Today, HUD issued the 2025 Operating Cost Adjustment Factors (OCAFs) for eligible multifamily housing projects under Section 8 of the United States Housing Act of 1937. Property managers, housing providers, and stakeholders must understand the changes. They can then implement the changes to ensure compliance and proper rent adjustments for assisted housing projects.
What Are OCAFs?
OCAFs are annual factors that adjust rents for Section 8 housing contracts renewed under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). They apply to project-based assistance contracts with anniversary dates on or after February 11, 2025. These adjustments reflect changes in operational expenses, excluding debt service, across states and territories.
Key Updates for 2025
Methodology Changes
- HUD is shifting from the Producer Price Index (PPI) for insurance data to using year-to-year changes in actual cost data sourced from audited financial statements.
- HUD will use regional averages instead of state-specific data for states with fewer than 100 multifamily properties submitting audited financial statements.
This update aims to capture the rising property insurance costs that multifamily properties face and account for geographic variations accurately.
Components of OCAF Calculation
OCAFs are based on changes in nine operating cost categories:
- Electricity
- Source: Energy Information Administration (EIA), “Electric Power Monthly” report, Table 5.6.B
- Details: Compares average electricity prices between January 2023–May 2023 and January 2024–May 2024.
- EIA Electric Power Monthly Table 5.6.B
- Employee Benefits
- Source: Bureau of Labor Statistics (BLS) Employment Cost Index (ECI), Private Industry Benefits, All Workers (Series ID CIU2030000000000I)
- Details: Compares the second quarter of 2023 to the second quarter of 2024.
- Employee Wages
- Source: Bureau of Labor Statistics (BLS) ECI, Private Industry Wages and Salaries, All Workers (Series ID CIU2020000000000I)
- Details: Compares the second quarter of 2023 to the second quarter of 2024.
- Fuel Oil
- Source: EIA, “U.S. Weekly Heating Oil and Propane Prices” report
- Details: Compares average weekly heating oil prices from October 2022–March 2023 and October 2023–March 2024.
- EIA Weekly Heating Oil Prices
- Goods/Supplies/Equipment
- Source: Bureau of Labor Statistics (BLS) Consumer Price Index, All Items Less Food, Energy, and Shelter (Series ID CUUR0000SA0L12E)
- Details: Compares July 2023 to July 2024.
- Insurance
- Source: Audited Financial Statements (AFS) for multifamily properties
- Details: Uses state-level data for property insurance expenditures from 2022–2023 or HUD regional averages where insufficient state data exists.
- Natural Gas
- Source: EIA, “Natural Gas Residential Energy Prices”
- Details: Uses state-level data from June 2023–May 2024, with estimated data for missing months.
- EIA Natural Gas Residential Prices
- Property Taxes
- Source: U.S. Census Bureau, Quarterly Summary of State and Local Government Tax Revenue, Table 1
- Details: Uses April 2023–March 2024 data to calculate 12-month taxes per housing unit.
- Census Quarterly Tax Revenue Data
- Water/Sewer/Trash
- Source: BLS Consumer Price Index, All Urban Consumers, Water and Sewer and Trash Collection Services (Series ID CUUR0000SEHG)
- Details: Compares July 2023 to July 2024.
HUD uses the source data to calculate adjustments for each cost category at the state or regional level. The agency weighs each component based on its share of total operating costs, calculated using audited Annual Financial Statements data.
State-Level Data and Aggregation
- OCAFs are determined at the state level, allowing for tailored adjustments based on localized data.
- For states lacking sufficient data, regional or national averages are utilized.
2025 OCAF Highlights
The adjustments vary by state. For example:
- Alabama: 5.3%
- Connecticut: 3.0%
- Mississippi: 5.4%
- Virginia: 4.3%
The Virgin Islands experienced the highest adjustment at 8.5% while Connecticut had the lowest.
Implications for Property Managers and Owners
- Timely Compliance: These adjustments take effect for contracts with anniversary dates on or after February 11, 2025. Property managers should review their contracts and ensure that new rents align with the updated OCAFs.
- Impact on Rent Calculations: The changes in methodology, particularly for insurance data, may lead to significant variations in allowable rent increases.
- Public Comment Period: You can comment on the OCAF methodology changes until January 10, 2025.
Next Steps
In order to ensure smooth implementation, please consider the following:
- Review OCAF Adjustments: Verify the applicable adjustments for your state or territory.
- Adjust Rent Calculations: Incorporate the new factors into rent recalibration processes.
- Engage with HUD: Submit feedback on the methodology changes if you have concerns or recommendations.
For detailed OCAF figures and more information, visit HUD’s Federal Register Notice or download the document below.
