- Insurance premiums for multifamily properties are rising at nearly 12% annually—outpacing inflation and overall expense growth.
- Stricter lender requirements and tighter policy terms are complicating deal closings and underwriting across the sector.
- Mid-sized and smaller owners are facing especially steep costs, sometimes exceeding $1M in upfront insurance-related expenses.
Surging Expenses Undercut Underwriting
Multifamily operators have faced increasing financial strain since 2023, as property expenses climb faster than rental income. In major cities, operating costs are rising up to 7% annually, exceeding historical averages, reports GlobeSt.
Insurance has become the most volatile line item. Premiums are now rising faster than any other category of expense, fueled by growing climate risks, extreme weather events, and an uptick in high-liability incidents. At an average annual increase of nearly 12%, insurance costs have surpassed broader inflation metrics and continue to erode margins.
Expense Growth Narrows Profit Margins
Between 2015 and 2024, Trepp data shows that multifamily NOI grew by 5.58% annually—just barely outpacing expense growth. Insurance costs, meanwhile, have grown more than twice that rate.
The expense trend is more pronounced in large urban markets. Operating costs rose at a 6% annual clip in the top 10 US metros, compared to 5.3% in the top 25 and 3.66% across the top 50.
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Risk Coverage Shrinks As Claims Mount
Fannie Mae and Freddie Mac are tightening insurance rules as insurers reduce coverage for high-risk exposures. These include lawsuits tied to tenant safety, habitability, and other severe liability claims.
According to Danielle Lombardo of Howden US, many policies now limit or exclude coverage categories that government-backed lenders still expect borrowers to carry. As a result, owners must either source expensive specialty coverage—or risk falling short of lender standards.
Smaller Owners Squeezed Out
Without the scale or leverage of institutional players, smaller landlords are increasingly burdened. Some are being asked to front over $1M in premiums and reserves just to close a single deal.
Although a few lenders are easing some insurance benchmarks, they’re also demanding more documentation around legal liabilities, third-party contracts, and risk mitigation. The result: lengthier negotiations and more delayed closings.
A Sector-Wide Challenge
The mismatch between growing risk and shrinking insurance availability is creating systemic pressure on multifamily housing. Lombardo warns that without coordinated solutions from lenders, insurers, owners, and policymakers, coverage costs will keep rising. This could restrict new supply and threaten affordability in already tight rental markets.
