California landlords — like single-family homeowners — are facing higher insurance premiums, and they’re passing along some of those costs to their tenants.

Many insurance companies have stopped writing policies in the state because of increased wildfire risks, but that’s not the only reason. They say in the case of any catastrophe, the potential costs of replacing any residential or commercial property, from labor to material costs, is just plain more expensive now.

Even owners of properties in areas that are not at high risk for wildfires have had their policies canceled because their buildings may need repairs or improvements. Landlords are having to find other insurers, or having to turn to the ever-growing and more expensive FAIR Plan, the insurance industry-run plan that is mandated under California law to be the insurer of last resort.

This is where the insurance crisis could worsen the housing crisis, according to some experts. Increased insurance costs for properties other than single-family homes are starting to affect the rental market — in a state where almost half of residents are renters — and could compound the state’s housing problems, they say.

Josh Hoover, an insurance broker in the Los Angeles area, handles mostly commercial accounts and said “it’s almost impossible” to find coverage for any large structure. In late 2022, Allstate said it would stop writing new property insurance in the state, including commercial policies.

State Farm, the biggest insurer in the state, recently canceled policies for tens of thousands of homes, residential community associations, business owners and commercial apartment properties.

“Even buildings made in the ‘80s are now considered old, which is ridiculous,” Hoover said. “Most carriers want everything updated in the last 30 years. They want a new roof, electrical redone, plumbing redone — they want you to have copper pipes.”

For landlords, ‘death by a thousand cuts’

Earlier this year, Farmers canceled the policy on a 33-unit apartment building in San Bernardino that was built in the 1960s, said its co-owner, Uwe Karbenk. Karbenk found an out-of-state insurer instead of going with the more expensive FAIR Plan, but his premium has still increased by $28,000 to more than $41,000 a year.

Combined with state laws that limit how much he is allowed to raise the rent each year — 5% plus inflation, or up to 10% in some cases, with possibly other rent-control measures on the way — Karbenk said being a landlord in California is “a little bit like death by a thousand cuts.” He added that if his profit margin continues to shrink, he would rather invest in something else besides real estate.

“One of these measures, it’s not a big deal,” Karbenk said. “But over the years, it’s really difficult for mom-and-pops.”

Mike Placido and his wife are definitely a mom-and-pop. They own two rental properties, a four-unit building in San Gabriel and a duplex in Alhambra. He said they bought the properties as a way to supplement their retirement income when the time comes in a few years.

When State Farm canceled the policy on their San Gabriel property, Placido got a quote from the FAIR Plan for $8,600, much higher than their old $2,600 premium. Instead, he was able to cobble together three different policies from a Florida-based insurer to get the coverage the old policy provided for $6,500, a 150% increase. So he said he plans to raise rents in January.

“It’s not like I’m some land baron,” Placido said. “I’ll pass along as much as I possibly can, as much as the market can bear, and I’ll shoulder the rest. I have no choice.”

Yet another worry for renters

About 44% of Californians are renters, according to the U.S. Census. The median monthly rent in the state is $2,850, a third higher than the national figure, according to online real estate marketer Zillow.  About 30% of the state’s renters are considered severely cost-burdened, meaning they spend at least half of their income on housing, according to an analysis by the Public Policy Institute of California. Now their rents could rise to even more burdensome levels.

Shanti Singh, legislative director for statewide renters’ rights organization Tenants Together, said “it’s still kind of an unknown how common it is” that tenants’ rents are rising along with insurance costs, partly because not all landlords say why they’re raising rents.

“It depends on the landlords,” Singh said. “Some are transparent; a lot of them aren’t.”

Any significant rent increases have not yet shown up in Zillow’s data, which shows California’s median rent is actually down about $100 compared with last year, though it has climbed higher since the beginning of the year.

In the Bay Area, two renters who didn’t want to be named out of fear of retaliation from their landlord said the rents at their live-work complex jumped earlier this year, and the reason was spelled out to them in an email that had “insurance costs” in the subject line.

Singh said she fears things will only get worse for renters as the effects of climate change, such as wildfires, continue to weigh on the affordability of insurance, and in turn, housing.

“Tenants are going to have the least recourse,” Singh said. They “always end up bearing a disproportionate brunt of what they can afford.”

Housing and climate change

Singh and others who deal with California’s lack of affordable housing expressed concern about whether certain parts of the state will eventually be uninhabitable and uninsurable — whichever comes first.

Sarah Karlinsky, director of research at the Terner Center for Housing Innovation at UC Berkeley, said the lack of enough housing within already developed cities means more building “at the fringe of regions, in places that are more dangerous,” also known as the wildland urban interface, or the WUI, in wildfire speak.

“If we don’t want to continue down this road, we have to fundamentally rethink our development patterns,” Karlinsky added.

Laurie Johnson, an urban planner and former chief catastrophe response and resiliency officer for the California Earthquake Authority, pointed out that some property owners in the state who own their buildings and have no mortgages might choose not to insure their properties because of the rising costs. That’s worrisome, she said.

“It feels like we want to keep our multifamily stock insured and don’t want to take the risk of losing it,” Johnson said. Hoover, the insurance broker, agreed and said he has had some clients tell him they plan to forgo insurance.

Johnson added that just as jurisdictions have been requiring seismic retrofitting in case of earthquakes, protection against fires and other catastrophes — and the ability to replace whatever might be lost — is vital: “You would be displacing so many people.”

“Tenants are going to have the least recourse.”

Shanti Singh, legislative director for Tenants Together

The growing risks of climate change make it more important than ever for renters to have their own insurance, said Emily Rogan, senior program officer for United Policyholders, a consumer advocacy group.

Renters insurance would cover the costs for tenants to stay “somewhere else as you figure out where to live in case of a severe weather event,” Rogan said.

Effects on commercial properties and businesses

Small businesses that rent their space will be affected by their landlords’ rising premiums, too.

John Reed owns a mixed-use commercial property in Oakhurst, outside Yosemite — an area that has seen its share of fires in the past several years. Last year, his fire insurance cost about $2,800, but Berkshire Hathaway canceled his policy. He got three different quotes from the FAIR Plan, with the highest being $24,000. Then, he found a plan from Lloyd’s of London for about $14,000.

Reed said he will have to pass on his increased costs to his six tenants. “As a landlord, I can’t hit them with the whole burden all at once,” he said. “If I’m able to afford it, I will try to spread that out over a two- or three-year period.”

California’s insurance commissioner, Ricardo Lara, has unveiled a multi-part plan to address the state’s insurance woes, mainly focused on wildfires. For example, insurers will be allowed to use catastrophe models if they agree to write policies in certain areas of the state. But Insurance Department spokesperson Michael Soller pointed out that Lara also recently announced a deal with the FAIR Plan that creates a high-value commercial coverage option.

“The reforms will have broad benefits for the availability of insurance,” Soller said.

Levi Sumagaysay is a reporter with CalMatters.