Insurance costs are rising for multifamily owner-operators, seen across the country but notably in markets with potentially extreme weather conditions such as earthquakes, fires, floods and hurricanes. Some insurance companies are exiting the areas entirely while others have pressured the rental housing industry to keep pace with premiums.
According to a new special report from Marcus & Millichap, insurance costs per unit have jumped 33% year-over-year as of June 2023. This results in 8% of a unit’s operating expenses going toward insurance, roughly double what was seen just five years ago.
Property taxes, payroll and other apartment-owner costs increased 9% according to the report, while rents only increased 4%. “This disparity and expectations for further operating cost increases and rent growth moderation will broadly influence development proposals, property valuations and investors’ acquisition criteria moving forward.”
The rise in insurance costs—paired with materials and labor cost increases among other items—is also impacting development on the commercial side. At the same time, multifamily is expected to deliver 400,000 units in 2023, increasing the country’s vacancy rate to a 12-year high.