Texas Wants More Affordable Housing, But Insurance Costs Are Creating Obstacles
Skyrocketing property insurance rates are severely hindering the development and preservation of affordable housing throughout Texas. Developers are grappling with significantly increased premiums, forcing them to make tough decisions that ultimately impact low-income residents.
Avenue Las Brisas in Houston, built in 1963, exemplified ‘naturally occurring’ affordable housing. The complex offered low rents due its age. However, when the property’s insurance premiums doubled to $2 million, the development group, Avenue CDC, faced serious financial losses.
“The insurance cost put us from basically breaking even or better into some pretty serious losses,” said Mary Lawler, the head of Avenue CDC, a non-profit affordable housing developer.
Unlike market-rate developers, affordable housing providers cannot simply pass added expenses onto renters, whose incomes are often subsidized and restricted by state and federal programs. This has led some developers to sell off existing units and others to reduce plans for new projects.
Insurance costs for some affordable housing have surged by as much as 300% since 2020, far surpassing the rate increases for single-family homeowners.
According to Nathan Kelley, president of the Texas Affiliation of Affordable Housing Providers, the production of new affordable rental housing in Texas (built with federal tax credits) decreased significantly between 2021 and last year, from 5,200 to 3,700 units. He cited increased insurance costs, rising interest rates, and higher property taxes as the primary reasons.
Blazer Building, Kelley’s Houston-based company, saw its property insurance premiums increase more than threefold since 2020, from $415 to $1,315 per unit. Kelley told lawmakers during a hearing last summer that this increase “is obviously dampening the ability to create new units. . . [and] puts a significant damper on the financial health of existing and operating properties.”
This financial strain is happening when Texas already faces a major shortage of affordable housing. The National Low Income Housing Coalition estimates that the state needs nearly 700,000 additional affordable units to meet the demand from low-income households. Several Texas lawmakers, including Lt. Gov. Dan Patrick, have said that creating affordable housing is among their highest priorities this session.
Rising property insurance rates are most often thought of as a problem for homeowners, however, for the roughly 10 million Texans who rent, rising insurance costs are often passed along through increased rents and a limited availability of housing units.
Paul Fiorilla, research director at Yardi Matrix, a commercial real estate company that collects data from millions of apartments across the country, said that while insurance represents a relatively small percentage of developers’ overall operating costs, around 8%, this expense is growing rapidly. Since 2020, insurance costs for multifamily properties have increased three times faster than their operating costs.
The national average for the annual cost to insure an apartment increased by 128% since 2020. “If you get a massive increase in insurance or taxes, you can’t just suddenly pass that on to residents,” said Gina Erwin, president of GWR Management, a Houston-based property management company.
Chris Akbari, CEO of ITEX, which focuses on developing multifamily housing using low-income housing tax credits, said “It’s this constant battle between our expenses are going up much faster than the rents that we can collect from residents because their incomes are not increasing fast enough.”
Walter Moreau, the executive director of Foundation Communities, an Austin affordable housing provider, noted that they have seen their premiums double since 2022. Moreau added that while the company makes attempts at reducing risks on properties, the impact is limited by the volatile nature of the insurance market.
Faced with mounting insurance costs, Lawler made tough decisions last year, stating that, “The insurance pushed them over the edge in terms of our ability to keep them,” referring to older properties like Avenue Las Brisas, which cost more to repair and maintain.
By the end of 2024, Avenue CDC had sold 440 units, nearly half its portfolio. Most of those units were sold to for-profit management companies, and Lawler noted that they were unable to control the future rents charged by these companies.
Avenue CDC is now working to develop new properties, adjusting to what Lawler calls a “new reality,” and emphasizing that it will “require a lot more subsidy to make projects successful.”
