Dive Brief:
- Overall operating expenses per multifamily unit rose by 7.1% year over year in January, up to $8,950, according to Yardi Matrix’s newest multifamily expenses report.
- Property insurance premiums saw the steepest rise out of all expense types at 27.7% year over year, followed by marketing at 12.3%, administrative expenses at 9.6% and repairs and maintenance at 8.8%. Insurance expenses have risen by 129% total since 2018, up to an average of $636 per unit.
- Despite these cost increases, profitability rose over the 12 months ending in January. The average annual gross income per unit rose $1,056 during this period, while expenses rose $593, leading to a $463 increase in net operating income for housing providers.
Dive Insight:
Average annual expenses have risen rapidly as of late, driven by inflationary pressures, according to Yardi. Expenses rose by 8.7% in 2022, the year the Federal Reserve began raising interest rates to counter inflation, up from 1.6% in 2020 and 3.6% in 2019. While cost growth has fallen back in the 12 months ending in January, it remains elevated compared to historical trends.
Out of the 129 markets tracked by Yardi Matrix, the vast majority — 99 — saw a 5% or greater rise in expenses, while 28 saw expenses increase by 10% or more. Spokane, the leader at 18.9%, saw large increases across the board in administrative, payroll, maintenance and repair costs.
Markets with the strongest expense growth
| Market | YOY change in expenses |
|---|---|
| Spokane, Washington | 18.9% |
| Tallahassee, Florida | 18.8% |
| Lafayette, Louisiana | 18.1% |
| Portland, Maine | 14.7% |
| Pensacola, Florida | 14.0% |
| Huntsville, Alabama | 13.9% |
| Savannah-Hilton Head, Georgia-South Carolina | 13.9% |
| Southwest Florida Coast | 13.8% |
| Tampa, Florida | 12.8% |
| Reno, Nevada | 12.4% |
SOURCE: Yardi Matrix
Insurance costs have jumped particularly quickly in the Southeast — up 35.7% YOY in January — and other areas that are prone to weather-related natural disasters. Florida, in particular, has liability laws that make it easier for policy holders to sue insurers, which has had an upward effect on prices in the state, according to Yardi. Out of the five markets with the highest jumps in insurance premiums over the past year, four were in Florida.
While profitability is up, Yardi Matrix anticipates that rents will rise by only 1.8% for new leases in 2024 and that renewal rent growth, already on a decline, will continue to decelerate.
“Much of the growth in income in 2023 came from higher rents on tenants renewing their leases, which lagged the growth in asking rents on new leases in recent years,” Paul Fiorilla, director of research at Yardi Matrix, wrote in the report. “However, renewal lease rates have almost caught up with asking rents, so that avenue of growth is close to being tapped out.”
The Yardi Matrix data set is made up of over 20,000 properties that make use of the company’s operating software.
