In HUD multifamily communities where the residents pay either all or a portion of their own utility expenses, HUD provides a utility allowance in addition to the subsidy for each unit. This utility allowance is based on an estimate of the average monthly utility costs for each unit size.

In June of 2011, HUD released a memo that described the multifamily industry’s responsibility to adjust the utility allowance on an annual basis when the contract rent is adjusted. The memo clarified that owners/agents must submit a utility analysis with the rent adjustment submission or the rent adjustment would be held until the proper documentation was received. The memo, however, gave very little detail on how this utility analysis should be conducted, so HUD offices released their own information on how to conduct this analysis.

On June 22, 2015, HUD issued Notice H-2015-04, which standardizes the methodology for completing this utility analysis. Further clarification was issued earlier this week, through a document called Frequently Asked Questions: Methodology for Completing a Multifamily Housing Utility Analysis. Acknowledging that this process is more rigorous than the one you might have used before, both the notice and the FAQs clarify that properties with contract anniversary dates that fall within 180 days of publication of the notice can continue to use their old methodology this year.

The new methodology requires owners to establish a baseline utility allowance for each of the bedroom sizes every third year. The baseline is established by obtaining utility data for an appropriate sample size. HUD further clarifies the appropriate sample size in a Figure attached to the notice. The smallest sample size for any unit type is 20 units. If you have 20 or less of any one unit size, you must obtain utility data on all of the units.

In the off years, HUD allows a Factor-based Utility Analysis, which utilizes a state-specified Utility Allowance Factor (UAF) calculated by HUD on an annual basis for each state.

Remember, if your contract anniversary date falls after December 19, 2015, you will be required to use this new method with the next gross rent change you request. HUD Notice H-2015-04 can be found here.

Click here to view the FAQs document.

For further guidance, watch for the NCHM webinar Calculating Utility Allowances coming this fall.

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