Florida’s Multifamily Investment & Development Impacted by Soaring Insurance Costs

Florida’s population surged by over 700,000 between April 2020 and July 2022, significantly boosting demand for housing. While this is good news for multifamily, rising insurance expenses are placing downward pressure on owners. To put this into perspective, insurance costs for multifamily in Florida have jumped 150% in the last two years, from $800 to $2,000 per unit, according to Atrium Management Company.

The state has suffered roughly $200 billion in damages from 16 severe storms and hurricanes since 2020. Hurricane Ian alone accounted for $53 billion. According to the Insurance Information Institute, coastal construction, rising property values, and higher replacement costs have increased. This has heightened the risk vulnerability that individuals, businesses, and properties face.

Reinsurance rates have also jumped, raising costs for insurance companies. The number of carriers with active policies in Florida declined from 166 in 2015 to 99 in Q4 2023. The insurance companies that withdrew from Florida were paying out more claims than they were taking in and ran the risk of being unable to pay out claims. On top of this, state property insurance hasn’t been profitable since 2016, according to the Office of Insurance Regulation’s 2022 annual report.

Rising insurance expenses and lenders’ increased requirements on replacement costs are driving up costs significantly.

These rising insurance premiums have affected Florida multifamily property rental rates statewide. An August report by ratings agency KBRA revealed that apartment rents have increased by more than 20% on average since 2020. Miami, Tampa, and Orlando witnessed the highest increases, with each experiencing hikes of over 33% from January 2020 to April 2023. As of Q1 2024, Tampa’s average asking rent stands at $1,765, slightly surpassing Orlando’s $1,760, while Miami leads with $2,325.

Moreover, the bulk of new development in these markets is concentrated in Class A properties, where operating expenses are notably higher. Over 195,000 new units have been built in the past three years. In addition, there is another 133,600 under construction across Florida’s multifamily market.