Francesca Chicoine, MPP ’24, University of Chicago Harris School of Public Policy
As housing prices and the cost of living increase across the United States, affordable housing projects are at risk of not penciling out. In simpler terms, affordable housing projects are at risk from not having the financing to fill the gaps due to rising costs. During the COVID-19 pandemic we saw supply chain disruptions and inflation of building materials. But the situation has only worsened over the past four years, with another critical factor looming large – insurance premiums.
Insurance premiums were once a relatively manageable aspect of project costs, but prices have surged dramatically. Across the United States from Louisiana to California insurance premiums have skyrocketed, with increases from 50% to 500% between 2022 and 2024. Insurance premiums have been on the rise due to climate change impacts including floods and wildfires. Even regions not directly impacted by natural disasters are still facing an increase in insurance prices. Additionally affordable housing developers are also experiencing a decrease in coverage with insurance companies not willing to cover multi-family projects. Therefore, greatly impacting affordable housing projects, specifically permanent supportive housing multi-family projects, that are desperately trying to meet the demand and provide housing for unhoused individuals.
Unlike for-profit developers who can potentially pass on increased costs to renters or draw from project profits, non-profit developers of affordable housing lack such flexibility. As a result, they are left with a significant funding gap that threatens the sustainability of their projects. Affordable housing developers are having to dip into operating costs and emergency reserves which puts the sustainability of permanent supportive housing at risk. This is compounded by the fact that operating costs have increased by 25% but the Department of Housing and Community and other regulatory agencies only provide a funding increase of 2.5%. The operating margins are too thin to work if insurance rates continue to rise.
Permanent supportive housing is a proven solution to ending homelessness, especially for individuals experiencing chronic homelessness. It has proven to reduce the number of unhoused individuals, improve health and stability, and has been noted to be cost effective. The cost to support an individual in permanent supportive housing is approximately $1,162 per month, which is 60% less than the cost of emergency and social services provided to an unhoused individual, reported at $2,916 per month. Non-profit housing developers and service providers are trying to stay afloat but their options are decreasing, requiring them to dip into emergency reserves until these reserves are completely depleted.
There is an urgent need to address this issue and ensure multi-family housing continues to be built and operated. The government needs to play a role in addressing these insurance premiums. One policy recommendation is to have government-backed statewide insurance pools for affordable housing developments. Government-backed insurance can subsidize insurance for affordable housing developers and protection from the volatile market conditions. More urgently, states need to support the affordable housing market through providing emergency funds to help non-profits impacted by the insurance crisis.