California has spent billions of dollars in recent years to build desperately needed housing for homeless and low-income renters. Now, a growing problem for the state's homeowners has especially affected affordable housing providers: rising homeowners insurance rates.
In recent years, organizations that build and maintain affordable housing report that their property, liability, and construction risk insurance premiums have skyrocketed, with some Los Angeles-area providers seeing premium increases of between 400 % and 600% in one year, according to the Southern California Association. of Non-Profit Housing.
While most market-rate landlords can raise rents to cover the cost of higher insurance rates, affordable housing providers cannot. Their rents are set by the government, based on regional income. Many providers, most of them nonprofits, have had to dip into their reserves or cut costs to cover increased insurance payments.
But that is not sustainable. If insurance costs don't stabilize (or decline), some affordable housing providers say they will have to reduce staff and services at their properties, delay maintenance or, worse yet, close buildings. At a time when California has been trying to accelerate construction of affordable housing, it would be a tragedy to lose affordable units due to rising insurance costs.
Abode Communities, a nonprofit organization, operates more than 2,700 permanent, affordable supportive housing units in 42 buildings throughout Los Angeles County. Abode's insurance costs are up 350% this year, said Holly Benson, president and CEO of Abode.
In 2023, the nonprofit paid $561 per unit for property and liability coverage. When Abode renewed his policy in January, the annual premium jumped to $1,947 per unit.
Not only have rates increased, so has Abode's deductible. In 2023, the company had a $5,000 deductible for property damage. This year it is $250,000. “If we receive any claims, we will be in serious trouble because of the deductible,” Benson said.
Rising homeowners insurance rates are a problem across the country. Climate change has led to more destructive weather events, including hurricanes, floods and wildfires, which have increased damage awards. This has also increased the price of reinsurance (or insurance for insurance companies). And inflation and higher repair costs have also driven up rates.
While much of the attention has focused on the plight of single-family homeowners, who have had their premiums increased or been denied policy renewals, the problem may be even worse for affordable housing organizations.
A national survey found that one in three housing providers had premium increases of 25% or more between 2022 and 2023. Anecdotally, industry experts say rate increases have been even higher this year. This week, a coalition of affordable housing providers from across the country sent a letter to Congress and the Biden administration urging them to work on policy solutions to curb insurance price increases and provide regulatory and financial relief to providers. of affordable housing.
Rate increases have been especially pronounced in states that have experienced extreme weather disasters, such as Florida and Louisiana, which have suffered devastating hurricanes. In California, where wildfires have decimated communities, major insurers such as State Farm, Allstate and AIG have discontinued or severely limited new homeowners insurance policies. Fewer operators mean housing providers cannot seek lower prices, which has also driven up costs.
California Insurance Commissioner Ricardo Lara has been working on new regulations to help stabilize the insurance market for all customers. They include speeding up approvals of rate changes and allowing insurance companies to use future risk assessments to help set premiums, among other changes. These are good steps, but there is still much more work to do.
California has some of the strongest consumer protections in the country, which has kept insurance rates low compared to other states. But it is clear that the market is on the brink of collapse. Policymakers must act quickly to find solutions to ensure customers can get insurance and that rates are fair and reasonable. High insurance costs now threaten vital priorities for California, including providing affordable housing so people don't end up living on the streets.
