What rental rates should be used for NSP-assisted rental properties?

Date Published: February 2013

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The Unified NSP1 and NSP3 Notice requires grantees to ensure continued affordability for assisted units. It says "in its NSP action plan substantial amendment, a grantee will define 'affordable rents.' " Grantees must also ensure that costs are reasonable and that any subsidy does not unduly enrich a developer. Charging higher rents should increase revenues for the developer and thus reduce the level of initial subsidies.

NSP grantees have defined affordable rents in a wide variety of ways including adopting the HOME rents, the Low Income Housing Tax Credit rents, or the HUD Section 8 Fair Market rents, among other methods. If a grantee adopts the HOME affordability provisions, the regulations at 24 CFR 92.252 (a) and (c) describe minimum requirements.

HUD believes that it is appropriate for grantees to establish higher rent levels for units between 80 percent and 120 percent of median. Since neither the HOME Program nor CDBG has policies developed for this middle income group, grantees should develop appropriate policies for their own circumstances.

HUD finds the following two options acceptable:

  • Grantees may set rents based on tenant household income, not to exceed comparable unassisted rents in the neighborhood. This would allow variation among submarkets and updating to meet changing market conditions; or
  • Grantees may set a fixed rent, for example, 30 percent of the 120 percent of Area Median Income. This method is easier to administer but less flexible in volatile markets.

Other methodologies could also meet the NSP requirements, provided that they also ensure reasonable costs and comply with all other standards in the Notice.

Tags: NSP Rental Housing Development

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