Across the nation, escalating insurance costs have not spared the multifamily housing market – draining the ability of owners and operators from Los Angeles to New York City to pay for management, maintenance, resident services, and other expenses. “The insurance crunch isn’t just a drag on our housing sector – it’s a drag on our economy and on the livelihoods of millions of Americans, especially low-income families. If we don’t solve this crisis, it threatens to imperil our entire sector,” says Enterprise CEO and President Shaun Donovan.

Earlier this spring, the Federal Housing Finance Agency hosted a multifamily insurance symposium that featured issue experts and brought together both regulators and private-sector participants. In a keynote address to the gathering, Donovan set the table, reflecting on some of the causes of the insurance crisis – and what Enterprise and others are doing at the local, state, and federal levels to find solutions.

Here are excerpts from Donovan’s address.

America’s insurance crisis comes as people are enduring the steepest rent increases since we started keeping records. The costs to operate those properties have been on the rise as well, with insurance being a substantial driver of those increases.

In the market-rate sector, rising costs can be offset by raising rents but it means families have less to spend, meaning less money is flowing into local economies. And in the affordable sector, owners and operators who can’t offset those costs with rent increases face serious financial strains with no release valve in sight.

An example: National Church Residences houses 20,000 low-income seniors in 23 states. Over the past six years, their insurance costs have risen 400 percent, well exceeding their growth in revenue. What’s more, the high cost of insurance during construction also undercuts our ability to build more housing. The list of examples goes on. It’s no surprise then that analysts have called the insurance threat “existential.”

Widening the aperture

For those of us in the multifamily sector, the insurance conundrum has been on our radar for a long time, with insurers pulling back capacity but rarely garnering the same headlines that publicize the insurance crisis in the single-family market.

Climate risk is indeed a critical part of the story of rising insurance costs. The pace of billion-dollar disasters is only increasing, and taken together, property and casualty losses are putting serious strains on insurers themselves. That’s why resilience measures are an absolute necessity – we need to strengthen and fortify American housing to weather the storms ahead, itself an often-costly proposition. We also need to reflect on where we build new housing, rethinking zoning and building in flood- and fire-prone regions, which requires long-term coordination among builders, planners, developers, and policymakers.

At the same time, the problem runs deeper than climate risk. Take the portfolio of properties that Enterprise, my organization, owns and operates in the Mid-Atlantic, a place with lower flood, storm, and wildfire risk than, say, Florida or California. Our per unit insurance costs went from under $300 dollars in 2020 to nearly $1,000 in 2023 – and we had to accept diminished coverage. For our LIHTC asset management portfolio, which includes more than 1,300 developments across 44 states, total operating expenditures rose 21% over four years, while insurance costs rose more than two-and-a-half times faster over the same period.

This raises two important issues. First, while Enterprise is diversified and can control for cost variations across our portfolio, many small-scale owners are paying far too much for far too little coverage, which jeopardizes their financial stability down the road, especially in areas of high climate risk. Second, while we see increases in crime in some parts of the country, and insurers are seeing increased property and casualty losses, a reliance on FBI crime scoring may be flawed, overstating future risk and overlooking the fact that more housing, especially affordable housing, makes a community safer, not less so.

Yes, there have been rising costs in the reinsurance marketplace and other factors that might be at play. But if we limit our conversations to just climate or reinsurance, we may be missing other pieces of the puzzle, which in turn might limit our imagination as we work to find our way out of the insurance conundrum.

A path to solutions

If we’re going to find solutions, we need to understand the entire landscape of variables. At the federal level, there are a number of proposals being floated about the role of government-sponsored enterprises. For instance, should GSEs modify insurance requirements?

That might make sense in the short term, but for smaller owners and operators, the prospect of taking on weaker insurance protections could be costly in the long run. And large owner operators like Enterprise already adhere to higher requirements than the GSEs mandate. Others have suggested the GSEs permit rent adjustments to help affordable operators balance out costs, but advocates are rightly concerned that now is not the time to be permitting rent increases.

Also at the federal level, there’s been talk of a federal backstop akin to the National Flood Insurance Program – but we think that’s limiting our options. A blanket insurance program would be costly and require a lot more agreement on Capitol Hill when consensus there is in short supply – at the same time, perhaps we should think more creatively about a federal backstop, more like the FDIC than a traditional insurance program.

At the state and local level, we’ve seen some welcome moves by governors and state legislators to continue on the course of rooting out housing discrimination once and for all – particularly banning some of the more pernicious questions that may have little to do with risk and more to do with the people living in particular communities.

Mississippi legislators have introduced a bill that would design incentives for fortifications against hurricanes and wind, drawing inspiration from a similar successful program in Alabama that led to substantial insurance policy discounts.

Enterprise is working with partners in places like New York and California to help think through building standards, resilience practices, and zoning efforts. Our landmark technical assistance system Keep Safe Florida has assisted owners in Miami, Orlando, and Tampa with tools and resources to assess and address climate threats. And in the Gulf Coast, we’ve made standards like Green Communities a key component of Louisiana’s affordable housing work, ensuring that new and preserved homes meet higher storm-protection and efficiency standards.

‘I have hope’

Everything must be on the table to bring down costs and keep communities safe. At the same time, we need to be attuned to the full spectrum of impacts on a diversity of housing providers and communities.

Some will say costs have stabilized and past climate-related losses have been priced in. But we all know: this crisis has not solved itself, nor will it. These major shifts in insurance costs aren’t sustainable, and they are coming at perilous cost to residents and communities.

I’m particularly concerned about the providers who serve people with the greatest needs, particularly permanent supportive housing which is key to reversing our homelessness crisis.

But I am an irredeemable optimist and I have hope. I’m confident that under FHFA Director Thompson’s leadership, we’ll find new and effective ways to bring down insurance costs, ensure our homes and communities are prepared for the future, and strengthen our housing market for the next generation.

We’re all committed to getting it right. I have no doubt that we can make it happen.