The Growing Burden of Insurance Costs

California’s housing market is facing mounting challenges as soaring insurance costs and devastating wildfires reshape the real estate landscape. These issues are not only impacting single-family homes and multifamily developments but also worsening the state’s ongoing housing crisis. As an investor in multifamily properties and a firm believer in the importance of sustainable housing solutions, I want to share insights on what’s happening, what it means for real estate, and how we can move forward.

The Growing Burden of Insurance Costs

Recent wildfires have caused catastrophic losses, with insured damages already estimated at?$20 billion. In response, insurance companies are hiking premiums, particularly in high-risk areas. Some properties have seen?insurance costs climb by 40% in just 18 months, making it harder for both single-family homeowners and multifamily developers to secure affordable coverage.

The Displacement Crisis: A Starved Rental Market

The wildfires haven’t just destroyed homes—they’ve displaced thousands of families, creating a surge in demand for rentals in an already undersupplied market. These displaced residents are now competing for limited rental inventory, driving rents?higher and faster than ever.

In some areas, government officials are already raising concerns about?price gouging, as skyrocketing rents put additional pressure on families who have already lost so much. This combination of high demand and limited supply is squeezing renters and exacerbating the housing crisis.

What This Means for Affordable Housing and Starter Homes

When we talk about “affordable housing” in California, it’s important to understand what that really means.?Affordable housing isn’t the market becoming more affordable—it’s subsidized housing designed for low-income residents.Rising insurance costs are making it much harder for developers to build these projects, worsening the affordability gap.

At the same time, starter homes—already scarce due to high construction costs and regulatory red tape—are becoming even harder to deliver. This is leaving more people with no choice but to rent, adding further pressure to the rental market and driving up rents and property values.

Opportunities and Challenges for Multifamily Investors

For multifamily investors, these dynamics present a mix of opportunities and challenges:

Opportunities:

• Increased Rental Demand: With more people priced out of homeownership or displaced by wildfires, demand for rentals is climbing. This leads to higher occupancy rates and rent growth, particularly in urban and high-demand markets.
• Resilient Asset Class: Multifamily properties continue to perform well as they meet a fundamental need for housing, even during economic uncertainty.

Challenges:

• Rising Costs and Regulation: The increased cost of insurance, coupled with already staggering regulations, is making it harder for investors, not easier. With fewer investors willing to take on these challenges, development slows, further exacerbating the affordable housing crisis.
• Less Development, More Pressure: Without enough new multifamily projects, the demand for housing outstrips supply, continuing the cycle of rising rents and limited housing options.

The Bigger Picture: How We Can Fix the Housing Crisis

California’s housing crisis is complex, but we can take steps to address the root issues:

1. Increase Rental Supply to Meet Demand: The solution to soaring rents and displacement is more housing. To make this happen, we need to streamline the building process, cut through red tape, and incentivize developers to build—not discourage them with additional taxes and regulations like Measure ULA.
2. Make Insurance More Accessible: Insurers need to be incentivized to stay in California and offer coverage in high-risk areas. Removing caps, fostering competition, and tying premiums to wildfire mitigation efforts can stabilize the market.
3. Invest in Wildfire Prevention and Resiliency: Better forest management, enhanced building standards, and expanded firefighting infrastructure are critical to reducing wildfire risks. This not only protects lives and property but also reassures insurers and makes coverage more affordable.
4. Balance Profitability with Responsibility: As investors, we have a responsibility to recognize the societal impacts of housing shortages and rising rents. Long-term, sustainable solutions benefit everyone—from renters to property owners to the broader economy.

Final Thoughts: A Call for Bold Action

California’s housing crisis is being compounded by rising insurance costs, displacement from wildfires, and an already undersupplied market. While this creates opportunities for investors, it also highlights the urgent need for systemic change.

I believe the key lies in?building more housing—both market-rate and affordable—while addressing the barriers that discourage insurers, developers, and builders from operating in the state. Without bold action, the dream of homeownership will drift further out of reach, and the strain on renters will only grow.

I remain optimistic that solutions are possible, but we need policymakers, developers, insurers, and communities to work together to make them happen.