The Department of Housing and Urban Development (HUD) announced plans to update the Operating Cost Adjustment Factors (OCAFs) for eligible multifamily housing developments with project-based assistance contracts under the Section 8 program.
The move seeks to help housing providers’ allowable operating cost adjustments better reflect rising operating expenses, particularly insurance costs, seen across the country, according to officials.
“As I have traveled across the nation, I have heard from property owners who have difficulty maintaining affordable rents while keeping up with rising expenses, impeding our efforts to boost the supply of available affordable homes,” said HUD agency head Adrianne Todman. “Today, our new adjustment factors will help families and affordable housing providers keep up with increasing housing costs.”
The Multifamily Assisted Housing Reform and Affordability Act of 1997 requires HUD to set OCAFs on a yearly basis to establish contract rental rates. OCAFs, which vary by state and territory, are developed with industry feedback and account for critical changes in market conditions, such as fluctuations in energy costs, labor expenses, maintenance and repairs, and insurance premiums. According to HUD data, assisted multifamily properties have seen their insurance costs almost double over the last five years on average, while properties located along the Gulf and Atlantic coasts saw the largest increases.
The new OCAFs apply to eligible multifamily housing projects with contract anniversary dates on or after Feb. 11.
“To calculate the inflation factor for the insurance component, HUD has since 2023 used the industry data for Direct Property and Casualty Insurers-Commercial Multiple Peril Insurance series from the Bureau of Labor Statistics, Producer Price Index (PPI),” said a recent Federal Register notice. “Beginning with the 2025 OCAFs, HUD instead will use the year-to-year change in actual cost data from audited financial statements, as it better captures the significant rise in property insurance costs that multifamily properties have faced in recent years. Specifically, HUD will use actual state-level data, except for states that have fewer than 100 multifamily properties with submitted audited financial statements in 2022 and 2023. For those states, HUD instead uses the HUD Regional average change in actual insurance expenditures. By contrast, HUD's former methodology of using the PPI failed to capture significant geographic variations in the cost of insurance, as it is a national index.”
Additionally, HUD is seeking public comment on the calculation methodology used to determine the 2025 OCAFs. All interested parties and members of the public are invited to submit their views, comments, and recommendations, which may be submitted electronically through www.regulations.gov or the methods described in the Federal Register Notice by Jan. 10.
