HUD Releases New Utility Allowance Guidelines
If you own or manage affordable housing, you’re probably wondering what the new utility allowance guidelines released by the U.S. Department of Housing and Urban Development (HUD) mean for you. Currently HUD has annual utility outlays exceeding $6 billion per year. These guidelines will aid HUD in exploring methods to decrease utility spending and property operating costs, as well as improve water and energy efficiency in multifamily affordable housing (most notably, project-based Section 8).
Overview of HUD Notice H-2015-04
More than any previous guidance from HUD, the new Notice provides owners and managers with clarity and explicit guidance regarding the calculation of Utility Allowances. We’ve broken down the 11-page Notice to highlight important takeaways:
- A baseline utility allowance must be established for each bedroom size once every third year, using specific sampling requirements outlined by HUD and actual utility data.
- For the following two years, allowances can be adjusted using the Utility Allowance Factor (UAF) of each utility. When using the UAF method, results should also be compared to actual paid utilities over the previous twelve months
- If utility allowance decreases exceed 15% and are over $10, the decrease must be phased in over multiple years
- Owners may require tenants to sign release forms to share utility data
- Properties with contract anniversary dates within 180 days of Notice publication (contract dates on or before December 22, 2015) may choose to calculate their upcoming utility allowances using either the existing or new methodology. Properties that fall outside the 180-day window are required to use the new methodology for their upcoming utility allowance calculations.
The new guidelines will have varying degrees of impact on property owners and managers depending on the current requirements of their overseeing agency. Some contract administrators (e.g. State Housing Finance Agencies) already require Utility Allowance calculations such as those outlined in the Notice, while others have less rigid guidelines.
Having a national standard provides clarity on the requirements, but complying could be overwhelming for many owners and managers. Luckily, HUD has included funding stipulations to help offset the additional time and expense associated with the new process:
- Owners may request up to $1000 per property be released from the Reserve for Replacement account for approved benchmarking software for the initial baseline calculation. Benchmarking software must be compatible with EPA Portfolio Manager.
- HUD will also allow a management add-on fee to help with benchmarking during first year of implementation. This fee is limited to $1/unit and capped at $1000 per property.
Most importantly, these new guidelines will more accurately identify what tenants are spending on utilities, which will enable HUD to work with owners and tenants to improve the energy performance of HUD housing and reduce its energy expenditures.
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