The Rise of Affordable Housing Insurance Redlining

This article is part of The Rooftop, a blog and multimedia series from New America’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.

There is a growing bipartisan consensus that our country is facing an affordable housing crisis. Seventy percent of all extremely low-income families spend more than half their income on rent. And there is no state in which a renter working full-time at minimum wage can afford a two-bedroom apartment.

The crisis has many causes, but one that is routinely overlooked is the increasingly common practice of insurance carriers charging excessive rates for insuring affordable housing developments, or denying coverage altogether. This practice—known as insurance redlining—is not just an economic concern. It is a critical civil rights issue.

A survey last year found that many insurance carriers declined to offer coverage to developers due to the presence of subsidized affordable housing. According to the survey, carriers or their brokers explained that they did not cover Section 8 federal rental assistance tenants and referred to “affordable housing risks.”

A review of property and liability insurance applications found that the vast majority of insurers required applicants to specify whether they rent to tenants who use housing subsidies. Though the applications usually did not explain why the information was needed, the obvious implication was that coverage or price was based on whether a property was affordable. Things have worsened to the point that some affordable housing providers now say that they either cannot find coverage or have only one choice of carrier in their markets. In one instance our firm is aware of, an insurance carrier articulated this connection bluntly in an email to a property developer denying coverage, noting that although that development had no insurance losses over the last five years, “100% affordable housing isn't necessarily within [our] appetite…at this time.”

While there is nothing wrong with risk-driven insurance decisions, risk must be grounded in objective facts regarding the property rather than unfounded assumptions about the people who live there.

Observers sometimes speculate that carriers are concerned that subsidized tenants are more prone to sue their landlords, leading to costly insurance claims. But these explanations are grounded less in fact than in stereotypes about low-income families. Indeed, a survey of large affordable housing providers pointed to “numerous buildings that have not had losses in a decade or more,” concluding “[t]his reality does not fit with the increased risk assessment we are hearing from brokers.”

“While there is nothing wrong with risk-driven insurance decisions, risk must be grounded in objective facts regarding the property rather than unfounded assumptions about the people who live there.”

Sweeping claims that affordable housing is not well-maintained or crime-ridden are similarly unsupported by the facts. For many affordable housing developments, visitors would be hard-pressed to identify them as affordable based on their location or appearance, especially when a building mixes affordable and market-rate units. Moreover, research has found that the “placement of affordable housing does not negatively impact the surrounding community, and in many ways, it enhances both local property values and increases public safety.”

Where carriers continue to provide coverage, an analysis by the New York Housing Conference found that the average cost to insure an affordable apartment unit in New York City rose by 103 percent over the last four years, to $1,770 on average. As a result, insurance costs now represent 22 percent of the rent for a one-bedroom affordable apartment. One recent project budgeted $600 a year per unit for insurance based on then-prevailing rates, but by the time it was completed, rates had risen to $3,000 a year per unit. By contrast, recent data show that insurance costs across all multifamily housing (including market-rate housing) are stabilizing. This divergence provides evidence that insurance carriers are treating affordable housing less favorably.

These sharp increases in insurance costs have steep implications for both building owners and renters. To meet rising costs, affordable housing providers accept higher deductibles or diminished coverage, defer maintenance, or reduce other programs or staff to make up the difference. The crisis has reached the point where some providers are sustaining hundreds of dollars of losses per affordable unit per month and may be forced to sell affordable housing to buyers who would convert it to market-rate units. For nonprofits trying to build new housing, the cost of insurance can strongly discourage the development of affordable units, which only contributes to the worsening national housing crisis.

Insurance redlining is an outgrowth of a long history of residential redlining in the United States, as exemplified by color-coded maps the federal government created in the 1930s to determine mortgage risk, with Black and other minority neighborhoods marked in red and deemed ”hazardous” based on the people who lived there. The result was an absence of affordable credit and a lack of investment, all contributing to a profound racial wealth gap that persists today. A 1968 government report described “evidence of a tacit agreement among all groups—lending institutions, fire insurance companies, and Federal Housing Administration—to block off certain areas of cities within ‘red lines,’ and not to loan or insure within them. The net result, of course, was that the slums and the areas surrounding them went downhill farther and faster than before.”

Thankfully, these formal red lines no longer exist. The federal Fair Housing Act (FHA) was enacted in 1968 to prohibit housing discrimination—including redlining—because of race, ethnicity, disability, and other protected characteristics. For decades, this law has offered an effective means to dismantle illegal redlining, including insurance redlining, providing those harmed the ability to challenge prior exclusionary practices of some of the nation’s largest carriers.

Today’s “insurance redlining” consisting of exclusions and excessive insurance pricing based on unproven stereotypes about affordable housing, rather than provable risk, can have no less devastating impacts on minority communities than has historical redlining. That is why so many fair housing advocates and lawmakers are working to find solutions to this new type of housing discrimination.

In 2024, New York explicitly prohibited the denial of insurance coverage because a development rents to recipients of government-backed rental assistance such as Section 8 vouchers, or because apartment rents are capped for low-income tenants. The new law also prohibits insurers from asking tenants’ “level or source of income.” Since the law was passed, however, some local affordable housing providers have regrettably seen little change in the availability or cost of insurance. Nevertheless, we must continue to work for change.

The Fair Housing Act and similar state laws continue to offer remedies for housing advocates seeking equity and an end to redlining of any type, as seen in more recent cases our firm has brought in Washington, DC; New Orleans, Louisiana; and Connecticut. In each case, local activists experiencing the destabilizing effects of redlining successfully challenged exclusionary insurance practices. These are victories for residents, landlords, and entire communities that can provide a roadmap for reform.

Editor’s note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.