Rising Insurance Costs Threaten Multifamily Housing
Two recent surveys, one conducted nationally by the National Multifamily Housing Council (NMHC) and the other regionally by the Federal Reserve Bank of Minneapolis, paint a concerning picture: the escalating cost of insurance is significantly impacting the operations of multifamily housing.
The Minneapolis Fed’s findings underscore the severity of the issue. They discovered that over half of the overall operating expense inflation for multifamily housing owners since 2020 can be attributed to rising property insurance premiums. From 2021 to 2022, premiums increased by an average of 14 percent annually. This was followed by a 22 percent increase from 2022 to 2023, and a dramatic 45 percent surge from 2023 to 2024. By 2024, property insurance premiums had, on average, doubled compared to 2021, far exceeding the rises in the Consumer Price Index over that same period.
The NMHC’s 2024 State of Multifamily Risk Survey further confirms these trends. The survey indicates that soaring insurance expenses continue to worsen the already critical affordability crisis in the U.S. While rates remain high compared to historical norms, the report notes some stabilization in the property insurance market over the past year, marking the first decline in rates since 2017 after 27 consecutive quarters of growth. Liability lines, however, continue to present challenges, with rising litigation costs and stricter underwriting practices pushing premiums higher.
“High insurance costs, interest rates, and construction and material costs make the development and operation of rental housing a financial challenge,” stated Sharon Wilson Géno, NMHC President. “A more stable insurance market will help keep costs in check, which, in turn, will improve housing affordability and potentially lower rental housing costs for residents.”
The Minneapolis Fed survey highlights the financial strain on multifamily housing owners. Rising property insurance costs are forcing them to choose between increasing deductibles or scaling back coverage to manage expenses. This leaves them vulnerable if property damage occurs. Furthermore, survey respondents expressed frustration over the growing number of exclusions in their policies, reducing the instances for which damage is actually covered.
One respondent illustrated the complexity of insurance policies, remarking that “so many [exclusions exist] that a new policy is like a book. You nearly need an attorney to read it to see if you actually have any coverage.”
Insurers commonly attribute premium increases to weather risks, claims history, and the physical characteristics of buildings, explanations respondents often find unsatisfying. One respondent, despite having zero claims, experienced a 200-percent premium increase, commenting, “Something is not right.”
Rising insurance costs pose particularly dire consequences for affordable housing providers. Roughly two-thirds of survey respondents serve lower-income households. These providers have limited ability to raise rents to offset rising insurance costs, frequently bound by rent increase restrictions due to funding stipulations. As one affordable housing provider put it, “When insurance and other operating expenses are growing at a much faster rate, it doesn’t take long before properties cannot cover their operating expenses.”
The financial strain on these properties threatens their capacity to maintain and expand affordable housing options. The findings of both surveys highlight this problem. Stakeholders in the multifamily housing sector must address the rising costs of insurance. Without significant intervention, the financial stability of multifamily properties, especially those serving low- and moderate-income groups, remains at risk.
