The surge in home insurance premiums, driven primarily by escalating climate risks, is creating a significant hurdle for aspiring homeowners and developers, raising concerns about the overall health of the housing market. Experts at the National Housing Conference’s affordable housing symposium in Washington, D.C., highlighted the critical issue of rising insurance costs, emphasizing its impact on affordability and the potential consequences for the development of affordable housing projects.

Michael Butchko, Vice President of Business Intelligence at Neighborworks America, reported that home insurance premiums across the nation increased by an average of 21% year over year in May, resulting in an annual hike of $244. In certain regions, premiums spiked by an alarming 50%, as revealed by research from Policygenius, an online insurance marketplace.

The soaring insurance costs are not only pricing some prospective homebuyers out of the market but also compelling homeowners to sell. Major insurance providers are canceling policies and withdrawing from areas prone to natural disasters, exacerbating the challenges faced by homeowners. Some are resorting to paying off their mortgages early to sidestep the homeowner’s insurance requirement imposed by lenders—a trend referred to as “going naked.”

Thom Amdur, Senior Vice President of Policy and Impact at investment firm Lincoln Avenue Communities, identified the rising cost of insurance as a critical affordable housing issue. Factors such as frequent climate events, surging construction costs, inflation, and reduced competition in the insurance marketplace are contributing to the upward pressure on premiums, impacting both homeowners and developers.

The incorporation of technology and data is seen as a potential solution to identifying areas at the greatest risk of climate-related events. Peter Carroll, Head of Public Policy at CoreLogic, highlighted the importance of leveraging technology to measure future risks to properties accurately. However, he cautioned that risk profiles could shift over time, requiring a forward-looking approach to property insurance.

Lincoln Avenue Communities plans to use data to develop a scorecard for each of its projects, incorporating climate and other risks. This proactive approach aims to “de-risk” real estate portfolios and showcase mitigation efforts to insurers, potentially leading to lower insurance premiums.

The symposium participants emphasized the need for a mindset shift and innovative solutions, including mandatory flood insurance, government backstops, increased funding, tax credits, and incentives to enhance community resilience to climate change. Strengthening the nation’s housing stock against climate events, through initiatives like stronger building codes and retrofitting, was highlighted as a key strategy to drive down insurance costs over the long term.

Despite the challenges posed by climate risks, panelists agreed that a strategic and innovative approach to housing development could create more resilient and sustainable housing choices for the future.