Operating expenses at low-income housing tax credit (LIHTC) developments increased by 2.98% in 2013, or approximately $130 per unit, according to a report released by Novogradac & Co.
The latest data reveals the expenses grew slightly faster in 2013 than the annualized growth rate of 2.82% that LIHTC properties experienced from 2010 to 2013, according to the 2015 edition of Novogradac Multifamily Rental Housing Operating Expense Report—Survey and Analysis for LIHTC Properties.
To provide insight into national and regional operating expense trends, the accounting and advisory firm collected and analyzed data from more than 2,100 properties that include more than 241,000 individual units to illustrate how rental housing properties’ operating expenses differ over time as well as by property size, type, and location.
“Our analysis confirms some conventional industry wisdom about operating multifamily rental real estate, but it also provides greater insight and details that provide key clarifications about those notions,” says H. Blair Kincer, a partner in the metro Washington, D.C., office, who is in the firm’s government consulting and valuation advisory services group. “For example, the number of units in a multifamily rental housing property affects total median expenses per unit because of the economies of scale present in larger LIHTC properties. However, our data also revealed that the difference in operating expenses between large and small LIHTC properties is not as significant as sometimes thought, and is not seen consistently across the size spectrum.”
Kincer points out that the 2.98% increase is in line with the 3% annual growth rate that the industry often uses to analyze properties and estimate expenses.
The study also confirms another conventional wisdom in the industry: Senior housing properties have lower maintenance costs but higher administrative expenses than family properties, according to Kincer.
The findings are also mostly congruent with economic trends, with a few notable exceptions. For example, Novogradac’s analysis revealed sizable growth in utility expenses in 2013, which was surprising given stagnating energy prices, said officials.
This is the second year the firm has published the report.
“This report corroborates many long-held industry practices, such as underwriting to a 3 percent annual growth rate in operating expenses,” said Michael J. Novogradac, managing partner in the firm’s San Francisco office, in a statement. “However, our findings also delve deeper and deliver observations ranging from unit-level medians to regional and national trends. They provide strong tools for benchmarking affordable multifamily rental housing expenses for LIHTC developers, investors, property owners and managers, and others.”
