HUD recently announced the Annual Adjustment Factors (AAFs) for Fiscal Year 2025, effective Dec. 3, 2024. Under Section 8 of the U.S. Federal Housing Act of 1937, owners of assisted public housing sites are entitled to request rent adjustments to satisfy necessary costs of ownership and operation from HUD. These adjustments ensure rent levels reflect real-world changes in residential rents and utility costs.

HUD establishes the rent adjustment factors on the basis of Consumer Price Index (CPI) data relating to changes in residential rent and utility costs. AAFs are applied at the anniversary of certain Housing Assistance Payment (HAP) contracts. And the amount that an owner is required to deposit in the Reserve for Replacement account is also adjusted annually by the most recently published AAF, at the HAP contract anniversary. The 2025 AAFs can be found at https://www.huduser.gov/portal/datasets/aaf.html.

Section 8 Program Applicability

AAFs are used to adjust contract rents for units in certain Section 8 housing assistance payment programs during the initial or pre-renewal term of the HAP contract. There are two categories of Section 8 programs that use the AAFs:

• Category 1: The Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation programs. Here, AAFs are applied before rent reasonableness checks, ensuring rents don’t exceed comparable market rates; and
• Category 2: The Section 8 Loan Management Set-Aside (LMSA) and Property Disposition (PD) programs.

The AAFs also apply to owners subject to Reserve for Replacement deposits, which ensure adequate funds are available for property upkeep.

Each Section 8 program category uses the AAFs differently. The specific application of the AAFs is determined by the law, the HAP contract, and appropriate program regulations or requirements. AAFs are not used in the following cases:

Renewal rents. AAFs aren’t used to determine renewal rents after expiration of the original Section 8 HAP contract. In general, renewal rents are based on the applicable state-by-state operating cost adjustment factor (OCAF) published by HUD; the OCAF is applied to the previous year’s contract rent minus debt service.

Budget-based rents. AAFs aren’t used for budget-based rent adjustments. For projects receiving Section 8 subsidies under the LMSA program (24 CFR part 886, subpart A) and for projects receiving Section 8 subsidies under the PD program (24 CFR part 886, subpart C), contract rents are adjusted, at HUD’s option, either by applying the AAFs or by budget-based adjustments in accordance with 24 CFR 886.112(b) and 24 CFR 886.312(b). Budget-based adjustments are used for most Section 8/202 projects.

Housing Choice Voucher program. AAFs aren’t used to adjust rents in the tenant-based or the project-based voucher programs. In the past, AAFs were used to adjust the contract rent (including manufactured home space rentals) in both the tenant-based and project-based certificate programs. The tenant-based certificate program has been terminated, and all tenancies in the tenant-based certificate program have been converted to the Housing Choice Voucher program, which doesn’t use AAFs to adjust rents.

AAFs Schedules

As a reminder, the AAFs are distinct from, and do not apply to the same properties as, Operating Cost Adjustment Factors (OCAFs), which are used by many Section 8 and Section 202/8 sites. HUD’s OCAF notice is still forthcoming for 2025.

For sites in which AAFs apply, HUD’s published AAFs are shown in two schedules. One schedule is for adjusting the rent of units where the highest-cost utility (usually heating) is included in the contract rent (termed “Highest Utility Included” in the tables) and the other is for units where the tenant pays for the highest-cost utility (“Highest Utility Excluded”). The separate AAF schedules are published for a total of about 600 separate metropolitan areas, and about 2,000 non-metropolitan counties that aren’t covered by the local consumer price index surveys. The schedules can be found at www.huduser.gov/portal/datasets/aaf/FY2025_Table1.pdf and www.huduser.gov/portal/datasets/aaf/FY2025_Table2.pdf. Or you can look up this information through HUD’s AAF Metro Lookup Tool at www.huduser.gov/portal/datasets/aaf.html.

Submission Requirements for AAF Rent Increases

An AAF rent increase is effective for contracts commencing on the later of the annual contract anniversary date for which the adjustment is requested, or at least two months after the owner has submitted all required materials to the contract administrator (but no later than two months before the next annual contract anniversary date).

HUD Notice H-2002-10 covers the forms and procedures for annual adjustment of pre-renewal contract rent for Section 8 projects where rent is adjusted using the HUD-published Annual Adjustment Factor. According to HUD, the contract rent won’t be increased unless the owner has submitted a timely written request for an AAF rent adjustment to the contract administrator or public housing agency.

For AAF increases, owners would submit the following forms that are included in the notice:

• Appendix 1 if Pre-Adjustment gross rent exceeds the existing Fair Market Rent or Appendix 2 if Pre-Adjustment gross rent does not exceed the existing Fair Market Rents (also for all LMSA & PD Section 8 contract types);
• Owner’s Certification Form – Appendix 3;
• Unit Turnover Report – Appendix 4;
• AAF RCS Adjustment Worksheet – Appendix 5 (if pre-adjustment gross rent exceeds the existing Fair Market Rent);
• Rent Comparability Study (RCS) – (if applicable); and
• Utility Allowance Analysis (if applicable).

Three Other Types of Rental Adjustments for HAP Contracts

Your site’s HAP contract will determine the rent adjustment method you should use. The Housing Assistance Payments (HAP) contract is a written agreement between a public housing agency (PHA) and the owner of a Section 8 unit. The HAP contract must be in the form prescribed by HUD. Under the HAP contract, the PHA agrees to make housing assistance payments to the owner on behalf of a specific family leasing a specific unit.

The following are the other three methods used to adjust rents beside annual adjustment factor (AAF) rent adjustments.

Operating Cost Adjustment Factor (OCAF) Rent Adjustments

The OCAF is a factor that’s established by HUD, and is applied to the existing contract rent (less the portion of the rent that is paid for debt service). OCAF values are determined by HUD annually and are published in the Federal Register.

HUD determines OCAFs based on nine categories of operating expenses at FHA-insured projects: wages, employee benefits, property taxes, insurance, supplies and equipment, fuel oil, electricity, natural gas, and water and sewer service. Although an OCAF rent increase doesn’t affect the resident’s portion of the rent, it increases the amount of assistance HUD will pay the site. To calculate the rent increase, HUD subtracts the per-unit debt service cost from the contract rent, then applies the OCAF for the state where the site is located.

Some HAP contracts are eligible for an Auto OCAF. The Auto OCAF Rent Increase process eliminates the requirement for the owner to calculate its own OCAF rent increase and submit an OCAF Worksheet in amend-rent years to obtain an OCAF rent increase.

Budget Based Rent Increase (BBRI) Rent Adjustments

The BBRI is a way for sites to increase their rent levels to support property expenses. A BBRI request should be prepared in accordance with the requirements of HUD Handbook 4350.1, Chapter 7. At a minimum, a request for a BBRI must contain the following items:

• A cover letter summarizing the reasons for the increase, proposing an effective date, and describing the physical condition and any improvements budgeted for. It needs to identify any proposed changes in services, equipment, or charges, and reasons for those changes.
• A budget worksheet (Form HUD-92547-A) completed in accordance with Handbook 4350.1.
• A Justification Statement for changes in budgeted line item amounts that exceed last year’s audited figures by $500 or 5 percent and miscellaneous line items.
• A copy of notice to tenants, annotated to show where and how the notice was distributed (if applicable).
• An executed copy of the Owner’s Certification Regarding Purchasing Practices and Reasonableness of Expenses (Appendix 3 of 4350.1).
• An Energy Conservation Plan status report (if applicable), described in Chapter 12 of Handbook 4350.1.
• A signed request to increase reserve deposits or a statement that reserves are adequate (Appendix 6 of 4350.1).
• A utility allowance recommendation, if tenants receive a utility allowance.

Utility Allowance (UA) Adjustments

HUD provides utility allowances to sites receiving subsidy assistance where all or some utilities are paid directly by the residents. Utility allowances represent the owner’s best estimate of the average monthly utility cost of an energy-conscious resident based on an analysis. To determine the UA for the property, owners are required to perform a yearly analysis of their site’s utilities, at the time of the annual or special adjustments of contract rents. This applies to OCAF, AAF, and BBRI rent adjustments. The UA adjustment may result in an increase, decrease, or no change from the current UA and must be supported by an analysis. The annual rent adjustment will be withheld if the owner doesn’t submit the utility analysis with the rent adjustment submission. The regulations, at 24 CFR 245.405(a) and 245.410, require the owner to serve a 30-day notice to the tenants of a proposed decrease in the utility allowance.