Sligo Apartments in Silver Spring, Maryland

Rental Income, NOI, Operating Expenses of LIHTC Properties Set Record, New Report Reveals

by Channing Hamilton

SAN FRANCISCO — The net operating income (NOI) of properties financed by low-income housing tax credit (LIHTC) equity increased by 7.4 percent in 2022, according to a report from Novogradac, a San Francisco-based accounting firm focused on real estate and community development. The NOI at these properties surpassed the inflation rate, which was 6.8 percent from December 2021 to December 2022, as the nation emerged from the worst of the COVID-19 pandemic.

The 2023 LIHTC and Operating Expenses Report — published by Novogradac — tracked data from more than 186,000 affordable housing units across nearly 1,700 properties in the U.S. According to the report, operating expenses grew at a faster rate than rental income. Operating expenses jumped by 10.4 percent, while rental income increased by only 9.2 percent. However, both operating expenses and rental income surpassed the 6.8 inflation rate.

Novogradac states that the increased rental income and increased operating expenses resulted in an NOI per unit of $4,188 — the highest NOI the firm has seen since it began tracking the data in 2010. The company has been issuing the LIHTC income and expenses reports since 2014.

“Over the history of tracking this data, we’ve seen how annual changes in rental income and operating expenses vary depending on a variety of economic and regulatory factors, but both track fairly closely, over-time, with inflation,” said Michael Novogradac, CPA and managing partner of Novogradac.

“That said, changes in the rate of inflation usually first affect operating expenses, as property operations more directly respond to market conditions,” Novogradac adds. “Changes in the rate of inflation affect rental income more slowly and less predictably, because rental income limits for LIHTC-financed housing properties are generally adjusted annually and are based on inflation adjusted data from previous years and evolving regulatory rules.”

The biggest increase in expenses came in the category of repairs and maintenance, according to the data. Repairs and maintenance saw a 21.7 percent increase over the 2021 figures to a median of $1,664 in expenses per unit. This increase was consistent and large across different geographic areas, types of buildings, sizes of properties and ages of the developments.

“The pandemic and associated social distancing requirements particularly limited repairs and maintenance spending in 2020 and 2021,” said Kelly Gorman, Novogradac partner and lead author of the report. “Because of that, many of the expenses in 2022 were due to routine maintenance being delayed during the height of the pandemic. However, at least some of the increase was related to the increased inflation rate and things like supply-chain difficulties. This is an area that we will continue to monitor closely.”

— Channing Hamilton

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