Soaring insurance rates an ‘existential challenge’ to affordable housing

By Avery Ellfeldt | 06/11/2024 06:42 AM EDT

As premiums rise, developers can’t afford property coverage due to rent caps. “It’s absolutely becoming unsustainable,” an owner says.

Housing justice advocates wait to march earlier this year in Los Angeles.

Housing justice advocates wait to march earlier this year in Los Angeles. Affordable housing complexes face financial crisis from rising property insurance costs. Lauren Justice/AP

It took three years and $13 million to rebuild an apartment complex in Paradise, California, that was home for 89 low-income residents before the 2018 Camp Fire burned it to the ground.

Now, the Paradise Community Village faces another threat tied to climate change.

In the six years since the massive and deadly wildfire, the building’s property insurance premiums have jumped more than 200 percent as storms, wildfire and flooding intensify. But even that policy expires in September. Insurer State Farm would not renew it. No other insurer has offered coverage.


The owner is racing to find insurance elsewhere and come up with the cash to pay for it. But a new policy would still amount to a temporary fix to a crisis that’s threatening the long-term viability of affordable housing nationwide.

“It is absolutely becoming unsustainable,” said Seana O’Shaughnessy, the CEO of the Community Housing Improvement Program, the nonprofit that owns the 36-unit property.

“Organizations are flexing and stretching and figuring it out,” she added. “But if these rate increases continue at this level, at a certain point, the system is gonna break.”

Julia Gordon, assistant secretary for housing at the Department of Housing and Urban Development, told POLITICO’s E&E News, “This issue is going to affect the entire affordable housing ecosystem.”

On Monday, nearly two dozen real estate, housing and nonprofit organizations wrote a letter to Congress and the Biden administration urging them to address the issue.

“The volatility in the insurance market … hinders the ability of housing providers to deliver the housing that is so desperately needed,” wrote groups including the National Association of Home Builders and the National Multifamily Housing Council.

Property insurers across the U.S. are raising rates and fleeing climate vulnerable areas in response to development in risky areas, billions of dollars in losses from natural disasters and higher costs.

Homeowners and renters alike are struggling. But experts say the situation is particularly dire for people with low and fixed incomes — and the affordable housing developments that provide them with government-subsidized housing.

“It is really an existential challenge that seems to be coming to a head,” said Diane Yentel, president of the National Low Income Housing Coalition.

Unlike most apartment buildings and landlords, affordable housing developments often must comply with rent caps, which prevents them from defraying major new costs by significantly raising rents. The restrictions force development owners to cut costs by delaying repairs, draining their savings or selling properties.

The long-term result could be lower-quality affordable housing and less of it, experts say, as insurance premiums make it impossible to maintain properties and build new ones.

“They’re not going to be able to sustain that for very long,” Yentel said.

Premiums more than doubled in a year

A 2023 survey provides a snapshot into how high property-insurance premiums have climbed and what it means for affordable housing.

The National Leased Housing Association, a trade organization that represents multifamily affordable housing companies, surveyed more than 400 housing providers that operate 2.7 million rental units — 1.7 million of which are federally subsidized.

Between 2022 and 2023, nearly 30 percent of the providers saw premiums increase by at least 25 percent, the survey found. More than 93 percent said higher premiums had forced them to raise their policy deductibles, cut expenses or raise rents to the extent possible.

“If you talk to any apartment owner, whether it’s affordable or not, they’re going to tell you this is something they’re dealing with,” said Association Executive Director Denise Muha, who called it a “market failure.”

Data from Enterprise Community Partners, a prominent affordable housing developer, provides another look. The organization owns and operates 13,000 affordable units in the mid-Atlantic region. Insurance premiums for those properties surged to $968 per unit in 2023 from $359 the year prior. Nearly 70 insurers declined to even provide a quote for those properties in 2023.

Robert Gordon, a senior vice president at the American Property Casualty Insurance Association, said insurance companies are raising premiums to absorb losses related to inflation, increasing development in disaster-prone areas and intensifying natural disasters.

Making matters worse for affordable housing, Gordon said, is that many buildings are old and owners can’t afford improvements to make them more weather-resistant. That can make insurers less likely to offer coverage.

“Policymakers really need to come in and help these low-income housing units with more mitigation,” Gordon said.

Insurers appear to be more frequently considering factors like the neighborhoods where developments are located, the populations they serve and local crime scores when making underwriting decisions, said HUD’s Gordon and Ayrianne Parks, Enterprise’s senior director of policy advocacy. That, too, is affecting insurance rates and availability.

“Many small-scale owners are paying way too much for way too little coverage,” Parks said. “And that really jeopardizes their financial stability down the road, especially in areas of higher climate risk.”

‘We may have to sell’

Bill Lazar is one of those owners. As director of a local nonprofit outside Jacksonville, Florida, he’s spent the past two decades working to expand affordable housing in the area, which faces both high hurricane risk and high housing costs.

“I’m in a low-income neighborhood where … homes that used to rent for $1,000, $1,200 are now renting for $2,000 and $2,500 a month,” said Lazar, who directs the St. Johns Housing Partnership.

The situation extends beyond Florida. Many of the most climate-vulnerable areas in the country also face housing shortages, according to real estate analytics firm CoreLogic.

Recent developments in Florida’s tumultuous insurance market are making Lazar’s job harder. Last year, the insurance premium for a 60-unit complex his organization owns in St. John’s County rose to $46,271 from $31,500. He also anticipates spending tens of thousands of dollars to replace roofs on multiple buildings to keep them eligible for insurance.

Due to federal rent limits, Lazar can’t raise rents to offset the expenses. And he refuses to cut costs by putting off maintenance. So he’s considering selling one or two properties to raise some of the cash.

“I’m not gonna be a slumlord,” said Lazar. “We may have to sell.”

”If we do, the family that’s renting from us — that’s going to put them in a crisis, because literally there’s no other place for people to move,” Lazar added.

Yentel of the housing coalition has heard from developers who are selling properties or getting out of the affordable housing industry altogether because it’s not sustainable.

Affordable housing projects, including some in the early stages of construction, have been put on hold because the original insurance cost estimates have since doubled, tripled or quadrupled.

“We’re losing affordable housing as a result of this new crisis,” Yentel said.

The federal government is aware of the problem. The Federal Housing Finance Agency, which supervises and regulates Fannie Mae and Freddie Mac, held two property insurance conferences in the past year on how volatile insurance markets are affecting homeowners and renters.

The agency said in an email that it will “continue to monitor the state of insurance markets” and work to find solutions.

Gordon of HUD said the department encounters the issue every day with affordable housing owners and developers and has made changes. The department in April modified its insurance requirements for apartment buildings with government-backed mortgages. Building owners can now set their deductible for wind and storm events as high as $475,000, up from $250,000, which will reduce premiums but raise out-of-pocket costs after a storm or severe wind.

“Everybody is, I think, coming to an acknowledgment that we have to do something,” said Parks of Enterprise.

The 23 groups that wrote to Congress and the Biden administration Monday have a few ideas. Among them are expanding existing federal grant programs to help affordable housing owners reduce properties’ exposure to natural disaster or expanding access to state-backed insurers of last resort.

“We have to try to do something,” said Muha of the housing association.