• Fair market rent (FMR) is the rent a property would command in the open market based on the local rental market conditions.
• The Department of Housing and Urban Development uses FMR to set rental prices for federal housing programs, particularly Section 8 housing.
• HUD pegs an FMR at the 40th percentile using gross rent data in a particular area.
• FMRs are just ballpark estimates and may be increased upon negotiation with the local public housing authority.

The Department of Housing and Urban Development (HUD) estimates fair market rent (FMR) annually. This benchmark is most notably applied to the Section 8 Housing Choice Voucher Program that subsidizes rent payments of low-income American families[1].

This program, also available to seniors and the disabled[2], pays the rent directly to private landlords. Its FMR estimates vary per local area and will generally set the maximum rent ceilings under the Section 8 program.

Using HUD funds, the local public housing authority pays around 70% of the rent of eligible tenants. The tenants pay the remaining 30% to their landlords.
The public housing authorities help determine tenants’ eligibility for Section 8 rent subsidies. Those eligible must be 18 years old, a U.S. citizen, or a qualified non-citizen. Their household income must be less than 50% of their area’s median income[3].

Many real estate investors apply as landlords under the Section 8 program. Section 8 rentals can provide them with consistent income while providing housing for millions of very low-income families who need affordable places to live[4].

BY THE NUMBERS: About 4.5 million Americans live in Section 8 housing.

Source: National Center for Health in Public Housing (NCHPH)

How HUD Calculates Fair Market Rent

HUD generally estimates FMR through the percentile method[5]. They usually peg fair market rents to the 40th percentile (slightly lower than the median) of the gross rent estimate in a local housing market.

The HUD has fair market rent calculated in more than 2,500 metropolitan and non-metropolitan areas[6]. Its FMR basis is the gross rents for regular, standard-quality units gathered from renter surveys and census data. Low-quality rentals, units already subsidized, and those built two years prior are excluded.

Carol M. Highsmith / Public domain

Fair market rents are only ballpark estimates, including base rent and basic utilities like electricity, water, and gas. Other fees like internet, telephone, cable television, and the like are not part of the calculation.

Landlords can charge monthly rent below or above FMRs based on a unit’s square footage and its number of bedrooms and bathrooms. Higher FMRs may be charged for units with a garden or balcony, central air conditioning, or new interior finishes. A higher FMR for Section 8 tenants has to be approved by the local public housing authority.
HUD also implements small area FMRs (SAFMRs) calculations. This is a more granular reading based on rents within ZIP codes rather than metro areas.

SAFMRs enable local public housing authorities to expand the number of neighborhoods with affordable public housing units. Over 200 housing authorities implement SAFMRs in 24 U.S. metropolitan areas[7].

The HUD typically releases its FMRs (including those for small areas) between late April and early May. These rates are applicable to Section 8 tenants for October 1 of the current year to September 30 of next year.

The HUD estimates FMRs from four data sources:

• A certain section of the 1990 census for every urban and rural area in the U.S.
• The HUD’s annual American Housing Survey.
• Random Digital Dialing (RDD), a telephone survey of 50 to 60 metropolitan areas.
• A public comment process compiling information from PHAs.

The department’s findings are set as a baseline for the FMRs of one-bedroom, two-bedroom, three-bedroom units, and more[8].

An FMR and the current market rent in an area may differ. The latter rate arises from a free and open market depending on supply and demand dynamics.

However, FMRs are useful even for landlords outside the Section 8 housing assistance programs. With fair market rent determined for their area, that gross rent information can serve as a starting point for research on how much rent to charge.

For these landlords, aligning their rates with the FMR is critical to accurate rental pricing. This step helps them balance maximizing rental income and keeping long-term, reliable tenants[9].

Other Uses for Fair Market Rent

Besides helping set rent prices, FMRs also peg rents under the HUD’s Home Investment Partnerships Program. This program provides states and localities federal funding exclusively for affordable housing for low-income households.

This program incentivizes developers with low-interest loans to construct affordable housing. Eligible loan borrowers include Community Housing Development Organizations, local governments, or non-profit housing providers.

The Emergency Solution Grants program is another instance where FMR applies. This program, aimed to address homelessness due to various crises (man-made or otherwise), extends local grants to provide emergency shelter and other necessities[10].

The FMR is also used in the Section 8 Moderate Rehabilitation Single Room Occupancy Program. It helps single, very low-income, homeless individuals to get safe, decent, and sanitary housing in rehabilitated private buildings[11].

1. HUD Loans. (n.d.) Fair Market Rents for Section 8 Properties. Retrieved from https://www.hud.loans/hud-loans-blog/what-is-fair-market-rent
2. USA Gov. (n.d.) Find Affordable Rental Housing. Official website of the United States Government. Retrieved from https://www.usa.gov/finding-home
3. Eligibility. (2017.) How Do I apply for the Section 8 Housing Choice Voucher Program? Retrieved from https://eligibility.com/section-8
4. Kilroy, A. (2022.) Becoming a Section 8 Landlord: A Guide. Rocket Mortgage. Retrieved from https://www.rocketmortgage.com/learn/section-8-landlord
5. RentData. (n.d.) How to Calculate the Fair Market Rent for Your Unit? Retrieved from https://www.rentdata.org/articles/calculate-fmr-of-your-home
6. Eberlin, E. (2021.) How to Calculate the Fair Market Rent for Your Unit. The Balance Small Business. Retrieved from https://www.thebalancesmb.com/fair-market-rent-definition
7. Local Housing Solutions. (n.d.) Increased voucher payment standards in high-cost areas. Retrieved from https://localhousingsolutions.org/housing-policy-library/increased-voucher-payment-standards-in-high-cost-areas/
8. Fund & Grow. (2022.) An Investor’s Guide to Determining Fair Market Value for Rental Properties. Retrieved from https://www.fundandgrow.com/blog/fair-market-rental-value
9. Karani, A. (2020.) How Do I Determine Fair Market Rent for My Rental Property? Mashvisor. Retrieved from https://www.mashvisor.com/blog/fair-market-rent-rental-property/
10. Bitton, D. (2022.) What is Fair Market Rent, and How Can it Work for You?  DoorLoop. Retrieved from https://www.doorloop.com/blog/fair-market-rent
11. HUD Exchange. (n.d.) Section 8 Moderate Rehabilitation Single Room Occupancy Program. Retrieved from https://www.hudexchange.info/programs/sro