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Subscription CenterRepairs, Maintenance Expenses See Big Jump in 2022: Start of a Trend or Catch-up Period?
Published by Kelly Gorman on Thursday, November 16, 2023 - 12:00AM
Repairs and maintenance expenses for the 186,000 apartments in Novogradac’s proprietary data set of low-income housing tax credit (LIHTC)-financed properties saw a 21.7% increase in 2022, far outstripping the rate of inflation, the overall increase in expenses and any previous annual increase in the 13-year history of such data.
For the first time in the 13 years Novogradac has tracked such data, repairs and maintenance was the largest expense category by dollars, as reported in the 2023 Low-Income Housing Tax Credit Income and Operating Expenses Report, published Tuesday by Novogradac.
Whether that increase is due to deferred maintenance due to the COVID-19 pandemic or heralds an era of increased costs for repairs and maintenance is a key question that will shape how affordable housing property owners and managers go forward.
In the special report, Novogradac tracks operating expenses in six categories: Administration, repairs and maintenance, utilities, payroll, management fees, and property insurance. The data also includes vacancy loss, which counts against overall income and is considered income data.
Of those categories, the 21.2% jump in repairs and maintenance expenses in 2022 was almost twice the second-largest annual percentage increase (administration, which was up 11.7%). The increase in repairs and maintenance was also nearly double the previous largest year-over-year increase for that category.
The percentage increase in repairs and maintenance expense was consistent for properties across the nation and in nearly every breakdown of properties (by geography; whether metropolitan, nonmetropolitan or micropolitan; by property height or size; by type of tenant; by age of building, etc.).
For each of the previous 13 years that Novogradac tracked expenses data, payroll was the largest expense category by dollar value, but in 2022, repairs and maintenance cost a median of $1,664 per apartment, compared to $1,628 per apartment spent on payroll across the entire data set.
While the 2022 increase for repairs and maintenance was larger than any previous year, it continues a recent trend. Excluding 2020 (when due to social distancing restrictions, much routine maintenance was deferred, resulting in a 3.4% decrease per unit for repairs and maintenance costs that year), the category has seen jumps of 12%, 11.3% and 21.2% since 2019. The result is that the median amount spent on repairs and maintenance per apartment has gone from $1,140 in 2018 to $1,664 in 2022 (a 46.0% increase over four years).
Whether the large increase in 2022 was mostly due to property managers playing catch-up on deferred maintenance or is part of something larger is unclear. The lack of preventative maintenance during the height of the pandemic led to more expensive repairs a year or two later, an increase further boosted by increased construction, labor and supply costs that came out of an inflationary period compounded by supply chain issues.
Looking at a longer trend, over the 13-year history of the Novogradac report, repairs and maintenance has a 5.6% compound annual growth rate (CAGR), compared to a 3.7% CAGR for total expenses. The CAGR for repairs and maintenance ranks behind only property insurance (7.7%) among all categories tracked by Novogradac.
Property managers will be wise to keep an eye on repairs and maintenance expenses to determine the magnitude and duration of the recent increases.
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This is Part 2 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.
Other blog posts in this series:
Payroll for LIHTC Properties Sees Record Increase, But Maintains Long-Term Stability
LIHTC Property Insurance Increased in 2022, but Jump Differed by Area