In the past couple of years, apartment owners felt one upside to the recession. Despite a tight credit market and declining occupancies, their suppliers and contractors were willing to budge, while localities were generally open to lowering taxes. That pushed expense increases down.

This trend showed up in the REITs’ 2009 results. But there’s a question about whether expenses will grow in 2010, as real estate taxes and utility and payroll costs stabilize. 

Take Rochester, NY.-based Home Properties, which sees expenses rising 1.1 percent to 2.3 percent after rising 0.84 percent last year. Cleveland-based Associated Estates Realty Corp. sees expenses rising 2.8 percent to 3.8 percent. But Alexandria, Va.-based Avalon Bay Communities, which had higher turnover and bad debt expenses in 2009, sees expenses declining from 4 percent to a range of -1 percent to 1 percent.

One reason that multifamily operators have been able to put a lid on expense inflation is by keeping tight checks on payroll—one of the biggest drivers of expenses. They’ve shed workers, frozen salaries, eliminated bonuses and 401k matching, and cut other benefits.

“Payroll is the No. 1 line item,” says Dan Haefner, executive director of multifamily management for Raleigh, N.C.-based Drucker & Falk. “Whatever you can do there is magnified. We have not seen growth in payroll expenses.”

Real estate taxes are another force driving expenses down. In fact, Chicago-based Equity Residential says taxes and payroll are about half of its same-store operating expenses. Houston-based Camden Property Truest reported that its expenses were $2.1 million lower than anticipated due to $1.3 million in real estate tax savings. Others see the same thing. “NOI has eroded,” Haefner says. “Due to the income side of the equation going down, you’re getting tax reductions.”

But local governments need money, too. And companies don’t expect this trend to continue in 2010. For instance, Camden expects property taxes to move up about 1.7 percent in 2010.

Utilities are another big expense driver. Equity says they’re about 15 percent of overall expenses. Camden expects to see them rise again this year. “We’ve got utilities up next year by roughly 3.7 percent, and again, those are really just from having conversations with all of the utility providers as to what they think the increases are going to be, so that’s a pretty big number,” said Keith Oden, Camden’s president, during its fourth-quarter conference call, which was transcribed by

Repairs and maintenance costs also make a dent in expenses as well. For those companies that rely on contractors to fix or rehab units, costs have fallen especially far lately.

“The contractors that we are working with have been more apt to get a little more price-sensitive,” says David Nischwitz, senior vice president and director of property redevelopment for Memphis-based Mid-America Apartment Communities. “They’ve sharpened pencils a bit more because more companies are coming at us willing to do labor.” 

There’s one other expense driver that nobody anticipated as 2009 came to a close. The massive snowstorms of late January and early February may push costs up for East Coast operators. “Snow kills the budget,” Haefner says. “You just got blown of the ballpark. There’s overtime associated with it. Your own people are shoveling sidewalks.”