Family LIHTC Properties Have Higher Expenses, Income than Senior Properties

Published by H. Blair Kincer on Monday, October 19, 2020 - 12:00am

Family properties spend more and earn more.

That’s one of the conclusions from the 2020 Multifamily Rental Housing Operating Expense Report, the annual report published by Novogradac.

The data shows that low-income housing tax credit (LIHTC) properties for families have higher operating expenses, but also more net operating income (NOI) than senior properties.

The study includes expense data on nearly 1,500 properties, comprised of nearly 160,000 units. Operating expenses for all properties increased 6.8 percent while overall NOI had its largest increase in the 10 years for which Novogradac has tracked the data–$378 per unit.

Both of those trends were apparent when comparing senior properties to family properties.

Family Properties Have Greater Expenses Again

The type of LIHTC tenancy for a property can have a significant effect on its expenses, particularly when comparing family and senior properties. In 2019, as every year for which Novogradac has tracked expenses, family properties had a higher per-unit expense than senior properties. In 2019, it was $5,489 per-unit for family properties, $5,120 for senior properties.

The higher level for family properties isn’t across the board. Senior properties had higher management fees and payroll, keeping with the long-held theory that senior tenants require more in-person contact with management.

However, family properties had higher expenses in every other group, likely because there are greater repairs and maintenance expenses and utility expenses due to the presence of children and the greater number of residents in a family LIHTC unit.

The increase compared to 2018 was similar for both types of property. Family properties increased 7.3 percent in expenses and senior properties increased 7.0 percent.

A better measure for categories may be the compounded rate of growth. Over the period of 2010 to 2019, compounded growth of expenses for family properties was 3.1 percent, while senior properties had a compounded growth rate of 2.8 percent. That shows that the gap will likely continue to increase.

More Rental Income, More NOI for Family Properties

Blog Graph: Family Properties Have Greater NOI
Click to enlarge

 

While expenses were greater for family LIHTC properties in 2019, the NOI for those properties was greater than senior properties for the fourth straight year. In fact, the NOI per unit for family properties in 2019 was $3,919, the highest in the 10 years for which Novogradac has tracked the information. Senior properties had a per-unit NOI of $3,569, which was the third straight increase, but still $350 per unit behind family properties.

The higher NOI for family properties comes almost exclusively from rental income. While expenses were $369 per unit higher in family properties, the rental income was $719 higher per unit.

That hasn’t always been true. For the first half of the decade of the 2010s, senior properties had a significant edge over family properties, with the gap never dropping below $400 per unit.

The fact that overall NOI continues to grow, regardless of property type, indicates growing health of LIHTC housing.