Portland Metro 10 Year Regional Long Term Rental Assistance Subsidy Estimate of $1.05 B Using FMR Could be $125M More Than If Rent Was Based on HUD Payment Standard.

I previously pointed out that the current use of a 120% of FMR rent standard for the Metro supportive services Regional Long Range Rental Assistance (RLRA) program could result in a owner windfall compared to how rents are set by the HUD housing choice voucher program,   

I later remembered that there was a PSU 2019 study that projected future costs (p.86) for a regional program designed to provide rent subsidies to all extremely cost burdened and cost burdened renters. That analysis showed results both as nominal values and as future present values. 

Using my projections of the subsidy cost per unit for the RLRA program I created a table with these assumptions. 

First scenario, 

• 5,000 units, all  1 BR units. [This is much smaller than the 45,000 HH universe of 0-30% MFI severely cost burdened renter HH's used by PSU].
• A tenant income of $12,000, with a monthly tenant paid rent of $285, 28.5% of tenant income. The HUD 2022 1 person Portland metro MFI is $75,550 so $12,000 is 16% of the HUD 1 person MFI.  
• Initial rent at 120% of HUD FMR or $1,814 ($1,512* 120%=$1,814).
• Rent inflation of 3% per year (The prior PSU study had used 2%, but I checked and actual Portland metro HUD FMR average increases have been higher--more than 4% per year over the last 20 years. I chose to use a more conservative 3%).
• A discount rate of 10% (same as used in prior study). 
• Assumes the supportive services program continues for 10 year period. 

Second scenario 

• I used all the same assumptions but used 90% ($1,361) of the $1,512 1 BR FMR as my base for rent calculations. .
• Initial rent was then set at 120% of the 90% payment standard or $1,633 ($1,361* 120%=$1,633).
• Note that this rent is STILL above FMR at 108% of FMR [90%*120%=108%].

DIFFERENCES 

The 2 page PDF HERE has the data used to calculate these differences; the graph pasted below shows the $25K PER UNIT 10 year subsidy nominal cost difference.

Metro Regional Long Range Rent Assistance Subsidy Costs

Nominal 

Over 10 years the costs for Scenario 1 [$1.05 B] would be $124.8 million HIGHER than Scenario 2 [$927.1M]. 

Per unit per year subsidy cost  ($21,039) would be $2,496/13.5%  MORE in Scenario 1 than in Scenario 2 ($18,543). 

NPV 

Over 10 years costs for Scenario 1 would be $113 M HIGHER than Scenario 2.  

Per unit per year subsidy cost ($19,127) would be $2,269/13.5% MORE in  Scenario 1 than in Scenario 2 ($16,858). 

[It's been a while since I did a NPV calculation so feel free to point out any problems to housepdx@gmail.com].

NOTES:

These are BASE costs, and include ONLY estimates of rent assistance subsidy costs. 

They do NOT include any admin costs for RLRA. ( FY 2022 annual HUD Admin fees for the voucher program for Clackamas and Multnomah county average $1,180 per unit and $1,302 for Washington county). 

They do NOT include OR RLRA service costs, which would boost these estimates. The cost for services for homeless households with permanently supportive housing needs have been previously estimated by PSU (p. 74) at an additional $8,800 to $10,000 per year, while the estimate for homeless households without PSH needs was $5,700 annually. 

Combined those fees and service costs could add $10K+ to the annual rent assistance alone subsidy costs of $18-$21K.

A unit mix that included larger than 1 BR sizes would also increase subsidy costs. 

If tenant income is higher than I used then subsidy costs also go down, but the relationship between Scenario 1 and 2 should remain the same. 

Metro Has Options for RLRA Rent Setting. 

IF a housing authority increases their payment standards to 100% of FMR, then there is no difference in subsidy costs [and voucher holders would have greater housing choice]. This is one option I advocated for recently. The other option I presented, to limit RLRA rents to 120% of the payment standard, IS scenario 2 in my estimates above. 

Originally created and posted on the Oregon Housing Blog.