003. Escalating Insurance Costs Threaten Rental Housing Industry

Episode Transcript:

The rental housing industry is grappling with a significant surge in property insurance costs, which is raising concerns for builders and operators who are already facing immense challenges in providing affordable housing. The recently released Multifamily Risk Survey and Report by the National Multifamily Housing Council (NMHC) sheds light on the mounting insurance costs experienced by respondents, revealing a staggering 26% increase compared to the previous year.

The report attributes this surge in costs to limitations in coverage, higher deductibles, and a contracting private insurance market. As a result, rents, which are already reaching crisis levels across the country, are being pushed even higher. NMHC President Sharon Wilson Géno emphasized the importance of understanding the challenges posed by the insurance market in the current context of rising interest rates, increasing costs, and the pressing need for affordable housing.

According to the survey, 61% of respondents reported raising deductibles, while 57% noted new policy limitations imposed by insurance carriers to reduce exposure. Additionally, 34% mentioned restrictions or reductions in coverage amounts. Wilson Géno emphasized the urgency of reform and reauthorization of the National Flood Insurance Program (NFIP) and highlighted the significance of federal programs aimed at mitigating risks to improve housing affordability.

The NMHC's findings underscore the critical nature of the insurance market's stability to maintain manageable costs, which in turn would contribute to making rents more affordable. It is evident that a collaborative effort between housing providers and policymakers is essential to address the challenges posed by escalating insurance costs.

Various states, including Florida, Texas, and Virginia, have taken legal action against the federal government to impede ongoing NFIP reforms. The significance of these efforts is indicative of the industry's determination to combat the detrimental impact of rising insurance costs on the rental housing market.

Industry professionals, including developers, landlords, and brokers, have voiced concerns that soaring insurance costs are posing a severe threat to the industry, with some even stating that it is jeopardizing their operations. Across the nation, high insurance costs have already derailed numerous deals, prompting calls for lending reforms, government support, and increased lender flexibility to alleviate the mounting pressure on the market.

While insurance prices have been steadily increasing over the years, the devastating impact of Hurricane Ian in Florida last September exacerbated the situation. The hurricane resulted in the loss of 147 lives and inflicted a record-breaking $112 billion in damages upon the state. This global issue is further illustrated by Swiss Re data, which indicates that insured losses from natural disasters surpassed $100 billion for the second consecutive year.

The rental housing industry is facing an alarming surge in property insurance costs, posing significant challenges to builders, operators, and ultimately, the affordability of rental housing. Immediate action is needed to address the limitations in coverage, rising deductibles, and the contraction of the private insurance market. By pursuing insurance market reforms, such as the reauthorization of NFIP, and implementing federal programs to reduce risks, the industry can work towards achieving a more stable environment, ultimately preserving housing affordability for residents.