WASHINGTON, D.C. — Rising insurance costs are standing in the way of building more affordable housing. According to a survey from the National Multifamily Housing Council (NMHC), about 77 percent of owner/developer firms reported rate increases of up to 20 percent or more compared with 2023 costs.
NMHC’s 2024 State of Multifamily Risk Report attributes the high costs to a variety of factors, including increased cost valuation, limited capacity within the reinsurance market, shrinking underwriting capacity and restricted availability of guaranteed cost/zero deductible programs.
Previous NMHC research, such as the 2023 State of Multifamily Risk Report, indicated that supply chain issues and high inflation led to higher construction and replacement costs. As insurance costs rise, insurance companies increase the minimum amount a property must earn in revenue to remain financially viable. These costs can be especially detrimental to affordable housing providers who develop rate-capped units.
However, while insurance rates remain significantly elevated compared with historical norms, the report also found that there was some stabilization in the property insurance market in 2024. Last year marked the first decline in rates since 2017, after 27 consecutive quarters of growth. The report attributes this temporary stability to increased capacity and competition in the property insurance market, as well as insurance companies’ ongoing push for growth.
“The current confluence of high insurance costs, interest rates and construction/material costs make the development and operation of rental housing a financial challenge,” said Sharon Géno, president of NMHC, in a prepared statement. “A more stable insurance market will help keep costs in check, which will improve housing affordability and potentially lower rental housing costs for residents in turn.”
The report included a survey that collected responses from 52 multifamily firms of varying portfolio sizes, geographic concentrations and property types. Each company was included in the responses only once. FHS Risk Management, an insurance and risk management consulting firm based in New York City, compiled and reported on the data.
NMHC recommends taking a strategic approach to risk management to minimize insurance costs and liability claims in 2025. Property owners can mitigate risk by embracing technology such as leak detection, fire suppressant devices and smart security features. Owners should also foster collaborative partnerships with brokers and underwriters, as well as explore alternative risk strategies such as captive insurance or self-insurance.
Property owners should keep comprehensive records of maintenance, safety protocols and renter interactions to demonstrate their commitment to renter safety and risk management. Additionally, NMHC recommends that property owners require third-party vendors to carry sufficient liability coverage and include robust indemnity clauses in contracts.
Click here to find a summary of the report.
— Channing Hamilton