Payroll for LIHTC Properties Sees Record Increase, But Maintains Long-Term Stability
Published by Kelly Gorman on Thursday, November 16, 2023 - 12:00AM
After a unique one-year drop, payroll at low-income housing tax credit (LIHTC) properties tracked by Novogradac increased at a record pace in 2022. That increase came in a year when a dramatic surge in repairs and maintenance costs and an overall 10.4% increase in operating expenses overshadowed the 9.2% payroll jump.
That data is in the 2023 Low-Income Housing Tax Credit Income and Operating Expenses Report, published Tuesday by Novogradac.
Payroll expenses increased from a median of $1,492 per apartment in 2021 to $1,664 per apartment in 2022 following the only time in the 13-year history of Novogradac tracking income and expense data that payroll dropped. The 2022 increase was the largest single-year increase in payroll since Novogradac began tracking such data, both in terms of percentage increase and nominal dollar amount.
The 21.7% year-over-year increase in repairs and maintenance expenses meant that category was the most expensive per-unit cost among the six expense categories–administration, repairs and maintenance, utilities, payroll, management fees, and property insurance–for the first time since Novogradac began tracking the data. In all previous years, payroll was the highest expense.
Overall rental income increased 9.2% in 2022 while operating expenses jumped 10.4%. Both outpaced the overall rate of inflation, which was 6.8% from December 2021 to December 2022.
For payroll, 2022 was a return to historic norms of year-over-year increases. The 1.9% decrease in 2021 was largely attributed to reductions in staff at many properties due to the COVID-19 pandemic and related restrictions and economic struggles. It’s also possible that “The Great Resignation”–when many Americans reconsidered careers–led to higher wages to retain employees in 2022.
The average American salary increased 2.4% during 2022, according to the U.S. Bureau of Labor Statistics (BLS). Novogradac’s 9.2% increase in payroll could be partially accounted for by an increased number of employees, so the BLS figure and the Novogradac percentage increase does not provide an apples-to-apples comparison–although it’s unlikely that most of the change is attributable to an increase in the number of employees.
Nonmetropolitan areas saw a particular jump in payroll, with those costs going up 19.3% in 2022 compared to 2021. That continued a multiyear trend of nonmetropolitan payroll increasing faster than metropolitan payroll: In 2016, nonmetropolitan payroll was 71.2% of the total in large metropolitan areas and in 2022, it was 84.1% of large metropolitan areas.
Over the 13-year history of Novogradac tracking such data, payroll has a compound annual growth rate (CAGR) of 3.4%, compared to a 3.7% CAGR for all expenses, so despite the record increase in 2022, property owners and property managers can take comfort in the long-term trend of payroll stability.
Continue Learning with Novogradac
This is Part 3 in a four-part blog series. To learn more about rental income and operating expenses for LIHTC properties, read the rest of the blog series, which is linked below. Also, the Low-Income Housing Tax Credit Income and Operating Expenses Report dives even deeper into this subject matter.