The team at HelloData.ai recently analyzed historical operating expenses from 10,247 apartment buildings across the country, looking at which expenses increased the most. In this analysis we'll cover:
All of the data used in this study is collected from publicly available loan data, and is available for free download. Read more below, or feel free to schedule a demo of our expense comps and asset optimization tools!
From 2020 through 2022, average multifamily operating expenses in the U.S. increased from about $6,800 per unit to $7,700 per unit, a 13.4% increase (inflation was 13.1% over the same period). When we look at individual expense line items, however, it's a more interesting story.
Every line item changed significantly from 2020-2022, but some clearly increased more than others. property insurance costs far outpaced inflation, growing at 30.7%. Real estate taxes only grew by about 8.2% nationally, however.
Clearly multifamily operating expenses have increased across the board, but so have inflation and market rents. In the next section, we compare EGI growth to expense growth to see how this growth looks on a percent of EGI basis.
There have been many articles written about the rapid pace of rent increases over the past few years. As you can see in the table below, EGI growth was actually slightly below inflation, with a 12.0% growth rate between 2020 and 2022:
When we looked at real estate taxes and insurance cost increases as a percent of EGI instead of a per unit cost, the changes were less pronounced. While the increase in property insurance costs is clear, real estate taxes as a percent of EGI actually declined slightly over the analysis period:
R&M costs saw the second largest increase next to insurance on both a per unit and % of EGI basis. Labor shortages continue to pose an issue in many markets, particularly in the construction trades. Combined with inflation, this is making unit turns and value-add improvements more and more costly in the multifamily sector.
On average, insurance costs increased by 30.7% from 2020 through the end of 2022, but these increases vary significantly by state. Regionally, the Midwest saw the lowest increases over this period, at only 21%, while the South experienced a 39.3% increase in insurance costs over the same timeframe.
On a state-by-state basis, Louisiana experienced the greatest increase at 50.6%, based on the 111 properties surveyed there. That's a substantial increase over a 3-year period! Florida and Texas were next, with 47.1% and 46.2% increases, respectively. This makes sense given the recent increases in extreme weather – hurricanes have been getting more frequent and more destructive, and sea levels continue to rise. Coastal cities certainly appear to have borne the brunt of insurance cost increases.
Florida, Texas and Tennessee definitely fared better than Louisiana and Mississippi because of their strong rent growth, but the increase in insurance costs as a percent of EGI in FL and TX was actually greater. Florida saw insurance costs as a percent of EGI rise by nearly 75%!
Midwestern States like Michigan and Ohio were near the bottom of the list, with insurance cost increases in the mid-teens. These increases look very modest relative to Southern states on both an absolute and % of EGI basis. Across the board, though, the increase in insurance costs as a % of EGI has been substantial:
 Data includes states for which we had at least 50 properties with opex data.
Although real estate taxes increased across all markets from 2020 to 2022, the amount was less than other major expenses. Overall, taxes increased by 8.2% over this timeframe across the U.S.
Illinois saw the largest increase in real estate taxes per unit, with an average increase of 20.3% across the 297 properties surveyed. Arkansas and Indiana were next up, with increases of 15.0% and 14.4% respectively. The table below shows where taxes per unit increased the most nationally.
Real estate taxes increased significantly more (in terms of both per unit and % of EGI costs) for older properties. Of the 261 Pre-1920s vintage properties we surveyed, taxes increased 13.5% on a per unit basis and 4.0% on a percent of EGI basis.
Hello Data also analyzed differences in property taxes by state and taxes by property size for every state in which we had data on more than 50 properties. This data can be downloaded below.
Good multifamily expense comps are hard to find.
Using detailed income and expense reporting data from over 25,000 multifamily properties nationwide, we built a system that delivers statistically relevant rent and expense comps, analyzes their operations, and identifies areas for operational improvement.
With only an address, you can compare your operations to relevant comps or underwrite multifamily investments anywhere in the country. Check out the free trial or download the data from this report below: