On Dec. 11, 2024, HUD issued a notice seeking public input on technical changes it intends to make to its Operating Cost Adjustment Factors (OCAFs) calculation method.
The notice (Docket No. FR-6495-N-01) establishes (OCAFs) for project-based assistance contracts issued under Section 8 of the United States Housing Act of 1937 and renewed under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) for eligible multifamily housing projects having an anniversary date on or after February 11, 2025.
What are OCAFs?
OCAFs are annual factors used to adjust Section 8 rents renewed under section 515 or section 524 of MAHRA. Additionally, OCAFs are part of an allowable method of rent adjustment for project-based voucher contracts.
In the past HUD has 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).
What’s different with OCAFs Now?
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.
Further, OCAFs are calculated as the sum of weighted component cost changes for electricity, employee benefits, employee wages, fuel oil, goods/supplies/equipment, insurance, natural gas, property taxes, and water/sewer/trash, using publicly available indices.
The weights used in the OCAF calculations for each of the nine cost component groupings are set using current percentages attributable to each of the nine expense categories. HUD calculates weights using three years of audited Annual Financial Statements from projects covered by OCAFs.
The expenditure percentages for these nine categories have been found to be stable over time, and using three years of data increases their stability. The nine cost component weights and OCAFs, are calculated at the State level, which is the lowest level of geographical aggregation with enough projects to permit statistical analysis.
HUD uses the best current price data sources for the nine cost categories in calculating annual change factors. State-level data for electricity, fuel oil, and natural gas from Department of Energy surveys are relatively current and continue to be used. Data on changes in employee benefits, employee wages, goods/supplies/equipment, property taxes, and water/sewer/trash costs are available only at the national level. For insurance in 2025, HUD will use State and HUD Region data.
To submit comments electronically, do so through the Federal eRulemaking Portal. To comment vial mail, submit comments or requests for reevaluation by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0500.
