Staggering increases to property insurance premiums have upended affordable housing development across south Louisiana, delaying construction timelines and forcing the state to cough up tens of millions of dollars to try and save projects from falling apart.
Developers with projects in New Orleans, East Baton Rouge, and other areas across the state said they have seen insurance rates double or even triple since the series of destructive hurricanes in 2020 and 2021 upended insurance markets in the state.
In some larger multi-family complexes, insurance premiums have increased to more than $400,000 per year from less than $150,000, according to insurance agents.
At least 20 projects have sought funding from a new state program, launched last August, aimed at getting the low-income apartment complexes built. But that money is being pulled from a fund that would have supported future projects.?Meanwhile, developers say they've had to push back some project completion dates by several months?and counting?as they try to make the financing work.
“Projects that were viable at one time are now not viable, or they’re on life support,” said Joshua Hollins, who will leave his role as director of the Louisiana Housing Corporation for the private sector at the end of September.
In the last year alone, developers from New Orleans and St. Tammany Parish all the way to the Lafayette area and?Calcasieu Parish?have faced unprecedented costs threatening to sink their projects, according to interviews with the Louisiana Housing Corp., developers and insurance agents.
By the time Bates Development finished construction on a new 42-apartment affordable rental development on Chef Menteur Highway last year, insurance premiums had doubled from earlier estimates, says CEO Ryan Bates, from $70,000 per year to $140,000.
On top of that, when Bates went to his lender to close on the financing, he learned that, due to the higher insurance cost, his lender would be cutting the loan for the project by half a million dollars.
Terri North, CEO of Providence Community Housing, a New Orleans-based affordable-housing developer, said delays caused by rising insurance have been compounded by high interest rates, construction costs and supply chain issues.
North said a 51-unit apartment complex on the site of the former Lafitte public housing complex?was originally slated to be completed as early as 2021. But with costs soaring, the project has yet to begin construction, and North said she is still hunting for additional funding to close the gap.?
Affordable housing already in crisis?
Unlike developers of market rate housing, affordable housing developers rely on federal tax credits and subsidies that require them to keep rents relatively stable.
That's good news for renters, who won’t be forced to bear those insurance costs in the form of rent hikes. But it’s left developers across the state?struggling to make projects pencil out, meaning fewer renters will ultimately benefit.
Developers?in coastal areas in Florida and Texas and in?wildfire-prone California?and beyond?are facing similar challenges. In June, the?National Association of Home Builders adopted a resolution urging policymakers at all levels of government to seek solutions to cover insurance costs to "maintain and add to the availability of rent-restricted affordable rental housing."
In Louisiana, a state where the number of extremely low-income households is far more than double the number of available affordable rental units , housing advocates say that every unit not built is another family struggling to keep up with the rent.
“The insurance crisis is a consequence of our failure to guarantee housing that was affordable, resilient, and safe for everybody, and now we have a market that is uninsurable," said Andreanecia Morris, Executive Director for HousingNOLA. “We have to break the cycle.”
Staying in business
The rate hikes are not only stalling the development of new rental housing but threatening developers’ ability to maintain existing housing, developers say.
North said that?just two years ago, it cost about $500 a year to insure each unit in Providence's portfolio per year. That rate is now around?$1,500 per unit across its 2,000 units city-wide.
The nonprofit has managed to keep up by taking some $500,000 out of the organization’s reserves — a quarter of its total.
“We’ve never had to do that before,” North said. Reserves are for when something goes wrong at a property, she said: a roof replacement, a flood, a structural issue.
“If you don’t have the money to pay for that...that keeps me up at night,” North said.
Affordable housing operators are also reducing their coverage or accepting higher deductibles, said Tony Brunini, an insurance agent with Ross & Yerger based in Jackson, who works with affordable housing developers across the southeast.
“‘It keeps me in business for another day,’ but obviously you're exposing yourself to a bigger issue,” said Brunini.
David Abbenante, president of HRI Management, a property management company that works with affordable housing developers across Louisiana, worries that conditions at affordable developments could begin to decline as developers dedicate more of their revenue to pay insurance costs.
“Owners are at the end of the month or end of the year and saying ‘I’m in business just to pay my insurance—the cash flow is minimal, if any,” said Abbenante. “It’s terrifying.”
As debates over solutions to the insurance crisis move through state legislatures and the U.S. Congress, developers say they’ve yet to see proposed solutions sweeping enough to meet the crisis.
The Louisiana Housing Corporation has awarded more than $26 million to developers of around 20 projects across the state since rolling out its Developer Assistance Plan last August. The group, a state agency,?plans to continue supporting developers in need of additional assistance to make projects pencil out, according to Hollins.
But Hollins said that's not a long-term solution: the office has funded its developer assistance program so far by shifting funding designated for other affordable housing programs.
"You just keep seeing the domino effect," said Hollins.?“The more costly the affordable housing, that’s a unit somewhere that’s not going to be built."
In New Orleans, the City Council in May approved $32 million for a new affordable housing fund specifically designed to help developers close gaps due to high insurance, mortgage, and construction costs. None has been awarded yet.
At one of a series of insurance roundtable discussions hosted by U.S. Rep. Troy Carter, D-New Orleans, in August, affordable housing developers crowded into conference room at Southern University New Orleans to air their frustrations.
Some highlighted disappointment?with the lack of results so far of?a program?designed to lower premiums through funding construction of?more storm-resistant complexes.?Others suggested that lenders should lessen coverage requirements to bring down costs on coverage that some developers say is unnecessary.
Bates, the developer of the Chef Menteur property, said that while he has no plans to stop developing affordable housing any time soon, the insurance and lending challenges are forcing him and other developers to be far more cautious.
"You see the writing on the wall,” said Bates. “Maybe instead of going after two deals, maybe you’ll just go after that one.”
Editor's note: This story has been updated to correct the spelling of Tony Brunini's name.