A rent reasonableness determination at 1,275 when the payment standard says 1,450

Question

Here is a situation that comes up often enough to be worth working through as a group. Take a two-bed unit in a small portfolio where the payment standard for that bedroom size is $1,450, and the same floor plan across the street rents at around $1,500. The owner submits at $1,400 and the housing authority's rent reasonableness determination comes back at $1,275. The tenant pays gas and electric, so a utility allowance sits inside that number as well. The owner is being told the rent is unreasonable in a market where an unassisted tenant would sign at $1,500 tomorrow. With three more units in the same building coming up for turn, an anchor at $1,275 across all of them is roughly $6,000 a year of spread given up against the market comp. So what do people actually do here. Is submitting your own comparables worth the effort, and does an accepted comp set carry over to the next unit in the same building, or does each one start from zero?

Rena Expert · Accepted Answer

The payment standard and rent reasonableness are two separate tests, and a unit has to clear both. The $1,450 governs how the subsidy is calculated. Rent reasonableness is a finding that your contract rent is no higher than what comparable unassisted units in the same market command, and the authority has to make that finding before it executes a contract and again whenever you request an increase. $1,275 is their reading of their comp set, not a program ceiling.

Submitting your own comparables is usually worth doing, and the reason is that most authorities are working from whatever data source they subscribe to, which tends to lag and tends to be weak on unit-level condition. If your $1,500 comp across the street has one bath and yours has one and a half, or yours has in-unit laundry and theirs doesn't, that's the argument. Ask the authority in writing what comps they used and what adjustments they applied. Procedures for challenging a determination differ by authority, so get theirs in writing rather than assuming.

On the utility allowance: if the tenant pays gas and electric, gross rent is your contract rent plus the published allowance, and it's gross rent that gets measured against the payment standard. So $1,450 was never all available to you as contract rent. If the allowance is $120, your practical top end is closer to $1,330 before the reasonableness question even comes up.

An accepted comp set doesn't automatically travel to the next unit, though in practice an authority that already accepted your evidence on unit 1 tends to move faster on unit 2 in the same building.

The thing that costs more than the spread is abatement. If a re-inspection fails and payments get held, you're carrying the unit with no voucher income and a tenant still in place, and that erases a year of the $6,000 you're chasing.

karen_whitfield · Answer

The part that would bother me on a long hold is not this year's $6,000. It's that a contract rent set at $1,275 becomes the base your future increase requests get measured from, and increases get granted in small steps against comps that are themselves partly other assisted units. Over ten years the gap widens rather than closes unless you fight it at the front end, which is what @rena-expert is describing. I'd spend the time on the comp package now.

Rena Guide · Answer

For anyone reading this and losing the thread on the vocabulary, four terms are doing the work here.

The payment standard is the maximum amount the housing authority uses to figure the subsidy for a given bedroom size in a given area. Say it's $1,450 for a two-bedroom.

The utility allowance is a published dollar figure for utilities the tenant pays directly. If the tenant pays their own electric and gas, the authority might publish $120 for that unit type.

Gross rent is your contract rent plus that allowance. Contract rent of $1,330 plus a $120 allowance is a gross rent of $1,450, right at the standard.

Rent reasonableness is a separate check. Before the authority signs a contract, it confirms your asking rent isn't above what similar unrepresented, unassisted units in the same area rent for. A unit can be under the payment standard and still be turned down as unreasonable, which is exactly what happened to @brandonlee36.

One piece people miss until it bites: the tenant is not allowed to pay you a side amount to top the rent up to market. Any payment above the approved contract rent is a program violation, and it's the landlord who carries the consequence. If the approved number doesn't work for you, the move is to argue the comps or to rent the unit outside the program, and to decide that before you sign anything.

paulgrant17 · Answer

Reading this while I set up screening criteria for a first rental, and the thing that jumps out is that none of the rent reasonableness process tells you anything about the tenant. The voucher covers the payment. It doesn't cover a torn-up unit at move-out. Same criminal, eviction, and prior-landlord checks you'd run on anyone, applied identically, and income screening adjusted so you're looking at the tenant's portion rather than the whole rent.

kevin_lombard · Answer

Question on the tenant portion. If the tenant's income goes up mid-lease, does my contract rent change or does the split just move?

ehernandez74 · Answer

@kevin_lombard the split moves, the contract rent stays where the contract says it is until it's changed by an approved increase. @brandonlee36, the part worth knowing before committing to the building is whether the payment standard itself gets republished on a schedule and whether an existing contract rent rides up with it automatically or only on request. Typically an owner has to ask, with notice, and the reasonableness test runs again on the new number. Which means an anchor like $1,275 isn't a one-time hit, it's the starting point for every conversation after this one.

A rent reasonableness determination at 1,275 when the payment standard says 1,450

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