LIHTC Per Unit Operating Expenses Decline as Units Increase

Published by Michael Novogradac on Friday, May 29, 2015 - 12:00am

Low-income housing tax credit (LIHTC) properties with a greater number of units have lower median per unit operating expenses than LIHTC properties with fewer units, according to the 2015 Novogradac Multifamily Rental Housing Operating Expense Report. Many industry participants are aware of the relationship between operating expenses and an LIHTC property’s number of units. For example, the report released by the U.S. Department of Housing and Urban Development (HUD), “What Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond?,” found that buyers of post 15-year LIHTC properties often bought larger properties because of assumed economies of scale. However, Novogradac’s report finds that, while consistently present, per unit cost savings are relatively small at larger properties. The report found a $187 (4 percent) savings in median total expenses per unit at properties with 100 to 199 units compared to those with 50 to 99 units.


Blog Graph Total Expenses Per Unit by Property Size, 2010-2013
Click to Enlarge


Per unit savings are primarily driven by savings in administration expenses, management fees and property insurance. When comparing administration expenses, management fees and property insurance for properties with 49 or fewer units to those for properties with 200 to 500 units, per unit administration expenses decreased the most, dropping $189 per unit.


Blog Graph Expense Categories By Property Size, 2010-2013
Click to Enalrge


Overall, the report provides evidence to support common industry expectations that operating expenses decrease as the units in a property increase, but finds that savings are relatively small.