HUD PIH Notice § 2022-33

                                 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                               WASHINGTON, DC 20410-5000


OFFICE OF PUBLIC AND INDIAN HOUSING




                                                     Notice: PIH 2022- 33 (HA)
  Special Attention of:
                                                     Issued: November 22, 2022
  Public Housing Agencies
                                                     Expires: Effective until amended, superseded, or
  Regional and Field Office Directors of
                                                     rescinded
  Public Housing
  Regional Administrators                            Cross References: 24 CFR Part 960, 24 CFR Part
  Resident Management Corporations                   903, Notice PIH 2014-12, Notice PIH 2015-13,
                                                     Notice PIH 2017-23, Notice PIH 2021-27



Subject: Updates to Flat Rent Exception Request Submission Requirements
1. Purpose

This Notice supersedes and replaces the guidance provided in Notice PIH 2021-27 concerning
the statutory amendment related to flat rents, and updates flat rent exception and extension
request submission requirements, including the ability to include applicable justifications
directly into HUD Form 5880 (Sections 5c. and 5d.). This Notice also serves as supplemental
guidance to the final rule on Streamlining Administrative Regulations for Public Housing,
Housing Choice Voucher, Multifamily Housing, and Community Planning and Development
Programs (81 FR 12354, published on March 8, 2016), whereby certain Public and Indian
Housing regulations were amended, including 24 CFR 960.

2. Applicability
This Notice applies to public housing agencies (PHAs) that operate a Public Housing program.
It also applies to families residing in, or applying to, the Public Housing program.

Moving to Work (MTW) PHAs operating a Public Housing program can exercise flexibility and
establish alternative requirements, in accordance with the terms of their respective MTW
Agreement and approved Annual MTW Plan, or in accordance with the terms of the MTW
Operations Notice and approved MTW Supplement to the Annual PHA Plan. If an MTW PHA’s
Annual MTW Plan or MTW Supplement to the Annual PHA Plan does not include alternative
policies regarding flat rent requirements, then the policies set forth in this Notice will apply to
the MTW PHA.


3. Background

The FY 2014 Appropriations Act, found at Sections 210 and 243 of Title II of P.L 113-76, the
Consolidated Appropriations Act of 2014, required PHAs to establish flat rents at no less than 80
percent of the applicable Fair Market Rent (FMR), and established rent increase phase-in
requirements to prevent family rental payments from increasing by more than 35 percent. HUD
implemented these requirements through Notice PIH 2014-12. Through FAQs accompanying
Notice PIH 2014-12, HUD provided flexibility to PHAs to phase in all flat rent increases over a
three-year period, including those increases that were 35 percent or less.

The FY 2015 Appropriations Act (Act), found at Section 238 of Title II of P.L. 113-235, the
Department of Housing and Urban Development Appropriations Act of 2015, maintained the FY
2014 rent increase phase-in requirements and amended the 2014 Act to require that flat rents
be set at no less than the lower of:
    1. 80 percent of the applicable FMR established under Section 8(c) of this Act; or
    2. At the discretion of the Secretary, 80 percent of such other applicable FMR established
        by the Secretary that the Secretary determines more accurately reflects local market
        conditions and is based on an applicable market area that is geographically smaller than
        the applicable market area used for purposes of the applicable FMR under Section 8(c)
        of this Act (such as the applicable Small Area Fair Market Rent (SAFMR) or
        unadjusted rent).

A PHA may apply for a flat rent amount that is lower than the two options outlined above if:
    The PHA demonstrates, through the submission of a market analysis, that those
      rent options are not reflective of the unit’s market value; and
    HUD agrees with the PHA’s market analysis determination (see Section 5 of this Notice).

HUD implemented the FY 2014 and 2015 Appropriations Act provisions identified above in
24 CFR 960.253(b)(1)-(3).

In accordance with 42 U.S.C. 1437a(a)(2)(A)(ii), PHAs that established and were
administering ceiling rents prior to October 1, 1999, are authorized to continue to administer
ceiling rents in lieu of flat rents, provided such ceiling rents are set at the level required for flat
rents as required by 24 CFR 960.253(d). Further, such PHAs must follow the requirements for
calculating, adjusting, and reporting flat rents when calculating and adjusting ceiling rents. To
improve transparency and accuracy of reporting, PHAs administering ceiling rents may no
longer use line 10c (income-based ceiling rent) on the HUD Form-50058 to report ceiling rents
for any household. Instead, PHAs must use line 10b (flat rent) to report the applicable
maximum rental amount.

4. Smaller Geographic Area FMRs

If a PHA does not believe the 80 percent FMR is reflective of its local market conditions (flat
rent setting Option 1), it may use a HUD-established FMR that is based on an area
geographically smaller than the effective FMR published to determine the minimum flat rent
amount (flat rent setting Option 2).

To satisfy Option 2, PHAs may use the applicable Small Area Fair Market Rent (SAFMR),
which HUD will publish annually on its website, available at:
http://www.huduser.org/portal/datasets/fmr/smallarea/index.html.


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For some areas for which HUD does not publish a SAFMR, HUD will permit PHAs to use
80 percent of the unadjusted rent to satisfy Option 2, which HUD will publish annually on
its website.1

While 80 percent of the unadjusted rent will always be lower than 100 percent of the FMR, it
may or may not be lower than 80 percent of the FMR. Therefore, PHAs should assess all
available options when setting its flat rent rates:
      80 percent of the FMR; or
      80 percent of the SAFMR (or if a SAFMR is not available, 80 percent of the unadjusted
       rent).
PHAs must choose from these two options and are not permitted to establish any other smaller
geographical FMRs. For areas where HUD has not determined a SAFMR or an unadjusted
rent, PHAs must set rents at no less than 80 percent of the FMR or apply for an exception flat
rent pursuant to the requirements of Section 5 of this Notice.


5. Exception Flat Rents
    a. When a Flat Rent Exception is Required
HUD only requires flat rent exception requests when PHAs are setting flat rents at an amount
that is lower than the lesser of the following (less utility allowances, if applicable):
      80 percent of the FMR; or
      80 percent of the SAFMR (or if a SAFMR is not available, 80 percent of the unadjusted
         rent).
PHAs do not need to submit exception requests to set flat rents at or above 80 percent of the
FMR or SAFMR, or if the SAFMR is not available, 80 percent of the unadjusted rent. HUD
is aware that not all PHAs will have an SAFMR or unadjusted rent that encompasses their
locality.
The flat rent exception request process is for a PHA that wishes to base its flat rents on specific
market conditions supported by a market analysis. PHAs do not need to submit a request to
HUD in order to use the FMR, SAFMR, or unadjusted rent to set flat rents in accordance with
Sections 3 and 4 of this Notice. However, PHAs are encouraged to maintain the justification
locally for all flat rent amounts. If the flat rent amount is set above 80 percent of the FMR,
PHAs are encouraged to maintain whatever records are appropriate documenting their rent
levels.


1
  The unadjusted rent is the FMR estimated directly from the American Community Survey (ACS) source data that
HUD uses to calculate FMRs before HUD applies its state non-metropolitan minimum rent policy. HUD maintains a
minimum FMR policy within the Public Housing (PH) program in response to numerous public concerns that FMRs
in rural areas were too low to operate the PH program successfully. The policy establishes the FMRs at the higher of
the local FMR or the State-wide average FMR of non-metropolitan counties, subject to a ceiling rent cap. The
rationale for having a state minimum FMR is that some low-income, low-rent non-metropolitan counties have ACS-
based FMR estimates that appear to be below long-term operating costs for standard quality rental units and raise
concerns about housing quality. State minimum FMRs have been set at the respective statewide population weighted
median non-metropolitan rent level, but are not allowed to exceed the U.S. median non-metropolitan rent level.
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FMRs can be found at https://www.huduser.gov/portal/datasets/fmr.html. Review the FMR for
the applicable fiscal year. To find the unadjusted rent use the Data tab and click on the current
fiscal year’s Excel spreadsheet titled “Unadjusted Rents – Only For Use In Setting Public
Housing Flat Rents.”
     b. Flat Rent Exception Request Timeframes and Key Dates
HUD updates and posts new FMRs annually. Typically, the final FMR rates for the current
fiscal year are effective on or around October 1. PHAs may access FMR rates here:
https://www.huduser.gov/portal/datasets/fmr.html.

From the effective date of the current fiscal year’s FMRs, PHAs have 90 days to either
implement new FMR-based flat rents or submit exception request. In a typical year, this would
mean that a PHA will have until December 31 to either update its flat rents based on the new
FMRs or submit an exception request.2 In the event that a PHA submits an incomplete flat rent
exception request or incomplete supporting market analysis, HUD may give the PHA the
opportunity to cure deficiencies. However, HUD has the full discretion to disapprove incomplete
or unresponsive flat rent exception requests.

While HUD is reviewing a PHA’s flat rent exception request or any supplemental
information, the PHA may continue to utilize its current flat rent schedule. PHAs must receive
written HUD approval to utilize an exception flat rent prior to implementing the new
exception flat rent rates.

An approved exception request will remain in effect until the end of the 90-day period
commencing upon the effective date of HUD’s Final Fiscal Year FMRs or the date on which a
PHA updates and makes effective its flat rent schedule based on that fiscal year’s FMRs,
whichever comes first.

The PHA must update its flat rents to the approved flat rent exception amount after the date of
HUD’s approval. Thereafter, the PHA may immediately apply the exception flat rent amount to
intakes and reexaminations. However, the PHA must apply the approved exception flat rent
amount to all intakes and reexaminations that take effect 60 days or more after HUD’s approval
date.

Below is a sample timeline of a typical flat rent exception request submission cycle, including
an extension.

          Sample Exception Flat Rent Submission                         Example Dates
    HUD publication of FMRs              Timeline                          10/1/2022
    Flat Rent Exception Request Submitted                              Before 12/31/2022

2
  A PHA or other interested party may request a HUD reevaluation of its FMRs, as provided for under Section
8(c)(1)(B) of the U.S. Housing Act, as amended by the Housing Opportunity Through Modernization Act
(HOTMA). HUD will review FMR reevaluation requests and supporting data, and following the reevaluation, will
post revised FMRs with an accompanying Federal Register notice stating the revised FMRs are available. For areas
affected by a request for an FMR reevaluation, the 90-day flat rent implementation timeframe described in Section 7
of this Notice will commence upon the effective date of the revised FMRs.
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  Rent Exception Request Approved                               During FY23
  PHA Submits Extension                                       Before 12/31/2023
  Flat Rent Exception Extended                                Until 12/31/2024
  PHA submits a new Flat Rent Exception Request               Before 12/31/2025

   c.   Process to Submit a New Flat Rent Exception Request
Submitting a new flat rent exception request is required when PHAs fall into any of the following
categories:
       The PHA has a first-time submission;
       The PHA has a change in local market conditions since the previous flat rent exception
        approval; or
       The PHA’s previous flat rent exception extension has expired.
HUD has updated its submission process beginning in Fiscal Year 2023. The submission process
is detailed below. PHAs must submit their new request electronically to HUD’s Flat Rent Team at
flatrentexceptionrequests@hud.gov.
       Submit an email to HUD’s Flat Rent Team with the subject format of Flat Rent Exception
        Request - PHA Code Formal PHA Name - New (example: Flat Rent Exception Request -
        US101 US Housing Agency - New. Attach a letter signed by the executive director that
        includes:
            o The name of the PHA property (or properties) subject to the flat rent exception
                request including AMP number(s)
            o The address of the property (or properties) subject to the flat rent exception request
       Attach the Flat Rent Market Analysis (HUD Form 5880) as an Excel workbook ending in
        the .xlsx extension
       Attach any supplemental documentation

If a PHA does not have Microsoft Excel, please email flatrentexceptionrequests@hud.gov to
discuss an alternative format for completion of the Flat Rent Market Analysis. Do not use the
subject format above when inquiring about an alternative format or technical assistance
questions. See Section 5e. of this Notice for market analysis requirements.

   d. Process to Extend a Previously Approved Flat Rent Exception Request

If HUD approved a PHA’s flat rent exception request from a previous fiscal year, the PHA may
request an extension of this approval under the following circumstances:
     The request is for the exact rents as previously approved by HUD;
     The market study accompanying the previously approved request is no more than two
       years old;
     The market conditions remain unchanged; and
     The PHA submits the extension request to HUD no later than 90 days after the effective
       date of the final FMRs published by HUD (typically December 31 of that calendar year).
PHAs must submit extension requests electronically to flatrentexceptionrequests@hud.gov.
The following process must be followed:
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        Submit an email to HUD’s Flat Rent Team with the subject format of Flat Rent Exception
         Request - PHA Code Formal PHA Name - Extension (example: Flat Rent Exception
         Request - US101 US Housing Agency - Extension);
        Attach the following documents:
             o The original Flat Rent Market Analysis (HUD Form 5880) that was submitted in
                the previously approved request as an Excel workbook ending in the .xlsx
                extension, that is no more than two-years-old;
             o A copy of the previous HUD approval letter;
             o HUD Form 5880 submitted in the previously approved request; and
             o A letter signed by the executive director that includes:
                     A request for the previously approved flat rents be extended.
                     The date of the previous market study.
                     The flat rent schedule to be extended.
                     A certification that the market conditions remain unchanged.
Please note, HUD will not approve extension requests that include changes or additions to
previously approved exception flat rents. Instead, a new request would need to be submitted to
make the proposed changes or additions. HUD has updated its submission process beginning in
Fiscal Year 2023. Do not use the subject format above for technical assistance questions.

If during the 2-year renewal period the PHA becomes aware of a change in local market
conditions that would impact the market (e.g., a major employer enters or leaves the area,
significant private sector redevelopment), the PHA must either:

    1. Discontinue the use of the current flat rent exception and implement a flat rent that is at
       least equal to the lower of 80 percent of the FMR or 80 percent of the SAFMR (or if no
       SAFMR is available, 80 percent of the unadjusted rent), or
    2. Conduct a new market analysis and submit a new flat rent exception request to HUD for
       approval (if the PHA selects this option, it may continue to use the current flat rent
       exception amounts until HUD issues its decision).

While HUD is not requesting this information, PHAs may consider reviewing the U.S. Housing
Market Conditions Market-at-a-Glance report to make a market continuity determination. The
Market-at-a-Glance for the counties and metropolitan areas are based on data from the Bureau
of Labor Statistics and American Community Survey data from the U.S. Census Bureau. Some
adjustments are made by HUD field economists based on regional information. The Market-at-
a-Glance reports can be found here: https://www.huduser.gov/portal/ushmc/mag.html.
    e. Market Analysis Content and Justifications
To demonstrate the need for a flat rent exception, PHAs are required to submit a market analysis
that demonstrates the value of the unit. The PHA may not request a flat rent that is lower than
the demonstrated market value of the unit. 3

3
  For example, if the market analysis determines that the value of the PHA unit is $500, then the flat rent exception
request for that unit should be set at $500 (not 80 percent of $500).
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A market analysis must be submitted using HUD Form 5880 “Flat Rent Market Analysis
Summary,” which can be accessed at
https://www.hud.gov/sites/dfiles/OCHCO/documents/5880.xlsx. Training for how to use the
original version of the Flat Rent Market Analysis can be accessed at
https://youtu.be/jpGUicpzVTM.
A Flat Rent Exception Request must include:
      “Flat Rent Market Analysis Summary,” HUD Form 5880. The form must:

          o Be submitted in the Excel file format using one market analysis (Excel workbook)
            per Asset Management Property (AMP).
          o Must use the AMP number located in HUD’s Inventory Management System/PIH
            Information Center (IMS/PIC), or successor system, when completing the market
            analysis.
          o Include three distinct, unsubsidized market rate comparable units per bedroom
            size.
          o Identify utility amounts paid by the PHA, tenant, and market rate unit, as
            applicable.
          o Include applicable FMR, SAFMR, and Unadjusted Rents on lines 35 & 36. If the
            PHA is located in an area with no SAFMR, the PHA must use the Unadjusted
            Rent. If no Unadjusted Rent is available, it is acceptable to only include the FMR.

      Local market related justifications, as applicable. HUD strongly encourages that units
       included in the market study be similar in amenities and general conditions. If it is
       necessary to include units that are substantially different, the study should demonstrate
       or provide information as to why other units that are comparable are not available. If the
       market analysis includes the following elements, then a reasonable brief explanation
       related to the local market conditions must be submitted.

          o Joint Submissions.

              HUD will permit PHAs from neighboring cities or within the same county with a
              shared executive director to submit a joint exception flat rent request. The
              justification should include information that explains how there is no substantive
              difference between the PHAs’ rental and employment markets.

              For example, a PHA may provide a justification explaining that the two cities
              included in the joint submission are five miles apart from one another and each
              within commuting distance of a regional warehouse that employs residents of
              both populations.

          o Comparable Using Different Bedroom Sizes.
            Generally, comparable units should use market comparable units of the same
            bedroom size. HUD will make exceptions for this when there are no market rate
            comparable units for a specific bedroom size in a local market. When making an

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               adjustment for using a different bedroom size across properties, the monetary
               value of the adjustment must be the same.

               For example, for a 0-bedroom unit, a PHA may use a 1-bedroom unit and make
               an adjustment. The justifications may include an explanation that the rural
               community surrounding the PHA is mostly comprised of single-family homes
               and there are no 0-bedroom units/studios available for rent.

           o Amenity Adjustments greater than 25% of Actual Rent.

               Any adjustment that is more than 25% of the comparable unit’s actual rent must
               include a reasonable justification that is based on local market conditions. The
               justifications are to include market specific explanations of how the adjustment
               was made using local data.

               For example, If the actual rent of a comparable unit is $600 and it has an
               adjustment for ‘Year Built/Renovated’ that is $150 or greater, a PHA may provide
               a justification explaining that PHA units at a specific development have not been
               renovated in 20 years as compared to other market rate units in the area, which are
               more modern.

These criteria are meant to assist PHAs in developing a commonsense approach to valuing a
unit and to streamlining reviews by HUD. It remains important to note that HUD places a high
priority on accurate rent determinations and requires that such determinations be performed in a
documented, reasonable, and consistent manner. To the extent possible, rent valuation should be
based on rents paid for similar units in the same general rental market that are similar in terms
of the overall quality of housing services provided. In certain cases, rental markets may consist
of neighboring towns and cities. Any procedures or documentation used should reflect this
approach.

   f. Disapproved Flat Rent Exception Requests

After HUD receives and reviews a flat rent exception request, HUD will either approve or
disapprove the request. HUD may disapprove incomplete, unresponsive, or otherwise deficient
flat rent exception requests. However, prior to making a final determination, HUD may, in its
full discretion, provide a PHA the opportunity to cure a deficiency or submit additional
information requested by HUD. If HUD provides such an opportunity to a PHA, the PHA
must respond in writing no later than 15 days after receiving HUD’s notification of an
insufficient submission or HUD’s request for more information. The response should include
any new information the PHA believes is necessary to supplement the original submission and
must include the corrections that were identified in HUD’s review. While awaiting HUD’s final
determination, the PHA may continue to utilize its current flat rent schedule. If the PHA cannot
provide sufficient information to justify the exception after requests for additional information,
HUD will deny the flat rent exception request. If the PHA’s exception request is denied, the
PHA must immediately revise its flat rent rates using an applicable FMR product (per Section 3
and 4 of this Notice) and the updated flat rent rates must be applied to any intake or
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reexamination that takes effect 60 days after the denial date.

6. FMRs and Utility Payments

FMRs are gross rent estimates that cover the rent plus the cost of all necessary utilities regardless
of who pays the utilities. Although the inclusion of utilities in the FMR is an accurate estimate of
the cost of renting a unit in a particular area, their inclusion for purposes of setting Public Housing
flat rents may lead to families paying more in gross rent if the rent is not adjusted to reflect utility
payments that are the family’s responsibility. Specifically, families that pay a flat rent for Public
Housing units and that pay their own utilities would pay more in gross rent (i.e., rent plus
utilities) than a family in a similarly situated unit where the PHA pays the utilities.

To address this issue when establishing flat rents, PHAs must consider who is responsible for
direct utility payments to the utility company and provide for a utility allowance as
necessary. Such utility allowances must be established consistent with the requirements of 24
CFR 960.253(b)(4) and 24 CFR 965, Subpart E.

Flat rents are always inclusive of utilities. In the case of a flat rent set using the FMR, utilities
should be subtracted before setting the rent. The formula to calculate an FMR-based flat rent is

(FMR [or SAFMR, Unadjusted Rent (UR) as applicable] x 80%) −
Utility Allowance (UA).

If a PHA sets an exception flat rent using a market study, then the market study takes this
into account and adjusts for the value of utilities. The cost of utilities is included in the flat
rent.

For example, if a PHA has a flat rent of $500 per month and a utility allowance for that size unit
is $75, then:
         The FMR based flat rent would be $500 (FMR x 80%) minus the utility allowance
            ($500-$75), resulting in the final flat rent amount of $425.
         The flat rent derived from a market study would be $500.

7. Flat Rent Policies – How to comply on an annual basis

To comply with the flat rent requirements annually, no later than 90 days after the effective date
of new FMRs or SAFMRs published by HUD, the PHA must:
        Compare the current flat rent amount to the applicable FMR and SAFMR/unadjusted rent.
        If the PHA is in compliance with this the law, no further steps are necessary:

                o If the flat rent is at least equal to the lower of:

                           i.    80 percent of the FMR, or

                          ii.    80 percent of the SAFMR (or if no SAFMR is available, 80

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                                percent of unadjusted rent).

               o If the current flat rent is less than the lower of Option i or Option ii above, the
                 PHA must set flat rents at no less than 80 percent of the lower of the 80
                 percent FMR or 80 percent SAFMR/80 percent unadjusted rent, subject to the
                 utility’s adjustment in Section 6 of this Notice, or the PHA may request an
                 exception flat rent pursuant to the requirements of Section 5 of this Notice;

          Update the flat rent policies in the Admissions and Continued Occupancy Policies
           (ACOP) as necessary;

          Permit the family to choose between the flat rent amount and the income-based rent
           for all new admissions; and

          Offer the updated flat rent amount at the next annual rent option for families that are
           current Public Housing residents and permit the family to choose between the flat rent
           amount and the income-based rent, subject to the phase-in requirements in Section 8
           of this Notice.

For those PHAs with an approved flat rent exception request, the PHA must update its flat rents
to the approved flat rent exception amount immediately after approval for all intake and
reexamination activities. The PHA may apply the approved flat rent exception amount
immediately to intakes and reexaminations and must apply it to any intake or reexamination that
takes effect 60 days or more after the approval date.

8. Flat Rent Phase-in Requirements

If an existing flat rent tenant’s rental payment prior to any applicable adjustments for utilities
payments increases by more than 35 percent as a result of changes to the flat rent amount, the
increase must be phased-in such that a family does not experience an increase in their rental
payment of more than 35 percent.
To determine how to phase-in increases in rental payments, PHAs must on a case-by-case
basis, at the family’s next annual rent option, compare the updated flat rent amount
applicable to the unit to the rent that was being paid by the family immediately prior to the
annual rent option:
     If the new flat rent amount would not increase a family’s rental payment by more than
      35 percent, the family may choose to pay either the updated flat rent amount or the
      previously calculated income-based rent; OR
     If the PHA determines that the updated flat rent amount would increase a household’s
      rental payment by more than 35 percent, the family may choose to pay the phased-in
      flat rent amount resulting from the flat rent impact analysis or the previously calculated
      income-based rent.

Example 1 – Flat Rent Increase Does Not Require Phase-In


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The Gordon family is currently paying the flat rent amount of $350 per month, rather than the
income-based rent of $500. When the Gordon family meets with the PHA to discuss rent
options for the upcoming year, the PHA informs the Gordon family that the flat rent amount has
increased to $450 per month. Because the increase in the flat rent amount does not represent an
increase of more than 35 percent from the Gordon’s previous rental payment amount, they have
the option to pay the new flat rent amount of $450 or pay the income-based rent of $500. The
Gordon family chooses to pay the new flat rent amount of $450. To review:

Initial Flat Rent: $350
New Flat Rent: $450

Income-Based Rent: $500

Family Rent Increase Impact Analysis:
    Initial         New Flat Rent     Impact Analysis        Income-Based            New
   Household          amount            (HR x 1.35)              Rent              Household
     Rent
     $350               $450              $472.50                $450                Rent
                                                                                     $450
The Gordon family was paying the Initial Flat Rent ($350). Because the New Flat Rent ($450) is
less than a 35% increase on the Initial Flat Rent ($350 x 1.35 = $472.50), the Gordon family can
choose to pay the New Flat Rent or the Income-Based Rent ($500). Since $450 is less than $500,
the Gordon family chooses to pay the New Flat Rent.


Example 2 – Flat Rent Increase Requires Phase-In
The Jones family is currently paying the flat rent amount of $500 per month. When the
Jones family meets with the PHA to discuss rent options, the PHA tells the family that
the flat rent amount has increased to $700. However, the PHA tells the family that the
family’s flat rent payment would only increase to $675 because flat rent changes must be
phased-in as necessary to ensure that the family’s existing rental payment does not
increase by 35 percent or more annually. The family has the option to pay either the $675
per month, or an income-based rent of $800 per month based on the most recent
examination of the Jones’ family income. The Jones family chooses to pay the flat rent
amount of $675. To review:

Initial Flat Rent: $500
New Flat Rent: $700
Income-Based Rent: $800
Phase-in Adjusted New Flat Rent: $675

The Jones family was paying the Initial Flat Rent ($500). Because the New Flat Rent ($700) is
more than a 35% increase on the Initial Flat Rent ($500 x 1.35 = $675), the New Flat Rent for
the Jones family would be the phase-in adjusted amount of $675. The Jones family can choose to
pay the phase-in adjusted New Flat Rent or the Income-Based Rent ($800). Since $675 is less
than $800, the Jones family chooses to pay the phase-in adjusted New Flat Rent.
The following year, at the next annual rent option meeting between the Jones family and the
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PHA, the PHA informs the Jones family that the flat rent amount has increased to $750 per
month due to an increase in the FMR. Because the new flat rent amount represents less than a 35
percent increase from the previous rental payment, the Jones family has the option to pay the
new flat rent amount of $750 or the income-based rent amount of $800 based on the most recent
examination of family income and composition. The Jones family chooses to pay the new flat
rent amount of $750. To review:

Initial Flat Rent: $675
New Flat Rent: $750
Income-Based Rent: $800

Family Rent Increase Impact Analysis:

   Year           Initial        New Flat Rent      Impact Analysis     Income-Based           New
                 Household         Amount             (HR x 1.35)           Rent             Household
       1           Rent
                   $500              $700                $675               $800               Rent
                                                                                               $675
       2           $675              $750               $911.25             $800               $750

The Jones Family was paying the Initial Flat Rent ($675). Because the New Flat Rent ($750) is
less than a 35% increase on the Initial Flat Rent ($675 x 1.35 = $911.25), the Jones Family can
choose to pay the New Flat Rent or the Income-Based Rent ($800). Since $750 is less than $800,
the Jones Family chooses to pay the New Flat Rent.

9. Annual Review of Rent Options
HUD regulations at 24 CFR 960.253(a) require PHAs to annually give families the option to
choose between paying the flat rent or the income-based rent and stipulate that PHAs may not
give families the option more than once per year, except in the case that the family has chosen
the flat rent and experiences a financial hardship. Further, 24 CFR 960.253(e) stipulates that
PHAs provide sufficient information to allow a family to make an informed choice regarding
rent options. PHAs must provide at least the following information:

          The PHA’s policies on switching the type of rent due to financial hardship; and
          The dollar amount of the flat rent and the income-based rent.
For families who choose to pay flat rents, PHAs are provided the flexibility not to conduct income
reexaminations annually. HUD regulations at 24 CFR §960.253(e)(2) and §960.257(a)(2) provide
that for families that chose to pay flat rents PHAs must conduct reexaminations of family income
at least once every 3 years, not annually. In years when a PHA does not conduct a full
reexamination of family income, PHAs are not released from the requirement to give the family
the option of paying the flat rent or the income-based rent as calculated from the most recent
examination of family income and composition.

For PHAs to comply with the requirements to review rent options annually with families, and to
provide families with sufficient information to make an informed choice, PHAs must do the
following:


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At initial occupancy, or in any year where a current program participating family is paying the
income-based rent:
      Conduct a full examination of family income and composition at the first annual rent
         option (Year 1);
      Inform the family of the flat rent amount and the rent amount determined by
         the examination of family income and composition;
      Inform the family of the PHA’s policies on switching rent types due to financial hardship;
         and
      Apply the family’s rent decision at the next lease renewal.

At the second and third annual rent options, for families that choose to switch from
income-based rent to pay the flat rent:
      PHAs may, but are not required to, conduct a full examination of family income and
        composition for the second and third annual rent options. If a PHA chooses not to
        conduct an examination of family income for these annual rent options, PHAs must use
        the income information from the examination of family income and composition from
        the first annual rent option;
      PHAs must inform the family of the updated flat rent amount, and the rent amount
        determined by the most recent examination of family income and composition;
      PHAs must inform the family of the PHA’s policies on switching rent types due
        to financial hardship; and
      PHAs must apply the family’s rent decision at the next lease renewal.

For the purpose of conducting the rent option meeting for a family that has paid the flat rent
for the previous three years, and for which the PHA has not conducted a re-examination of
family income and composition in the last three years, the PHA must complete a full re-
examination of family income and composition in order to update the income-based rent
amount.

PHAs are reminded that the flat rent amount a family pays is not locked in for the three-year
period. Instead, the PHA must revise the flat rent amount from year to year based on changes to
the FMR. Families currently paying the flat rent amount must be offered the choice between the
updated flat rent amount, and the previously calculated income-based rent.

10. Flat Rent Reporting

PHAs are required to report the amount of a flat rent and any ceiling rent to be charged to a
household on line 10b of the form HUD-50058, as outlined in Section 3 of this Notice. As per
the requirements of Section 6 of this Notice, PHAs must consider whether households are
responsible for any utility expenses for a unit when establishing the flat rent for a unit. In the
case that a household is responsible for paying for utilities, PHAs should report the amount
of such utility allowance on line 10e of the form HUD-50058.

11. Flat Rents and Low-Income Housing Tax Credit Properties

For Low-Income Housing Tax Credit (LIHTC) Public Housing units, it is possible that the
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minimum flat rent amount may exceed the LIHTC maximum rent. In other cases, the HUD
minimum flat rent may be less than the LIHTC maximum rent. If these amounts conflict,
PHAs should set flat rents so as not to exceed the LIHTC maximum rent.

Example 1: LIHTC Maximum Rent is Lower than 80 Percent of HUD’s FMR
    80 percent of HUD’s FMR for a 1-bedroom unit is $450
    The LIHTC maximum rent is $400
    The PHA should set its LIHTC Public Housing flat rents at $400

Example 2: 80 Percent of HUD’s FMR is Lower than LIHTC Maximum Rent
    80 percent of HUD’s FMR for a 1-bedroom unit is $400
    The LIHTC maximum rent is $450
    The PHA should set its LIHTC Public Housing flat rents at no less than $400 and
     no greater than $450

Example 3: Exception Flat Rent is Lower than LIHTC Maximum Rent and 80 Percent
of HUD’s FMR
     80 percent of HUD’s FMR for a 1-bedroom unit is $400
     The LIHTC maximum rent is $450
     The PHA has a HUD-approved flat rent exception request of $375
     The PHA should set its LIHTC Public Housing flat rents at $375

12. Contact Information
If you have questions regarding this Notice, please contact the Public Housing Management and
Occupancy Division Flat Rent Review Team at flatrentexceptionrequests@hud.gov.

13. Paperwork Reduction Act
The information collections referenced in this Notice have been approved by OMB pursuant to
the Paperwork Reduction Act under, OMB# 2577-0220 and OMB# 2577-0226.




                                                     _____________/s/__________________
                                                     Dominique Blom
                                                     General Deputy Assistant Secretary for
                                                      Public and Indian Housing




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