LIHTC Property Insurance Increased in 2022, but Jump Differed by Area

Published by Kelly Gorman on Thursday, November 16, 2023 - 12:00AM

The familiar real estate maxim could just as easily apply to property insurance costs for properties financed by equity from low-income housing tax credits (LIHTCs): Location, location, location.

Property insurance increased by a median of 5.9% in 2022 among the 186,000 apartments in Novogradac’s proprietary data set–but the cost of insurance varied tremendously by geography. The increase in insurance costs in 2022 was lower than the overall expense increase of 10.4% among all properties and is part of the 2023 Low-Income Housing Tax Credit Income and Operating Expenses Report, published by Novogradac.

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Property insurance has been a hot-button issue for both affordable and market-rate multifamily housing and while property insurance costs increased by more than 10% annually in three of the previous four years for the Novogradac data set (including a stunning 33.5% increase in 2021), the figures from 2022 were among the lowest annual increases for the six categories of expenses–administration, repairs and maintenance, utilities, payroll, management fees, and property insurance–tracked by Novogradac in 2022.

The median amount for property insurance expenses in the Novogradac data set was $545 per apartment, that figure had more geographical variation than any other expense category. For instance, Arizona and Florida have roughly the same number of properties in the Novogradac data set, but the median cost-per-unit for property insurance in 2022 was $197 in Arizona and $1,069 in Florida.

There were regional differences, too: Property insurance in 2022 cost a median of $829 per unit in New England, but less than $500 per unit in the Mid-Atlantic region, the Pacific Northwest and the Pacific Southwest (California, Arizona, Nevada and Hawaii).

Why It Slowed

The slowing increase for property insurance median costs in 2022 doesn’t necessarily foreshadow a trend. Costs have significantly increased over a multiyear period (the compound annual growth rate (CAGR) for property insurance in Novogradac’s data set is 7.7%, the highest for any category) and reports from media and property owners indicate that the large jumps of 2020 and 2021 may return in 2023 due to the increase in weather-related catastrophes, the rising value of insurable property due to higher labor and supply costs, and insurance companies pulling out of high-cost areas such as Florida and California.

Also, property owners likely controlled insurance costs in 2022 by increasing their deductible figures. In an October report, the National Multifamily Housing Council indicated that two-thirds of firms surveyed increased their deductibles to maintain affordability, which could explain why per-unit costs for insurance slowed its rate of increase in 2022.

Property insurance costs have gone from an overall national median per apartment of $274 to $545 over the past five years. Despite that jump, the amount spent on insurance pales in comparison to the amount (and increase) for repairs and maintenance.

Insurance costs have increased $322 per apartment over that time, while repairs and maintenance–which has gotten far less attention–has increased $799 per apartment.

Over the history of the Novogradac data, property insurance has a CAGR of 7.7%, the highest of any expense category and more than double the 3.7% overall expenses CAGR.

Continue Learning with Novogradac

This is Part 4 in a four-part blog series. To learn more about rental income and operating expenses for LIHTC properties, read the rest of the blog series, which is linked below. Also, the Low-Income Housing Tax Credit Income and Operating Expenses Report dives even deeper into this subject matter.

Other blog posts in this series:

Record Rental Income, Operating Expenses for Properties in Novogradac Survey; Inflation, HUD Caps Play Significant Roles

Repairs, Maintenance Expenses See Big Jump in 2022: Start of a Trend or Catch-up Period?

Payroll for LIHTC Properties Sees Record Increase, But Maintains Long-Term Stability

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