Panel Presentation on the HUD 3rd Party Rent Study threshold
Due to the change in HUD’s threshold test, significantly fewer Rent Studies are being triggered, which means many properties are approved with higher rents.
What are the implications?
John Doyle, MAI presented on a panel entitled "Preservation Transactions" at NLHA's 52nd Annual Membership Meeting about the change.
140 to 150: Small Change, Big Impact.
This year, John Doyle dove into the dramatic impact that HUD's decision regarding 3rd Party Rent Study tests has had on the number that are ordered. We analyzed our internal dataset and confirmed an exponential decrease in the number of 3rd Party Rent Studies ordered—verifying our hypothesis that the new threshold is muting HUD’s oversight trigger.
In other words, fewer Rent Studies are flagged by HUD and are therefore approved with higher rents than under the 140% Zip Code Median Rent test.
Additionally, John Doyle spoke on the impact of Utility Allowance Schedules in contrast to true utility costs as we have benchmarked in Rent Studies.
Changing Utility Costs
Utility allowance schedules often lag behind real usage trends. In our benchmarking, we see a growing gap between allowance estimates and actual utility consumption — a discrepancy that can shift rent feasibility and HUD calculations materially.
For lenders, include sensitivity modeling for both utility cost variance and rent thresholds to stress test your underwriting.
John’s slides from his presentation are available below: