John Lizzio has lived in North Carolina since 1992, but after his wife passed away five years ago, he moved in with his daughter.
A botched surgery in 2000 left him with chronic pain, and he wasn’t able to afford to live on his own. That changed with the construction of Estrella Landing, an affordable housing development in Wilmington, NC.
“I love it. Very roomy apartments," he said of the new complex. Lizzio pays $900 a month for his two-bedroom apartment: well below market rent in Wilmington, where the average 2-bedroom goes for about $1285.
Developer Stephanie Norris built Estrella Landing as an affordable complex, aimed at people who make well below the Area Median Income. She was born and bred in Coastal NC — and she knew that's where she wanted to build.
"I only work in North Carolina, my dad always wanted me to go, 'oh, go do some projects in South Carolina, Virginia?' No, thank you. I'm very comfortable here. And this is, you know, my community. So I want to focus in this area and in the state,” she said.
For many years, Norris was successful working just in her own community. She owns and operates 25 properties throughout the state, concentrated near the coast. They’re all Low Income Housing Tax Credit properties, or LIHTC: a federal program that helps developers build housing for working-class and low-income people.
"It's for your seniors, obviously, it's for working families, but it's also for single individuals who are finding their first home ever. So it's it's kind of a broad spectrum of our entire community," she said.
While Norris has been able to stay profitable in her niche of highly regulated affordable housing, that’s starting to change. And it all has to do with climate change, which is making multifamily housing insurance a whole lot more volatile, she said.
"My insurance agent is basically telling me, 'stop building in a coastal county, stop developing in a coastal county, you need to balance your portfolio, and you need to go west of I-95 to balance the portfolio. Otherwise, insurance companies are going to do exactly like what you're seeing in Florida, and they're going to not want to insure our portfolio or portions of our portfolio,'" she said.
Even if insurance companies are still willing to work with coastal developers, insurance premiums are going up rapidly, and it’s a serious threat to her business.
“Our affordable property locations in New Hanover County, I think it would be more on the order of about a 70% increase to the existing premiums,” she said.
That comes out to about $1000 a year per unit — and under federal regulations, Norris can’t increase rent by more than $50 a month to cover the change. Some of her newest properties are costing her so much in insurance, she’s worried she won’t be able to cover debt service if even one person moves out.
"If it does, I'm no longer a developer anymore. I can't keep doing this, even though I love it, and it's my purpose,” she said.
The impact of climate change
Rising insurance rates on low-income apartments aren’t just a problem in hurricane-prone areas like the Southeast.
Chip Stuart is the national real estate practice leader for HUB International, an insurance brokerage. He said wildfire is as much a problem as tropical storms in parts of the US.
“Mother Nature's gonna blow right through," he said. "We're building in her way at the same time as the [weather] patterns have changed. And some areas are getting hotter, and some areas are getting windier. And that has started really an epidemic of wildfire.”
Stuart said that the insurance problem is hitting coastal regions from California to Texas to Florida, and that's giving developers pause.
"I kind of see a pause on developments. I've talked to a large developer out in California, and they aren't so sure they want to build anymore until this financial crisis passes," he explained. "The loans don't seem to bother them as much as it's the insurance.”
That chilling effect hits tax credit developers more than for-profit developers. After all: market rate developers can just increase rents to cover the rising tides of insurance.
Stephanie Norris says she may have to balance out her portfolio to keep her head above water: by pausing development of properties in risky coastal areas. Even though demand is incredibly high for her product, she’s not sure she can build it so close to the coast, in New Hanover County.
"It’s not sustainable, for sure. You know, ultimately, it only drives our local workforce and people out of New Hanover County, and that's not the goal.”
Retiree migration drives up local rents
Insurance rates are unlikely to change where Americans want to live: even if their homes are at risk of damage from catastrophic storms and climate-driven weather. Richard Barkham is the Chief Economist and Global Head of Research for CBRE, the world's largest commercial real estate services and investment firm. He says most people looking to move to a new place don’t consider climate change or its impacts as part of their decision.
"More and more people are boomers are retiring and probably moving to higher amenity locations. And, you know, people are willing to take the risk,” he said.
Coastal North Carolina is a major retirement hub: The two fastest growing counties in the state, Pender and Brunswick, are next door to New Hanover County, and much of that growth is from retirees. Many of those moving have higher incomes than local residents, which helps drive up market-rate rents: and pushes some locals out of their homes, unless they can find subsidized apartments.
"If costs rise, then, you know, sooner or later, in real estate, they get passed on to the user,” Barkham said.
That squeeze hit sunbelt cities particularly hard during the pandemic — rents in Wilmington rose precipitously, peaking in September of 2022. They’ve fallen by 6% since then, but remain unaffordable to many service industry workers, who are getting priced out by newer residents.
And it’s had wide-ranging impacts: service workers drive longer and longer distances to work in Wilmington, restaurants struggle to find employees, and homelessness rises as low-income residents struggle to cover rising rent payments.
That’s all made the competition for affordable housing in Wilmington tough. Norris says her 84-unit property, Estrella Landing, received 300 applications before they’d even received a certificate of occupancy.
"We started the lease signing process in mid-May of this year, and we were 100% occupied by the first week of August,” Norris said.
Finding Solutions
The demand for affordable housing is there, but filling that need has long been a challenge for cities across the US. Now, climate change is making that battle a little more difficult.
But there may be some solutions. Alex Eveland is the Vice President of Government Affairs for the National Multifamily Housing Council.
"While there's no silver bullet [but] a relatively easy one, we think, is coordinating the different insurance requirements under the different federal agencies,” he said.
Many low-income housing developers use multiple federal programs, depending on where they’re building their properties. HUD, FHA, and USDA all have programs for affordable housing, but each has different insurance requirements. Eveland said standardizing those requirements would make it far easier for housing providers to bundle their portfolio and get a lower price. But he also thinks there could be incentives involved.
"There should be additional focus on resiliency efforts among federal grant programs," Eveland said.
That would mean developers get an incentive for building climate resilient properties: either extra funding from the feds, or with certifications that lower their insurance premiums.
As Eveland said, there is no silver bullet, but it’s clear to low-income housing developers that something’s got to give. The U.S. insurance system is cracking under the strain of climate disasters: and now, it appears that’s contributing to the affordable housing crisis.
