Fair Market Rents (FMRs) for Existing Dwellings: An Evaluation Through Hedonic Index Methods

摘要

Findings are reported from an application of hedonic index methods to an evaluation of 'fair market rents' (FMR's) in the existing housing portion of Section 8 of the 1974 Housing and Community Development Act, which authorizes housing assistance payments for lower income families. HUD is charged with establishing FMR's for dwellings appropriate for assisted families. HUD currently sets unit FMR's for each Standard Metropolitan Statistical Area (SMSA) and for each nonmetropolitan county, using the metropolitan Annual Housing Survey (AHS) to provide the basic data. Median rent for recently occupied two - bedroom units without defects is obtained from each SMSA survey and updated by the Consumer Price Index. FMR's for bedroom sizes other than two are set by using a 15 - percent differential per bedroom. The proposed hedonic method yields a site - specific formula for predicting average market rents at all bedroom sizes for each SMSA, using data from the AHS. The formula tests the statistical importance of adjustments to market rents representing central city or suburban locations, single family or multifamily buildings, as well as many other distinctions. The hedonic index method also provides ranges of probable error for all predicted rents. The comparison of FMR schedules from the hedonic method with actual FMR's shows that HUD's median rent procedure leads to an overstatement of the market rent for dwellings meeting Section 8 housing standards. On average, HUD's 15 - percent bedroom differential permits additional space and features beyond another bedroom. The hedonic procedure can be used to set differentials reflecting additional bedrooms and other necessary additions. Rental price differences among SMSA's are analyzed, and a model of metropolitan housing markets is presented. A reduced form equation for rental prices is also estimated. Tabular data are supplied, and supplementary information is appended. Seven references are listed.