Soaring insurance costs could ‘end’ affordable housing in US, developers warn
Costs are rising for homeowners of all types, and in states like Florida, Texas and California, it has become harder to get insurance at all
FOR the poorest Americans, finding a flat to rent or a home to buy often means tapping into a vast network of non-profit groups that use public and charitable funds to rehab or build affordable housing. Over the past year, the skyrocketing cost of property insurance has put that network on shaky ground.
In Houston, hundreds of flats once protected from rising rents are being sold off to landlords who can charge the full market rate.
In Selma, Alabama, insurance premiums are keeping even heavily subsidised homes out of buyers’ reach. In Kingsville, Texas, a planned affordable housing development was scrapped entirely.
Costs are rising for homeowners of all types, and in states like Florida, Texas and California, it has become harder to get insurance at all. The industry says bigger, more frequent storms, along with increased home prices and material and labour costs, are forcing them to raise premiums or stop writing policies.
Wealthier homeowners can go without insurance, if they can buy a home without a mortgage. Landlords of market-rate apartments can raise the rent to adjust to the higher costs.
But for the 4,000 or so nonprofits and developers that aren’t allowed to raise rents, or are selling homes only to buyers with the most constrained budgets, the soaring cost of insurance is an existential threat.
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The problem is most serious in coastal states, hit hard by severe weather.
But Frank Woodruff, the executive director of the Community Opportunity Alliance, a trade group representing nonprofit housing developers, warned of a wider crisis.
“If it spreads further, it could threaten to end affordable housing development as we know it,” he said.
A collapse of the affordable housing sector could increase homelessness, of course. But it could also hurt the banks that have collectively invested billions in housing projects through a federal tax credit programme that has served as the backbone for low-income housing development for decades.
Developers and landlords are trying to draw attention to the problem and come up with solutions that can be adopted quickly. There are no easy ones.
“This problem is so big, and it could kill so very many wonderfully productive organisations, and yet it feels like there’s nothing we can do,” Woodruff said.
Insurance costs forced Mary Lawler, the CEO of Avenue, a small non-profit in Houston that develops affordable housing, to make the difficult decision to sell units that had been earmarked for poor residents.
Over the years, with help from government funds and charitable donations, Avenue had built a collection of 14 buildings with just over 1,000 low-rent units.
Lawler recently put five of the buildings – amounting to 400 rental units – up for sale. Only two of them carry deed restrictions that would force their new landlord to keep rents low. The others may be converted into market-rate rentals, which the tenants most likely could not afford.
“The flats are losing money across our portfolio,” she said. Lawler said inflation and rising interest rates in recent years had begun to pressure her US$14 million budget, but a spike in insurance costs starting in 2023 meant Avenue was suddenly paying far more to maintain the buildings than it was collecting in rent.
“Insurance is really the thing that has had the greatest impact on us,” she said. That’s the case across the affordable housing industry, according to Novogradac, which provides services for developers.
Insurers say the growing frequency and severity of hurricanes, wildfires, floods and big windstorms have made it impossible for them not to raise premiums. In recent years, their property insurance businesses have booked losses instead of profits.
This is a terrible time to be shedding affordable housing units, experts say. The US housing market needs up to 6 million more of them, “so the more affordable housing units we lose to the market-rate sector, that just exacerbates the current affordable housing crisis that we’re facing,” said Lisa Rice, president of the National Fair Housing Alliance.
And the lost units aren’t likely to be replaced quickly. The crushing math of insurance costs is starting to imperil new projects that rely on federal tax breaks for funding.
Last month, Nick Mitchell-Bennett, executive director of the Texas-based non-profit Come Dream Come Build, withdrew a proposal to construct 57 small rental houses for low-income families in Kingsville, Texas, near Corpus Christi, after realising insurance premiums for the project were unaffordable.
Mitchell-Bennett had planned to use the federal Low-Income Housing Tax Credit programme, which gives lenders tax credits for years for investing in affordable housing developments. States distribute the tax credits through a regional bidding process, and the Kingsville houses were the only proposal in a region that covers more than one-third of Texas’ Gulf of Mexico coastline.
Mitchell-Bennett said no one seemed able to come up with a solution for finding the missing funds.
“The groups that give grant money to us to offset these higher costs, they’re like, ‘We can’t afford to give you money just to pay for insurance,’” he said.
Mitchell-Bennett and Woodruff of the Community Opportunity Alliance say banks that have funded projects in the past using the federal tax credit programme should be concerned about what was happening to the projects because of insurance costs. If existing projects have to be sold early or at a loss, the banks could lose money.
Developers of subsidised single-family homes are facing similar problems. Bruce Marks, CEO of the Neighborhood Assistance Corp of America, was proud of his organisation’s new project in Selma.
Using lots sold by the city for US$1 each, the developer began installing factory-made houses built to withstand major windstorms, with metal straps securing roofs to the foundations.
At US$169,000, the houses were meant to be purchased by residents too poor to qualify for a traditional mortgage, through a special programme that would give them access to loans from Bank of America in exchange for counselling and extra payment support from Marks’ organisation.
Marks was dismayed to learn this month that even though the new houses are supposed to be stronger than conventional ones built with wood, it would cost about US$1,800 a piece annually to insure them, far above the US$900 to US$1,200 range that was typically charged before prices spiked. The additional cost meant that fewer people would qualify for mortgages through his organisation.
“I thought that the Selma houses would have an easier time getting insurance, but that’s wrong,” he said. NYTIMES
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