Benchmarking Operating Costs

Each year, HUD assesses the operating budgets of the Project Rental Assistance Contract (PRAC) developments for the elderly (Section 202) and disabled (Section 811). To determine possible improvements to the operating cost standards for these contracts, HUD's Office of Policy Development and Research commissioned Section 202 and 811 Operating Costs Needs. In this study, researchers used benchmarks of expenses based on the location and characteristics of HUD-assisted multifamily properties serving similar populations. The results show that formulating benchmarks for operating cost subsidies in this manner — accounting for location, development and unit size, type and age of building, type of ownership, neighborhood poverty rate, and tenant clientele — produces accurate benchmarks of operating costs for many Section 202 and 811 PRACs. In some cases, field testing showed that while the model produced credible operating costs benchmarks overall, some local and property-specific factors not included in the model significantly affected costs.