, the
   rents charged to those families that choose to remain at the property
   with their HCV assistance must not exceed the rents charged for those
   existing tenants that do not qualify or choose not to accept the HCV
   assistance, even if the owner is charging new tenants higher rents.
   Notice PIH 2010-18 superseded certain guidance contained within Notice
   PIH 2009-51.  Specifically, Notice PIH 2010-18 expanded the definition of
   “assisted unit” to include certain units where the rent and rent
   increases are restricted by law or court action.  Notice PIH 2010-18 also
   superseded Notice PIH 2009-51 with regard to rent reasonableness
   determinations for units in properties undergoing Housing Conversion
   Actions.[1]  In cases of a property undergoing a Housing Conversion
   Action, units occupied by tenants on the date of the eligibility event
   who do not receive vouchers may be considered assisted units if the owner
   chooses to continue charging below market rents to those families by
   offering lower rents, rent concessions, or other assistance to those
   families.  These non-voucher families in a Housing Conversion Action are
   often long-time tenants, many of whom are elderly and who had been paying
   below market rents prior to the Housing Conversion Action.  Consequently,
   those units are not taken into consideration for purposes of rent
   reasonableness determinations.

The HCV program regulations at 24 CFR 982.507 provide that the PHA may not
approve a lease until the public housing agency (PHA) determines that the
initial rent to owner is a reasonable rent.  In order for the rent to be
reasonable, the rent may not be more than rent charged for comparable units
in the private unassisted market.  In addition, the rent may not be more
than rent charged by the owner for comparable unassisted units on the
premises.  In other words, the owner is not permitted to charge the HCV
program more for rent than what unassisted tenants in comparable units are
paying.

By accepting each monthly housing assistance payment from the PHA, the
owner certifies that the rent to owner is not more than rent charged by the
owner for comparable unassisted units in the premises.  The owner must give
the PHA information requested by the PHA on rents charged by the owner for
other units in the premises or elsewhere.

The regulations provide that the PHA must re-determine the reasonable rent:


   1) before any increase in the rent to owner; (2) if there is a five
      percent or more decrease in the published Fair Market Rent (FMR) in
      effect 60 days before the contract anniversary (for the unit size
      rented by the family) as compared with the FMR in effect one year
      before the contract anniversary date; or (3) if directed to do so by
      HUD.


3. Assisted Units on the Premises.  In determining rent reasonableness, the
   PHA must ensure that the rents paid for HCV assisted units do not exceed
   the rents for comparable units that are not assisted under a Federal,
   State, or local government program. Units for which the owner has simply
   decided to charge rents that are below what other tenants are charged and
   what the market might actually bear (with the exception of such units
   considered assisted units in the case of Housing Conversion Actions) are
   not assisted units for purposes of rent reasonableness determinations.
   Rents for these particular units in the property must be considered when
   establishing if an HCV rent to owner is reasonable.


In addition to units assisted under a Federal, state or local government
program, the
following units are also considered to be assisted units on the premises
and would not be taken into consideration for rent reasonableness
determinations:


A)  Units where the rents and/or rent increases are controlled or
   restricted by law or a court order, so long as the law or court order
   does not also apply to voucher participants.  The PHA is responsible for
   verifying the existence and applicability of the law or court order prior
   to excluding the units from the rent reasonableness determination.


B)  In cases of a property undergoing a Housing Conversion Action, units
   occupied by tenants on the date of the eligibility event who do not
   receive vouchers are considered assisted if the owner chooses to continue
   below market rents to those families by offering lower rents or other
   rent concessions to the impacted families. If the owner of such a
   property intends to charge lower rents to the non-voucher tenants living
   in the property at the time of conversion, the owner must provide written
   notice to the PHA and a list of the covered families, a description of
   the concession, the duration of the lower rents or concessions, the units
   in which the families are residing, and copies of the families’ leases.

   Owners of multifamily properties that underwent a Housing Conversion
   Action prior to the issuance of Notice PIH 2010-51 may also provide such
   a notice to the PHA at the time of a subsequent rent increase for voucher
   families, identifying families that resided in the property on the date
   of the eligibility event that did not receive a voucher.   The owner must
   provide the same information and documentation that is required for new
   conversion actions, including evidence that the covered families resided
   in the property on the date of the eligibility event.  The PHA, upon
   verifying the information submitted by the owner, must then exclude those
   units from future rent reasonableness determinations for the duration of
   the lower rents or concessions.

4. Unassisted Units on the Premises.  In determining that the rent to owner
   does not exceed the rents charged for comparable unassisted units on the
   premises, the PHA takes into consideration the rents for those units in
   the premises that are not assisted under a Federal, State, or local
   government program.

In addition, the PHA must take into consideration the real value of the
rents charged by the owner for unassisted comparable units in the premises
when determining rent reasonableness.  For example, if the rent recorded on
the lease for comparable unassisted units on the premises is the same as
the rent for an HCV family but an owner is reducing the amount that is
actually required to be paid by the unassisted tenants, the PHA takes the
actual amount into consideration.  For example, unassisted tenants might be
receiving a credit each month, or a “rent-back”, or free rent some months,
or some other type of subsidy from the owner.  All of these actions reduce
the true value of the charged rent, and the PHA must use these reductions
to determine the actual ‘rent’ the owner is charging for the unassisted
units.


Note, however, in some rental markets it is common practice for certain
employees of the property management company (e.g., a resident manager) to
reside in the property rent-free or at a significantly reduced rent as part
of their employment compensation. A PHA should not take the rent or lack of
rent for units in which a resident manager or similar type employee resides
into consideration in making a rent reasonableness determination.  The rent
for these units does not represent the rent that is charged or would be
charged for a comparable unassisted unit, but rather reflects some or all
of the owner’s compensation for his or her employee(s).


In the case of a family moving into a multifamily property, the PHA may
choose to only consider the most recent rentals in determining the rents
that the owner is charging for comparable unassisted units.  In some
markets, new tenants routinely pay higher rents than the rents that longer
time tenants in comparable units may be paying (often due to local rent
stabilization programs or ordinances that limit rent increases for existing
tenants).


However, in determining if subsequent rent increases result in rents that
are reasonable for units occupied by families under voucher Housing
Assistance Payments (HAP) contracts, the PHA should take any rent setting
policies by the owner for existing tenants into consideration.   Any
increases in rent for HCV tenants over time should be similar to increases
charged to unassisted tenants who have lived in their units for
approximately the same amount of time.  In other words, rents for existing
HCV tenants may not exceed the rents charged to unassisted tenants in
comparable units who have been in a property for approximately the same
amount of time.

5. Paperwork Reduction Act.  The information collection requirements
   contained in this notice have been approved by the Office of Management
   and Budget (OMB) under the Paperwork Reduction Act (PRA) of 1995 (44
   U.S.C. 3520).  In accordance with the PRA, HUD may not conduct or
   sponsor, and a person is not required to respond to, a collection of
   information unless the collection displays a currently valid OMB control
   number.  The following active information collections contained in this
   notice have been approved under the PRA OMB Control Number 2577-0169.

6.  Questions.  Inquiries about this Notice should be directed to staff in
   the Housing Voucher Management and Operations Division, Office of Public
   Housing and Voucher Programs, at (202) 708-0477.





                                                   /s/

                                  Sandra B. Henriquez, Assistant Secretary
for Public and Indian Housing


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[1] These actions are owner decisions to opt-out of or not renew Section 8
project-based contracts (opt-outs); owner prepayment of the mortgage or
voluntary termination of the mortgage insurance of a preservation eligible
property (preservation prepayments); HUD enforcement actions against the
owner (including termination or non-renewal of a Section 8 project-based
housing assistance payments (HAP) contract); and HUD property disposition
activities.

HUD provides tenant-based rental assistance in order to assist eligible
residents that are affected by Housing conversion actions.  Depending on
the Housing conversion action and subject to the availability of
appropriations, eligible families receive either regular voucher assistance
or enhanced voucher assistance to mitigate the impact of the conversion
action on the family’s rent.



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