What Are Operating Cost Adjustment Factors (OCAFs)?

OCAFs are annual adjustment factors used to adjust rents for projects with Section 8 contracts renewed under various HUD programs. They provide a standardized method to account for changes in operating costs for multifamily housing projects across different geographical areas.

How Are OCAF Factors Determined?

HUD determines OCAFs through analysis of data on operating cost changes for multifamily housing. These factors are calculated based on:

• Changes in wages/salaries
• Employee benefits
• Property taxes
• Insurance costs
• Utilities expenses
• Maintenance and repair costs
• Administrative expenses
• Other miscellaneous operating costs

The data used to calculate OCAFs comes from multiple sources, including the Bureau of Labor Statistics (BLS), the American Community Survey (ACS), and HUD's own databases on property operating costs.

Regional Variations in OCAF Factors

OCAF factors vary by state to account for regional differences in operating costs. Some states consistently have higher OCAF factors due to:

• Higher cost of living
• Higher utility costs
• Higher property tax rates
• More severe weather conditions requiring increased maintenance

Historical Context of OCAFs

OCAFs were first implemented following the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). This legislation was designed to preserve affordable housing while reducing the cost of Section 8 contract renewals to HUD.

Prior to OCAFs, rent adjustments were often determined using the Annual Adjustment Factor (AAF) or through Budget-Based Rent Increase (BBRI) submissions, which were more complex and inconsistent processes.

The OCAF Formula and Calculation

The OCAF calculation follows a specific methodology to ensure that rent adjustments accurately reflect changes in operating costs. The basic steps are:

1. Determine the portion of the current rent attributable to debt service
2. Apply the OCAF factor only to the portion of the rent attributable to operating expenses
3. Add back the debt service component to determine the adjusted rent

This approach recognizes that debt service costs typically remain constant over time, while operating costs are subject to inflation and market changes.

Importance of OCAF Factors in Housing Policy

OCAFs play a critical role in HUD's efforts to:

• Maintain affordable housing inventory
• Ensure financial viability of HUD-assisted properties
• Provide fair compensation to property owners
• Standardize the rent adjustment process

Accurate OCAF calculations help strike a balance between maintaining affordability for tenants and ensuring property owners can cover increasing operating costs.