The highly anticipated Operating Cost Adjustment Factors (OCAFs) for 2023 were released on November 15th. As expected, the OCAFs are much higher than usual and are reflective of changes in HUD’s methodologies, recent economic circumstances, inflation, and pandemic-related inflections.

The OCAFs take into account changes in project operating costs in the past year and determine the amount by which contract rents for certain affordable housing programs may increase. Specifically affected are any Section 8 contracts renewed under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) which have anniversary dates on or after February 11, 2023. The set OCAF percentage amount is determined by HUD and established for each state in the US, as well as for the Virgin Islands, Puerto Rico, the Pacific Island territories, and the District of Columbia.

In 2022, OCAFs ranged from 1.8% (Hawaii/Pacific Islands) to 3.5% (California). Overall, in the US, operating costs were determined to have increased by 3.1% in the previous year. In 2023, the OCAFs are substantially higher, with the overall US factor increasing by 6.1%, ranging from a low of 4.8% in South Dakota to a high of 8.3% in Maine. This means even the smallest OCAF in the US for 2023 is more than a full percentage point higher than the largest OCAF for 2022.

As always, all locations afforded the opportunity to renew in the upcoming year will see an increase, but some will see an unprecedented change. These larger adjustment factors will help owners collect more revenue from HUD to support their aging properties in a time of increased costs for supplies, maintenance, services, and other program-related expenses.

For this year’s calculations, HUD felt it necessary to factor in inflation levels. To do so, they examined the customary data sources – including employee benefits and wages, price of goods/supplies/equipment, property taxes, utility prices, and others – over a period that exceeded one year. Typically, an OCAF calculation uses just one-year data timeframes, but with an increased data set and a well-known inflation concern, a more accurate picture of real costs emerges. Going forward, in 2024, HUD will also begin using less “vintage” data (literally data that is one-quarter newer than had been previously used in OCAF calculations) for a better real-time picture of economic conditions.

Assuming HUD stays committed to these new methodologies, owners and agents can anticipate more accurate rent adjustments and greater predictability in property operations.

To find out how much your state or territory’s OCAF will be for 2023, please visit the link by clicking here.

Share This