Owners of affordable housing properties are facing rising operational costs, but higher income is helping offset some of those pressures. According to a new report from Yardi Matrix, expenses for affordable multifamily units grew by an average of 6.4% year-over-year through September 2024, a sharp rise from the typical 3-4% annual increase in prior years. While this marks a slight deceleration from the previous two years, it reflects an ongoing trend of rising operational costs, with insurance and marketing expenses driving the increases.
Insurance costs have been a significant burden, surging by 20.3% year-over-year in 2024. This increase is largely due to the rise in weather-related claims—hurricanes, floods, and wildfires—that have become more frequent and severe. Insurance now accounts for nearly 10% of total expenses for affordable housing properties, up from 5.6% in 2018. Regions like the Southeast, Southwest, and West have seen some of the highest premium increases, with cities like Houston, Tampa, and Los Angeles experiencing jumps of more than 25%.
Despite these rising expenses, affordable housing owners are benefiting from higher income growth. The rent increase formula for affordable housing, set annually by the U.S. Department of Housing and Urban Development (HUD), has allowed for larger rent hikes in recent years. That's in line with inflation and wage growth.
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HUD capped the allowable rent increase at 10% in 2024, which is a substantial rise compared to previous years. However, the policy change has resulted in a 7.2% increase in income per unit for affordable housing properties through the third quarter of 2024. Cities like Nashville and San Antonio have even seen double-digit income growth, Yardi Matrix found.
This uptick in income has led to an 8.1% year-over-year increase in net operating income (NOI) for affordable properties. However, the financial picture isn’t uniformly positive. In cities like Charlotte and Houston, the category has been outpaced by even steeper increases in expenses, leading to negative NOI in some cases.
As insurance premiums climb, the outlook for affordable housing owners remains uncertain. The broader commercial real estate market, according to a recent report from Gallagher Insurance, is also grappling with rising premiums as insurers tighten their underwriting policies across all asset classes. For affordable housing owners, these rising insurance costs amplify the financial strain, as they typically operate within narrower margins than traditional multifamily owners.
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