The Rising Cost of Insurance: A Threat to Affordable Housing
We’re excited to feature Angie Truitt, an experienced Executive Recruiter with a strong focus on affordable housing and a founding Board Member of the Women’s Affordable Housing Network (WAHN). Angie is passionate about tackling the pressing challenges facing affordable housing.
In her latest blog, Angie dives into one of the most urgent threats to the sector: The Rising Cost of Insurance. She explores how skyrocketing premiums are placing immense strain on developers, property owners, and residents — and what steps industry leaders can take to mitigate these risks
Read on to learn more about how this growing crisis is impacting affordable housing — and what can be done to help protect this vital part of our communities.
I read a lot about affordable housing, and I have a lot of conversations with people about affordable housing. A few times a week, what I’m reading and what I’m talking about involves insurance.
People in our industry are used to overcoming challenges. LIHTC is not for the faint of heart. It’s tough work, but it’s extremely rewarding work, too. Lately, it feels more and more obstacles are thrown our way, and one of the biggest is what to do about insurance. I recently hosted a podcast with Nikki Freyman, Senior Asset Manager at Enterprise Community Partners, discussing the issue and exploring the resource she co-wrote about insurance costs for Gulf Coast properties.
The affordable housing sector is facing an unprecedented crisis as rising insurance costs and insurer withdrawals from high-risk states threaten the viability of development and operations. States like Texas, Florida, and California—already grappling with severe housing shortages—are experiencing sharp increases in premiums, making it difficult for nonprofit developers and property owners to maintain affordability.
The Scope of the Problem
In preparing for my podcast with Nikki, I read a 2024 New York Times article titled “Soaring Insurance Costs Could ‘End’ Affordable Housing, Developer Warns.”
End affordable housing?
I knew it was bad. I knew it was really bad. I didn’t know it was catastrophically bad.
But skyrocketing insurance costs are forcing nonprofits to sell off affordable housing units, sometimes to landlords who convert them to market-rate rentals. Developers are scrapping projects due to unaffordable premiums, and the entire sector is at risk of collapse. This issue exacerbates the housing crisis, as the U.S. already needs up to six million additional affordable units.
Enterprise Community Partners analyzed 52 Gulf Coast LIHTC properties in Mississippi, Louisiana, Alabama, and Texas, revealing that insurance costs per unit jumped from $586 in 2017 to $1,205 in 2023, an average annual increase of 12.8%.
Mississippi had the highest 2023 rates at $1,367/unit, followed by Louisiana ($1,309), Texas ($751), and Alabama ($466).
Texas saw the steepest six-year increase, with rates surging from $256/unit in 2017 to $751/unit in 2023—an average yearly jump of 19.6%.
Some Louisiana and Mississippi properties experienced annual insurance hikes exceeding $200,000, placing severe strain on operational budgets.
A similar analysis of their California portfolio found increases of 56% per unit from 2020-2022 and increases of 50 to 500 percent from 2022-2024 as reported by Enterprise’s Justine Marcus.
Marcus found that despite media focus on climate risks like wildfires and floods, affordable housing providers in urban California are also facing extreme insurance cost hikes. Permanent supportive housing developments for vulnerable populations have seen staggering increases. One San Francisco property’s premium rose nearly 300% in a year, while a Los Angeles provider’s costs jumped 450%, despite no claims.
Their premiums were raised 300% and 450% respectively, and they’d NEVER FILED A CLAIM.
These surges threaten housing stability for those exiting homelessness and highlight broader affordability challenges beyond climate-related risks.
The Financial Toll on Affordable Housing Developers
Novogradac reports that insurance costs for affordable housing developments have risen by as much as 300% in some areas. For example, a Texas-based nonprofit had to abandon a planned 57-home LIHTC-funded development after realizing insurance costs would make the project financially unfeasible. Wealthier homeowners can absorb these costs, and market-rate landlords can raise rents—but affordable housing operators, bound by rent restrictions, cannot.
Unlike market-rate housing, affordable housing providers have few options to offset these rising expenses. Many have resorted to unsustainable measures:
And as Nikki and I discussed, the costs associated with changing building standards to make affordable developments more resistant to climate-related losses are still costs that impact operation of these properties, and there’s no guarantee that such standard improvements will reduce costs for operators.
In fact, according to the New York Times, investing in stronger building practices does not translate to reduction of insurance premiums as illustrated by a project undertaken by the Neighborhood Assistance Corporation.
“Using lots sold by the city for $1 each, the developer began installing factory-made houses built to withstand major windstorms, with metal straps securing roofs to the foundations. … [E]ven though the new houses are supposed to be stronger than conventional ones built with wood, it would cost about $1,800 a piece annually to insure them, far above the $900 to $1,200 range that was typically charged before prices spiked.”
Why Are Insurance Costs Rising?
The insurance industry cites more frequent and severe natural disasters, inflation in construction costs, and profitability concerns as reasons for premium increases. Major insurers have pulled out of high-risk areas, leaving affordable housing developers with limited and expensive options. In some cases, states allow insurers to charge higher rates specifically on properties serving low-income renters, further exacerbating the crisis.
Climate Risk: The Gulf Coast has seen numerous hurricanes, including six making landfall in Louisiana since 2020, as well as tornadoes and severe thunderstorms.
Insurance Market Instability: Some insurers have left the region entirely, reducing competition and driving up prices.
Inflation: Rising construction costs and higher total insurable values (TIVs) have further increased premiums.
Regulatory Challenges: Public housing authorities face additional strain as HUD’s annual rent adjustments fail to keep pace with rising costs.
Federal Policy Recommendations
So, what can we do? Clearly, this issue will take an “all hands on deck” approach to solve, and with so many players involved, how can we have productive conversations that lead to solutions, especially understanding the insurance industry’s reticence to additional regulations when the effects of natural disasters are costing them billions of dollars.
The Bipartisan Policy Center and J. Ronald Terwilliger Center for Housing Policy’s report, Rising Property Insurance Costs: Opportunities for Federal Action, highlights key policy solutions, including:
Federal reinsurance programs to help insurers manage climate-related risks and stabilize premiums.
Mandating premium reductions for resilience measures, ensuring that developers who invest in stronger materials and construction techniques benefit from lower costs.
Expanding HUD funding to help cover increased insurance costs for affordable housing properties.
Stronger state and federal regulatory oversight to ensure fair pricing and prevent excessive rate hikes on low-income properties.
What are other countries doing?
It’s helpful to examine what other countries are doing to reduce the cost of insuring property. Methods include government intervention and risk pools, mandatory coverage and reinsurance, leveraging existing funds, addressing climate risk and transparency, and international collaboration and risk management.
Many governments are intervening in insurance markets by creating national insurance or reinsurance risk pools to help lower insurance costs. For example, the Japanese government offers reinsurance to private insurance companies during significant earthquakes, preventing them from passing on reinsurance costs to customers.
In France, all property insurance policies must include coverage for natural disasters, and the government reimburses insurers through a state-backed reinsurance program. Some countries, like France, mandate that all property insurance policies include coverage for natural disasters, which are then reimbursed by a state-backed reinsurance program.
This system is supported by a compulsory levy on all property insurance contracts, collected by insurers and transferred to the state's reinsurance fund.
Insurance regulators and government entities globally are focusing on making insurance coverage accessible and affordable, especially for vulnerable communities. They are also asking for greater transparency from insurance providers in how they account for climate risks in their investment strategies.
A Call to Action
Enterprise Community Partners and other industry leaders are advocating for policy changes at state and federal levels, urging lawmakers to develop solutions that stabilize insurance markets and protect affordable housing investments. State agencies have begun implementing climate-resilient construction requirements and exploring incentives to attract insurers back to the region.
If insurance costs continue to rise unchecked, the nation’s affordable housing crisis will deepen. Solutions must involve collaboration between policymakers, insurers, and housing advocates to create a sustainable insurance model that ensures affordability and stability for low-income households. The federal government must take decisive action before more developments are lost, and more families are displaced.
