Rental income at low-income housing tax credit (LIHTC) properties increased slightly in 2021, but that was offset by a larger jump in operating expenses, according to a new study by national accounting and consulting firm Novogradac.

An analysis of more than 125,000 LIHTC units revealed that rental income increased 0.8% in 2021 over the prior year, hitting a new record of $9,702 per unit.

However, that increase was outweighed by a larger 4.3% jump in operating expenses, which led to the first one-year drop in median net operating income (NOI) since 2017 for the properties tracked by Novogradac.

As a result of the slight increase in income and larger increase in expense, the NOI fell by 4% in 2021.

The latest analysis digs into data from a period when the nation was emerging from the COVID-19 pandemic and reflects changes in the different markets.

“Last year, the rental income increase was 0.8%, this growth rate is down from the two prior years,” says Kelly Gorman, principal at Novogradac, noting that the compounded annual growth rate has been 1.9% over the 12 years that the firm has been tracking the numbers.

Several factors likely contributed to rental income being stunted in 2021, including limits that state and local governments put on rent increases during the pandemic, eviction moratoriums, and some LIHTC owners choosing not to increase rents to help their residents, says Gorman.

There was also a notable 39.5% jump in vacancy loss, the cost when apartments are vacant or rent is delinquent, spiking to its highest level of $346 per unit in 2021. In comparison, the vacancy loss was $248 per unit the year before.

The vacancy increase can be attributed to eviction moratoriums that began to end in 2021, and many families also received financial assistance through the American Rescue Plan Act, which allowed them to move, resulting in more units turning over.

This year, it appears that owners have seen higher rent growth and lower vacancy loss. On the operating expense side, the 4.3% year-over-year increase is significant but still within the historic range that has been seen, according to Gorman, who adds that the average compounded annual growth rate is 3.2%.

Overall, costs increased during the pandemic, and inflation also began to be a factor toward the end of 2021, she says. Insurance costs experienced the largest increase of all expense categories at 33.5%. Repairs and maintenance was up 13.2%, which likely reflects an increase in the cost of materials in addition to maintenance that took place after being postponed in 2020, Gorman says.

Looking ahead, owners will be interested to know that the Department of Housing and Urban Development is expected to release its Multifamily Tax Subsidy Projects Income limits for LIHTC and tax-exempt bond properties around May 15, 2023. These limits are used to determine qualification levels as well as maximum rental rates for properties financed with LIHTCs and tax-exempt bonds. To make its calculations, HUD plans to utilize 2021 American Community Survey data rather than 2020 and adjust by a two-year inflation factor. Owners will know then what the rent and income limits will be next year.

At the same time, owners will want to continue to watch their operating expenses, including insurance premiums, and employ smart risk-management policies, says Gorman.

Read more about the "Novogradac Multifamily Rental Housing Operating Expense Report."