Nearly a year ago, State Farm stopped issuing new insurance policies for homes and businesses in California, accelerating a tsunami of major insurance company departures. At the time, the most obvious impacts of these withdrawals were on single-family homeowners. But the repercussions have extended much further. Without progress toward stabilizing the insurance industry in California, housing for lower-income renters is in urgent jeopardy as well.
In recent weeks, State Farm announced that in addition to not issuing new policies, it will not renew tens of thousands of existing policies in California, the majority of which are commercial apartment properties.
Nonprofit affordable housing services — including Richmond Neighborhood Housing Services, which owns and manages properties in the East Bay — along with other housing providers throughout the state have urged state policymakers to consider the imminent threat to affordable housing, to no avail. We now implore the leadership of major insurance companies to stop their sudden exit to give us a grace period to identify our options for continued operation.
The consequences for nonprofits and other smaller landlords that provide affordable housing in the form of single-family or smaller-scale multi-family rentals have been largely left out of the headlines and policy discussions. But they are increasingly devastating. The insurance crisis is now an existential threat to nonprofit housing organizations and the renters in communities throughout the Bay Area that depend on them.
In an analysis of affordable housing developments financed with the Low-Income Housing Tax Credit in the Enterprise Community Partners’ California investment portfolio, insurance costs increased 56% from 2020 to 2022. Housing providers are reporting unprecedented increases from 2022 to 2024 ranging from 50% to 500%. Here in the East Bay, RNHS faced per-year insurance increases in its rental portfolio of 46% in 2022 and more than 50% in 2023. It is estimated that premiums will increase again by more than 50% in 2024.
The solvency and stability of affordable housing providers is being pushed to a breaking point. The state’s funding of affordable housing is undermined if most of that investment goes to mitigating and subsidizing the cost of increased insurance rates rather than building and acquiring units that can house lower-income Californians.
Affordable housing production already operates on the thinnest of margins and, by mission and purpose, nonprofit providers cannot increase revenue through rent. This is especially dire given that many still have not recovered from lost rents in 2020 due to the pandemic.
As prices rise and coverage becomes more limited, affordable housing providers are forced to tap into operating reservesfor building improvements, maintenance, and supportive services and resident programs.
In some cases they have no choice but to increase rents within the legally allowable range. Absurd and unchecked increases in insurance costs leave existing housing for vulnerable households while also stifling new affordable housing development.
The impact of the current insurance environment on vulnerable renters — many working Californians who work in hospitals, schools and service sectors — is a threat that requires more serious attention than it’s getting. Those working to provide affordable housing need to be prioritized and involved in the solutions the state develops to address the insurance crisis, and given the grace we need to continue our critical work.
Nikki Beasley is executive director of Richmond Neighborhood Housing Services Inc.