Since 2023, multifamily owners have seen operating income come under intensifying pressure as rising expenses outpace revenue growth and upset long-held underwriting assumptions. Data shows that in some metros, operating costs are increasing at annual rates as high as 7%—far above the historical norm, which ranges from 3% to 5%.
Among expense categories, none has climbed faster than insurance. According to multiple industry reports, property insurance premiums have risen an average of 11.77% annually, fueled by escalating climate risks, more frequent severe storms and higher payouts across multiple loss types. Those increases now far exceed both headline inflation and the pace of the Producer Price Index.
Across commercial real estate overall, operating costs expanded at a compound annual growth rate of 4.15% between 2015 and 2024, Trepp reported. That pace accelerated in larger markets, reaching 6% across the top 10 metros, 5.30% among the top 25 and 3.66% for the top 50.
For multifamily assets specifically, the same period saw net operating income increase by 5.58%, only modestly outpacing total operating expense growth. Insurance again led all categories, rising nearly 12% a year.
Danielle Lombardo, vice chair at Howden US, told Insurance Business Magazine that “Fannie Mae and Freddie Mac are requiring coverages that are consistently either being excluded or sublimated in the casualty market.” She added that losses are mounting in high-severity categories such as sexual abuse, firearm incidents, animal attacks and habitability claims. The challenge, she said, often lies less in negligence and more in the magnitude of payouts “regardless of liability,” with tort reform and the growing frequency and severity of claims driving the issue.
As Lombardo noted, when policyholders are limited in what they can do to mitigate risk, insurers typically respond by excluding coverage altogether or capping it with restrictive limits. That shift is particularly punishing for smaller and mid-sized owners who lack the scale and financial leverage to negotiate broader terms. According to Lombardo, some smaller owners may be required to post more than $1 million in escrows and premiums for a single property.
While some lenders are willing to waive certain insurance requirements, they increasingly expect detailed documentation covering indemnifications, loss provisions and vendor agreements. The widening gap between risk exposure and affordable coverage, Lombardo warned. This underscores the need for all parties—owners, lenders, tenants, brokers, insurers and government agencies to coordinate efforts to sustain the availability of affordable housing.
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