The Stealth Tax Destroying Housing Affordability

The American housing crisis is buckling under a new weight. As soaring rents grab headlines, insurance premiums and property taxes have been slowly rising to astronomical heights, making housing affordability all but impossible. Insurers blame climate risks for heightened costs, yet new disclosures show these companies are retaining a record share of margins rather than paying out claims.Core housing rent inflation increased thirty percent from 2018 to 2024, adding significant stress to families across the country. But new reports show insurance premiums rose 71 percent over that period, climbing more than twice as fast and contributing to thousands in annual costs. Home insurance now makes up more than 10 percent of the cost of a monthly mortgage, up from five percent twenty years ago. Those costs are typically passed from landlords onto renters.Insurance premiums aren’t the only hidden overhead driving up non-negotiable costs. Property tax bills are now rising far faster than inflation, costing the average American an extra $4,500 per year. To combat these costs, four states have ballot initiatives this November to limit or rollback property tax expenses, adding to a group of 10 states that issued changes since last year.Nowhere is this crisis clearer than in New York City. A recent municipal proposal from the Mayor and the New York City Economic Development Corporation revealed a startling relationship — every $100 increase in property insurance costs requires an additional $1,200 in city capital subsidies to keep public housing units affordable. In effect, the cost of covering the higher insurance prices results in a smaller pool of long-term capital available to the city. “We cannot take on the housing crisis without confronting one of the fastest-growing costs facing New Yorkers: insurance,” said Mayor Zohran Mamdani.New York City is also losing insurance companies at an alarming rate. These companies cite rising costs from extreme weather, climate risks, and skyrocketing claims costs that make their business untenable. When Adirondack Insurance Exchange and its subsidiary Mountain Valley Indemnity left New York in 2024, spokespeople for the companies pointed to climate events as key drivers. Tens of thousands of New Yorkers lost insurance in turn.But a new report from Vanderbilt Law School shows that insurance companies are paying out less in claims than ever before and pocketing a far greater share of premiums. Climate matters less than these companies lead us to believe.One of the clearest ways to see this is a key metric that the insurance tracks called, The Loss Ratio. The closer the loss ratio is to 100 the fairer prices are for consumers.But over the last two decades, loss ratios have plummeted from their historical average of 80 to just 55 in 2025. This loss ratio means home insurance companies are pocketing roughly half of the money that homeowners are paying in.“In 2024-2025, years when the news has been riddled with stories about how climate change needs to be increasing insurance rates, we’re seeing some of the lowest loss ratios we’ve ever seen,” said Brian Shearer, the lead researcher on the Vanderbilt report. “The insurance industry is price-gouging the crisis.”For low-income renters, the fallout from these rising costs is devastating. Average insurance rates for buildings in New York City with affordable apartments more than doubled between 2019 and 2023. Last year, average insurance costs spiked by 10.5 percent for owners of rent-stabilized apartment buildings. Landlords often pass those costs onto renters or force the city to pick up the bill.Nearly half a million New York homeowners, or about five percent, decided to forgo carrying property insurance due to its expense. Multiple court cases have found that insurance companies have denied coverage to low-income households or price gouged others who were using vouchers.The five biggest home-insurers didn’t pay out on 44 percent of claims resolved last year, forcing homeowners and renters to fund repairs out of their own pockets.“I’ve found 16 private jets that the top 10 property and casualty insurers own,” said Mr. Shearer. “State Farm purchased all four of their jets in a 12-month period in 2023 and 2024, when they were also simultaneously telling states like California that if they didn’t let them increase their prices, they would leave.”Property insurance companies received $1.03 trillion in premiums last year, the highest value ever, or more than the entire U.S. military budget.At a time when Mr. Mamdani is trying to lower home insurance costs, he is seeking to raise property taxes on non-primary residential properties. The pied-à-terre tax would apply to 17,000 secondary homes and raise between $340-$500 million to close the budget gap and support affordable housing measures. The mayor aims to shift rising property insurance and tax burdens away from struggling families and onto high earners who can afford them.All of this comes at a time where income inequality in NYC has reached new heights, outpacing the entire rest of the nation. Since 2019, nearly two-thirds of real income growth went to the top 1%, while median income actually fell after inflation and the bottom 90% saw essentially no real gains. Among the top 1%, non-wage income (capital gains, dividends, etc) increased from 64% of total income in 2019 to 69% in 2024. The top 0.1% (about 5,000 households) received 22% of all NYC income, approximately double what is seen nationally.New York City cannot build its way out of a housing crisis if excessive costs are eating away at the foundation. As insurance companies use climate risk as cover to expand profit margins and as property taxes soar to fill strained municipal budgets, low-income families are left to bear the collapse. Communities need to bring these often invisible costs under control and hold the underwriters accountable to the neighborhoods they leave exposed.INTERESTING ON THE WEB* We’re working on a new series called Charts that Explain the World. We’ll share more soon but check out our first 2 posts - No1, No2, and No3* American Inequality has joined Democracy Portfolios alongside Qasim Rashid, Esq. to improve coverage of equity, justice, and civic life as newsrooms shrink - Democracy Portfolios* I sat down for an interview with the Weekly Anthropocene - interview* New Acemoglu paper showing that when firms hire MBAs into senior managerial or CEO positions that in the next 5 year worker wages decline by 6% and the labor share falls by 5 percentage points - NBERWhat I’m readingI’ve really been enjoying Chris Kelly’s new book A Solution to Wealth Inequality. The premise of the book is that we need to convince the ultra wealthy that addressing inequality is in their interest and that demonizing them is not the way to get them to change their ways. Chris believes in the power of persuasion to get this done, and that this can be a practical and impactful way to address inequality in a time when political polarization (and highly influential moneyed interest in politics) prevail. It is a strong appeal and can be a powerful tool in the arsenal. You can check it out here. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit americaninequality.substack.com/subscribe