That's the short answer. The rest of this post walks through each step with HUD's own documents, then shows what the FY2026 to FY2027 change did to real ZIP codes we track in Atlanta, Houston and Milwaukee.
How is fair market rent calculated?
HUD's rule is in 24 CFR 888.113. FMRs are set at the 40th percentile rent, drawn from units rented by recent movers, with public housing and substandard units taken out. The HUD USER Fair Market Rents page says the same thing in one line: FMRs are estimates of 40th percentile gross rents for standard quality units.
HUD's FY2027 FMR methodology paper lays out the steps.
- Base rent. HUD buys special tabulations of the American Community Survey and pulls the 40th percentile gross rent for two-bedroom units. Two bedrooms is the base because it's the most common rental size. "Standard quality" means cash rent, full plumbing, a complete kitchen, 10 acres or less, and no meals in the rent. FY2027 uses ACS data ending in 2024, a three-year lag.
- Recent mover adjustment. Federal rules require rents paid by recent movers, so discounts to long-time tenants don't drag the number down. HUD compares a one-year recent-mover rent to the five-year base and adjusts by that ratio.
- Inflation to the current year. A gross rent inflation factor moves the 2024 number to 2025. It covers both shelter rent and tenant-paid utilities.
- Trend factor. A forecast pushes the number forward into the fiscal year the FMR will be used.
- State minimum. HUD checks the two-bedroom number against a state minimum, the lower of the state's non-metro median FMR and the national non-metro median.
- Bedroom ratios. HUD converts the two-bedroom figure into studio, 1BR, 3BR and 4BR using the area's own rent ratios when the survey data is reliable enough, and a larger area's ratios when it isn't. It then bumps the 3BR ratio by 8.7% and the 4BR by 7.7%, because big units are harder for voucher holders to find.
- Decline limit. No FMR can drop more than 10% from the year before.
Metro FMR vs Small Area FMR
The steps above produce one number for a whole metro. That's a blunt tool in a city where rents swing a lot from neighborhood to neighborhood.
Small Area FMRs are the same idea calculated by ZIP code. HUD's SAFMR methodology uses the same 40th percentile adjusted gross rents, compares each ZIP to its parent metro with floors and ceilings, applies the metro's bedroom ratios, and limits year-to-year declines. Housing authorities in areas HUD designates must use SAFMRs for voucher payment standards. Others can opt in.
If you underwrite voucher rentals, find out which one your housing authority uses. Mixing them gives you a wrong number.
FY2026 vs FY2027 in six ZIPs we track
These come straight from HUD's FY2026 and FY2027 SAFMR spreadsheets. The last column is 90% to 110% of the FY2027 3BR SAFMR. Atlanta is a HUD-designated Small Area FMR area, so that's the range its housing authority can set without HUD approval. Houston and Milwaukee aren't designated areas. There the basic range runs off the metro FMR unless the housing authority opted into SAFMRs, and 110% of the ZIP's SAFMR is the most it can set for a ZIP-level exception payment standard without HUD approval.
| ZIP | Metro | 2BR FY2026 | 2BR FY2027 | 3BR FY2026 | 3BR FY2027 | 3BR change | 3BR payment standard range, FY2027 |
|---|---|---|---|---|---|---|---|
| 30310 | Atlanta, GA | $1,440 | $1,310 | $1,730 | $1,560 | -$170 (-9.8%) | $1,404 to $1,716 |
| 30318 | Atlanta, GA | $2,050 | $1,850 | $2,460 | $2,220 | -$240 (-9.8%) | $1,998 to $2,442 |
| 77033 | Houston, TX | $1,410 | $1,380 | $1,900 | $1,860 | -$40 (-2.1%) | $1,674 to $2,046 |
| 77072 | Houston, TX | $1,440 | $1,380 | $1,940 | $1,860 | -$80 (-4.1%) | $1,674 to $2,046 |
| 53206 | Milwaukee, WI | $1,140 | $1,210 | $1,410 | $1,490 | +$80 (+5.7%) | $1,341 to $1,639 |
| 53210 | Milwaukee, WI | $1,210 | $1,210 | $1,490 | $1,490 | $0 (0.0%) | $1,341 to $1,639 |
Look at the Atlanta rows. Both ZIPs lost 9.8% at 3BR, right up against HUD's 10% limit on yearly declines. Houston slipped a little. Milwaukee 53206 went up. The full 13-ZIP breakdown, every bedroom size, is in our HUD Fair Market Rent 2027 post.
Does fair market rent include utilities?
Yes. Under 24 CFR 888.113, FMRs are "rent plus the cost of utilities, except telephone." That's why HUD calls it a gross rent.
The voucher side works the same way. Your housing authority keeps a utility allowance schedule for tenant-paid utilities, and 24 CFR 982.517 bars any allowance for non-essential costs like cable or satellite TV. The named categories are space heating, air conditioning, cooking, water heating, water, sewer, trash collection, other electric, a tenant-supplied refrigerator or range, applicable surcharges, and other specified housing services. Internet isn't one of the named categories.
For a landlord, this is the part people miss. If the tenant pays utilities, the gross rent includes the utility allowance, so the rent you collect is lower than the headline FMR.
How does Section 8 calculate rent?
Three numbers decide it.
The payment standard. Under 24 CFR 982.503, a housing authority can set it anywhere from 90% to 110% of the published FMR without HUD approval. Above 110% is an exception payment standard. Where Small Area FMRs apply, the published FMR is the ZIP's SAFMR, so the basic range is 90% to 110% of the SAFMR. Elsewhere, a housing authority can set a ZIP-level exception payment standard up to 110% of that ZIP's SAFMR without HUD approval.
The tenant's share. 24 CFR 5.628 sets total tenant payment at the highest of 30% of monthly adjusted income, 10% of monthly income, the welfare rent where it applies, or the housing authority's minimum rent. For most families that's the 30% figure, which matches HUD's guidance for voucher tenants.
The voucher payment. 24 CFR 982.505 says the housing authority pays the lower of the payment standard minus the tenant's share, or the gross rent minus the tenant's share.
There's one more guardrail. When a family first moves into a unit that costs more than the payment standard, their share can't top 40% of adjusted monthly income (24 CFR 982.508).
Worked example (illustrative): Atlanta 30310, 3BR
Illustrative only. The income, rent and utility figures are assumptions, not data. The SAFMRs are HUD's.
Assumptions: the housing authority sets its payment standard at 100% of the SAFMR. The family's adjusted income is $2,000 a month, and 30% of it is the highest of the four tenant-payment tests. The landlord asks $1,500 for a 3BR. The tenant pays utilities, with a $150 allowance. So gross rent is $1,650.
The landlord still gets $1,500 either way. What changed is who pays it. Under FY2027, the voucher covers $90 less and the tenant covers $90 more, because the gross rent now sits above the payment standard. If the housing authority set its standard at 110% instead, $1,716, the voucher would pay the full $1,050 again.
Two cautions. First, a family already in place may be protected for a while: 24 CFR 982.505 lets a housing authority hold off on lowering a sitting family's payment standard, and any cut can't start until two years after the decrease takes effect. Second, the housing authority also checks that your rent is reasonable compared with similar unassisted units, so a high payment standard doesn't guarantee a high rent.
What this means if you buy or wholesale rentals
A voucher buyer will price your deal off the rent the housing authority will actually pay, not last year's FMR. In Atlanta, that number dropped. Run the rent at the FY2027 payment standard, take off the utility allowance if the tenant pays utilities, and build NOI from there. If your buyer uses a loan, the lender sizes it with DSCR on that same rent.
Then work backward to your price. ARV still sets the flip exit, and rent sets the hold exit. You need both before you sign. Start with ARV in the ARV calculator.
FAQ
How is fair market rent determined?
HUD takes the 40th percentile gross rent for standard-quality two-bedroom units from the American Community Survey, adjusts it to recent-mover rents, inflates it to the new fiscal year, and converts it to other bedroom sizes. No FMR can fall more than 10% in a year. Small Area FMRs do the same by ZIP code.
Does Section 8 pay full rent?
Usually not. The tenant pays a total tenant payment, normally 30% of adjusted monthly income, and the voucher pays the rest up to the payment standard. If the gross rent is above the payment standard, the tenant pays the difference too, capped at 40% of adjusted income when they first move in.
What percentage of rent does Section 8 pay?
There's no fixed percentage. The voucher pays the payment standard (or the gross rent, if lower) minus the tenant's share, which is usually 30% of adjusted monthly income. The tenant pays the rest, capped at 40% of adjusted income at move-in.
What's the difference between fair market rent and the payment standard?
HUD publishes the FMR. Your housing authority sets the payment standard, usually 90% to 110% of it, and the voucher math uses the payment standard.
Does HUD fair market rent include utilities?
Yes. FMR is rent plus utilities, except telephone. Housing authorities can't give a utility allowance for cable or satellite TV. If the tenant pays utilities, the landlord collects the gross rent minus the utility allowance.
Can a landlord charge more than fair market rent?
Yes, within limits. HUD says the payment standard isn't a rent limit, and a family can pick a pricier unit and pay the difference. But the housing authority must find the rent reasonable against similar unassisted units, and the tenant's share can't top 40% of adjusted income at move-in.
When did the FY2027 fair market rents take effect?
October 1, 2026, the start of the federal fiscal year. Your housing authority then has up to three months to bring its payment standards back inside 90% to 110% of the new FMR if they fall outside it.