Navigating the Insurance Premium Surge: Impact on Affordable Housing and Solutions

The Perfect Storm: Climate Risk and Legal System Abuse

With nearly half of all homes in the United States at risk of 'severe or extreme' damage from events like flooding, high winds, and wildfire, the perfect storm of climate risk and legal system abuse creates obstacles for homeowners. It also threatens a more financially vulnerable segment of the housing market, as increased premiums and waning coverage for affordable housing providers can put millions of renters at risk of becoming rent-burdened (paying more than 30 percent of gross monthly income in gross monthly rent) or unhoused.

The Impact on Affordable Housing Providers and Renters

In June of this year, about two dozen real estate, housing, and nonprofit organizations — self-describing as a 'broad coalition of housing providers and lenders' — wrote a letter to Congress and the Biden administration urging them to address the issue of property insurance affordability. The letter referenced an October 2023 survey and report commissioned by the National Leased Housing Association (NLHA) and supported by other affordable housing organizations. Findings mentioned in the letter and report about the affordable housing market include: Rate increases of 25 percent or more in the most recent renewal period for one in every three policies for affordable housing providers.

Policy Changes and Future Prospects

In July of this year, HUD convened a meeting with various stakeholders to discuss policies and opportunities to address this and related challenges while managing potential risks to the long-term viability of affordable housing. HUD has modified its insurance requirements for apartment buildings with government-backed mortgages, now allowing owners to set their deductible for wind and storm events as high as $475,000, up from $250,000. This tactic may reduce premiums but can also raise out-of-pocket costs after a storm or severe climate event. Another approach in progress is the revision of HUD’s methodology for calculating the Operating Cost Adjustment Factors (OCAF), parameters for annual percentile increases in rent, for eligible multifamily properties to better account for increasing insurance costs.