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Federal Register / Vol. 86, No. 172 / Thursday, September 9, 2021 / Notices
C. Defining Difficult Development Areas DDAs and Qualified Census Tracts QCTs As stated above, IRC Section 42
defines a DDA as an area designated by the Secretary of HUD that has high construction, land, and utility costs relative to the AMGI. All designated DDAs in metropolitan areas taken together may not contain more than 20
percent of the aggregate population of all metropolitan areas, and all designated areas not in metropolitan areas may not contain more than 20
percent of the aggregate population of all nonmetropolitan areas. See IRC
Section 42d5Biii.
Similarly, IRC Section 42 defines a QCT as an area designated by the Secretary of HUD where, for the most recent year for which census data are available on household income in such tract, either 50 percent or more of the households in the tract have an income which is less than 60 percent of the AMGI or the tracts poverty rate is at least 25 percent. All designated QCTs in a single metropolitan area or nonmetropolitan area taken together may not contain more than 20 percent of the population of that metropolitan or nonmetropolitan area. Thus, unlike the restriction on DDA designations, QCTs are restricted by the total population of each individual area as opposed to the aggregate population across all metropolitan areas and nonmetropolitan areas. See IRC Section 42d5Bii.
IRC Section 42d5Bv allows states to award an increase in basis up to 30 percent to buildings located outside of federally designated DDAs and QCTs if the increase is necessary to make the building financially feasible.
This state discretion applies only to buildings allocated credits under the state housing credit ceiling and is not permitted for buildings receiving credits entirely in connection with tax-exempt bonds. Rules for such designations shall be set forth in the LIHTC-allocating agencies qualified allocation plans QAPs. See IRC Section 42m.

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VI. Explanation of HUD Designation Method A. 2022 Difficult Development Areas In developing the 2022 list of DDAs, as required by IRC Section 42d5Biii, HUD compared housing costs with incomes. HUD used 2010
Census population for ZCTAs, and nonmetropolitan areas, and the MSA
definitions, as published in OMB
Bulletin 1701 on August 15, 2017, with modifications, as described below. In keeping with past practice of basing the coming years DDA designations on data
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from the preceding year, the basis for these comparisons is the FY 2021 HUD
income limits for very low-income households very low-income limits, or VLILs, which are based on 50 percent of AMGI, and modified FMRs based on the FY 2021 FMRs used for the Housing Choice Voucher HCV program. For metropolitan DDAs, HUD used Small Area FMRs based on three annual releases of ACS data, to compensate for statistical anomalies which affect estimates for some ZCTAs. For nonmetropolitan DDAs, HUD used the FY
2021 FMRs released on August 14, 2020
and effective on October 1, 2020 85 FR
49666 as updated by the March 19, 2020 publication effective April 1, 2021
86 FR 14953.
In formulating the FY 2021 FMRs and VLILs, HUD modified the current OMB
definitions of MSAs to account for differences in rents among areas within each current MSA that were in different FMR areas under definitions used in prior years. HUD formed these HUD
Metro FMR Areas HMFAs in cases where one or more of the parts of newly defined MSAs were previously in separate FMR areas. All counties added to metropolitan areas are treated as HMFAs with rents and incomes based on their own county data, where available. HUD no longer requires recent-mover rents to differ by five percent or more in order to form a new HMFA. All HMFAs are contained entirely within MSAs. All nonmetropolitan counties are outside of MSAs and are not broken up by HUD for purposes of setting FMRs and VLILs.
Complete details on HUDs process for determining FY 2021 FMR areas and FMRs are available at https
www.huduser.gov/portal/datasets/
fmr.html2021. Complete details on HUDs process for determining FY 2021
income limits are available at https
www.huduser.gov/portal/datasets/
il.html2021.
HUDs unit of analysis for designating metropolitan DDAs consists of ZCTAs, whose Small Area FMRs are compared to metropolitan VLILs. For purposes of computing VLILs in metropolitan areas, HUD considers entire MSAs in cases where these were not broken up into HMFAs; and HMFAs within the MSAs that were broken up for such purposes.
Hereafter in this notice, the unit of analysis for designating metropolitan DDAs will be called the ZCTA, and the unit of analysis for nonmetropolitan DDAs will be the nonmetropolitan county or county equivalent area. The procedure used in making the DDA
designations follows:
1. Calculate FMR-to-Income Ratios.
For each metropolitan ZCTA and each
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nonmetropolitan county, HUD
calculated a ratio of housing costs to income. HUD used a modified FY 2021
two-bedroom Small Area FMR for ZCTAs, a modified FY 2021 twobedroom FMR for non-metropolitan counties, and the FY 2021 four-person VLIL for this calculation.
The modified FY 2021 two-bedroom Small Area FMRs for ZCTAs differ from the FY 2021 Small Area FMRs in four ways. First, HUD did not limit the Small Area FMR to 150 percent of its metropolitan area FMR. Second, HUD
did not limit annual decreases in Small Area FMRs to ten percent, which was first applied in the FY 2018 FMR
calculations. Third, HUD adjusted the Small Area FMRs in New York City using the New York City Housing and Vacancy Survey, which is conducted by the U.S. Census Bureau, to adjust for the effect of local rent control and stabilization regulations. No other jurisdictions have provided HUD with data that could be used to adjust Small Area FMRs for rent control or stabilization regulations.1 Finally, the Small Area FMRs are not limited to the State non-metropolitan minimum FMR.
The FY 2021 two-bedroom FMR for non-metropolitan counties was modified only by removing the state non-metropolitan minimum FMR.
The numerator of the ratio, representing the development cost of housing, was the areas FY 2021 FMR, or Small Area FMR in metropolitan areas. In general, the FMR is based on the 40th-percentile gross rent paid by recent movers to live in a two-bedroom rental unit.
The denominator of the ratio, representing the maximum income of eligible tenants, was the monthly LIHTC
income-based rent limit, which was calculated as 112 of 30 percent of 120
percent of the areas VLIL where the VLIL was rounded to the nearest $50.
2. Sort Areas by Ratio and Exclude Unsuitable Areas. The ratios of the FMR, or Small Area FMR, to the LIHTC
income-based rent limit were arrayed in descending order, separately, for ZCTAs and for nonmetropolitan counties.
ZCTAs with populations less than 100
were excluded in order to avoid designating areas unsuitable for residential development, such as ZCTAs containing airports.
3. Select Areas with Highest Ratios and Exclude QCTs. The DDAs are those areas with the highest ratios that cumulatively comprise 20 percent of the 1 HUD encourages other jurisdictions with rent control laws that affect rents paid by recent movers into existing units to contact HUD about what data might be provided or collected to adjust Small Area FMRs in those jurisdictions.

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