• A new voucher rule will increase the proportion of units affordable to voucher holders in low-poverty neighborhoods in all the metros required to adopt the rule.
• The new rule also increases the overall metro-wide share of rental listings affordable to voucher holders in all 23 metros immediately affected by the new rule plus Dallas, where it’s been in effect for years.

Where you grow up is a strong predictor of your future opportunities and outcomes.

For low-income households, expensive rents often prohibit access to the opportunities that are afforded residents of high-cost neighborhoods with better schools, less crime, better job prospects and lower poverty rates. Even the housing assistance offered to a lucky few is often only enough to afford rent in a few deeply segregated, high-poverty areas.

But a new policy tweak might help fix that.

Zillow analyzed a recently adopted federal housing assistance rule crafted by the Obama Administration to combat residential segregation. We found the new Small Area Fair Market Rents (SAFMR) policy, which alters the maximum value of some Housing Choice Vouchers, could significantly increase the number of homes affordable to voucher recipients in areas with little poverty (ZIP codes with poverty rates at or below 5 percent). This would provide a wider array of housing choices in places affected by the policy change – metros with a high concentration of voucher recipients who rent in high-poverty areas and who have limited options to move elsewhere.

Switching From Metros to ZIPs

Recipients of Housing Choice Vouchers, the nation’s largest rental assistance program, typically pay 30 percent of their income for housing and the voucher pays the remainder – up to a certain cap. That cap is typically within 10 percent of what the U.S. Department of Housing and Urban Development (HUD) determines is a Fair Market Rent (FMR) for each metro.[i] So, a home is considered affordable to a voucher holder if the landlord asks for rents that are below the voucher’s maximum cap.

The new SAFMR rule recalculates that maximum cap, basing that maximum on the rental prices in a neighborhood – rather than across the entire metro. The policy was formally issued near the end of the Obama Administration in 2016 and rolled out this year after the Trump Administration delayed implementation – spurring a lawsuit against the HUD. Ultimately, the Washington, D.C., Circuit Court ordered HUD to begin implementing SAFMR in two dozen metros.

Our analysis focuses on the price of rental listings in the 23 metros immediately affected by the rule change, plus Dallas – where the SAFMR rule has been in place for years.

In addition to opening up more rental options in less-impoverished ZIP codes, SAFMR also appears to increase the total share of rental options affordable to voucher holders in all metros relative to the previous metro-wide Fair Market Rent (FMR) limits.

For this analysis, we calculated the share of 2018 rental listings on Zillow for all bedroom sizes that fall below the corresponding voucher limits in ZIP codes, and across the metros, for both the SAFMR and the previous metro-wide FMR calculations.

Across the 24 metros, under the previous metro-wide FMRs, 8 percent of the rental listings affordable to voucher recipients are in low-poverty areas. Under the SAFMR rule, that share rose to 15 percent of affordable listings. Under previous voucher rules, 18 percent affordable listings across the metros analyzed are in high-poverty ZIP Codes (poverty rate above 25 percent), but with SAFMR that share drops to 10 percent. This is caused by voucher values decreasing in cheaper, high-poverty areas and increasing in costly, low-poverty areas – a function of maximum caps being calculated separately – which shifts the locations of the metro’s rentals listed below the voucher maximum.

All metros saw an increase in the share of eligible rental listings located in low-poverty areas under the SAFMR rule. The largest percentage point increase is in Dallas, where the previous voucher payment structure meant that only 8 percent of affordable rentals were in low-poverty ZIP codes. With SAFMR, 33 percent of the voucher-suitable listings are in areas considered low-poverty. Conversely, even under the SAFMR rule in Palm Bay, Fla., West Palm Beach, Fla., and Atlanta, only 1 to 2 percent of voucher-suitable units are in low-poverty neighborhoods, fairly similar to before.

[ii]

Except for Pittsburgh, all metros will have fewer voucher-suitable homes in high-poverty areas[iii]. In Jackson, Miss. the metro with the largest percentage point shift, the proportion of voucher-suitable listings in high-poverty areas drops from 50 percent to 23 percent with SAFMR.

Although the new rule appears to offer more affordable options in high-opportunity areas, policymakers have grappled with potential drawbacks. Early findings from pilot programs suggest that although more options became available in high-rent ZIP codes, even fewer rentals in low-rent ZIP codes were eligible for vouchers under the new rule, leading to an overall decline in the number of options for voucher holders. Zillow’s analysis shows, that is not necessarily the case. In all 24 areas we analyzed, the overall share of listings suitable for voucher recipients actually increased under the new SAFMR rule. Bergen-Passaic, N.J., had the smallest increase and would see voucher-suitable listings remain roughly constant, rising only slightly from 26.8 percent of rental listings to 27.6 percent.

The Dallas metro saw the largest bump in the share of units eligible for voucher use across the region. In Dallas, under previous Fair Market Rents, only 12.7 percent of rental listings could be afforded with a voucher, but under the SAFMR rule, 35.9 percent of rental listings are affordable with a voucher.

More Changes Needed

An analysis by the Center of Budget and Policy Priorities (CBPP) and the Poverty and Race Research Action Council (PRRAC) explains how SAFMR also made voucher programs more cost-effective for public housing agencies involved in a SAFMR pilot program. Cost-efficiency is vital, but so is adequate investment in the program given the significant underfunding of Housing Choice Vouchers relative to the need – something that’s prompted years-long waiting lists or dead ends for people seeking help.

Some local officials have expressed concern that households that currently rent in low-cost areas could see their voucher ceiling fall below their current rents, potentially prompting displacement. The CBPP and PRRAC guide outlines several policies that protect families in low-rent ZIP codes, including methods for phasing in the new payment standards.

Increased access to rentals in higher-income areas will do little to improve mobility if landlords do not accept vouchers, which means there need to be better laws or better enforcement of existing laws to protect voucher holders from discrimination based on their use of housing assistance.

The switch to SAFMR could allow greater access to opportunities that have been found to improve outcomes for children. In opening more units across each metro to voucher eligibility, the new rule could ease the increasing strain and competition caused by tight markets with limited rental supply. However, at some point in certain metros, new funding formulas and rent subsidies will go only so far if prices continue to balloon and the dwindling supply of rental housing isn’t addressed.

To keep rents from skyrocketing in the long term, pro-growth land use decisions at the neighborhood and municipal levels – and challenges to exclusionary zoning policies – are necessary to create rental housing that meets the robust demand. Without a sufficient supply of rentals, the federal government will continually spend rapidly increasing amounts to house the same number of low-income families with housing vouchers.

Finally, broad public policies must address persistent poverty in order to make a difference in affordable housing. This means investments in policies that grow the economy and combat recessions and unemployment, alongside a revamped commitment to safety-net social and economic policies that supplement incomes.

Methodology

Zillow analyzed the 24 metros selected by HUD to use the new SAFMR rule. We analyzed the price of rental listings posted between January 1 and August 13, 2018, for 1- to 4-bedroom units and compared each list price against its corresponding FMR.

In general, local housing authorities can adjust the actual value of a Housing Choice Voucher, called the payment standard, within 10 percent of the Fair Market Rent value. We assume the payment standard is set at 100 percent of the FMR and SAFMR for any given area. A different payment standard would yield different results.

HUD defined high-poverty ZIPs for SAFMR as ZIPs with a poverty rate above 25 percent. We chose our definition of low-poverty ZIPs (poverty rate below 5 percent) because those poverty rates represent the 15th percentile and the 85th percentile of the national ZIP code poverty rate distribution.

While it is possible that online real estate listings may miss some less-expensive rental properties that are instead advertised in online classifieds, offline or by word-of-mouth, to our knowledge there is no comprehensive national database of rental listings, online or otherwise, and Zillow Group Rentals is the nation’s largest online rental network. Additionally, unlike some other online propriety rental data, Zillow Group Rentals includes listings from both multi-family buildings and single-family home rentals. While the exact share of units available to voucher holders may be somewhat different when considering listings not on Zillow, we find that voucher holders can expect more affordable rental options under the SAFMR rule.

[i] Typically, the Fair Market Rent equals the 40^th percentile of rents among recent movers.

[ii] We analyzed all affected ZIP codes but did not map ZIPs with fewer than 50 unique rental listings in 2018.

[iii] In Honolulu, no ZIP code meets the high-poverty criteria.