Policy | Regulation | November 16, 2022

HUD Proposes OCAF Improvements Based on Inflation and Insurance Costs

BY Juliana Bilowich

On November 15, HUD published a Notice to establish Operating Cost Adjustment Factors (OCAFs) for 2023, and to propose changes to the calculation method. OCAFs are annual factors used to adjust project-based Section 8 rents annually, including rents in Section 202/8s, based on nine market-driven cost components.

For 2023 OCAFs, HUD is proposing to change the calculation method and data used to better account for high inflation and sharp increases to property insurance costs. LeadingAge advocated for changes to HUD’s budget-setting approach and is hopeful that the new data approach will benefit affordable senior housing providers struggling with relatively flat operating budget increases in a time of historic cost increases.

HUD is currently accepting comments for 30 days on the proposed changes to the OCAF calculation (by December 15, 2022). Unless HUD receives comments that would lead to the reconsideration of these proposed changes, the changes will become effective on February 11, 2023, meaning they will impact the budgets calculations for eligible multifamily housing projects with an anniversary date on or after February 11.

Accounting for General Inflation

In its proposed OCAF adjustment for 2023, HUD is attempting to account for “historically high inflation levels” by relying on data that reflects a period longer than one year. This approach is in line with HUD’s attempts to adjust its Fair Market Rents (FMR) calculation to address higher than expected inflation this year. The use of a longer period of data is proposed for the 2023 OCAF data sets only, and HUD’s Notice says it will revert back to year-over-year data after this year.

In addition, beginning with the 2024 OCAFs, HUD is proposing to rely on more recent data than in past calculations. To reduce the lag time between when OCAFs are calculated and when they go into effect, HUD will pull data in August of each year, instead of in May, to calculate OCAFs for the following year. 

Adapting to Rising Insurance Costs

To calculate the inflation factor for the insurance component, HUD is proposing to switch from using consumer data, like the Consumer Price Index, to relying on industry data, like the Producer Price Index and other data, to better reflect the cost of property insurance.

LeadingAge welcomes the proposed OCAF changes from HUD; LeadingAge has engaged HUD in conversations for the past year to improve HUD’s approach to rising insurance costs and will continue to push for more financial feasibility.

The HUD Notice is available here. To get involved with LeadingAge’s advocacy on insurance costs in the affordable housing field, reach out to Juliana (jbilowich@leadingage.org).