Written by Peter G. Miller, a nationally syndicated newspaper columnist, online contributor and author of seven books.

There’s a new and growing real estate affordability crisis. It’s not just that large numbers of first-time buyers cannot afford to purchase, it is also that existing homeowners face new and rising costs – expenses high enough to force some owners to sell.

This seems strange. After all, homeownership combined with a fixed-rate mortgage has long been seen as a way to offset inflation and rising cash costs. But now, even long-time owners with fixed-rate mortgages are getting squeezed.

How is it possible for a home with fixed-rate financing to become less and less affordable? The answer is that it’s not the financial main course, that yummy fixed-rate mortgage, making homes less affordable for existing owners. Instead, it’s the increasingly expensive side dishes that are beginning to weigh on property owners.

Property Taxes

Property taxes keep growing because as home values increase, so do property tax collections.

Research by ATTOM shows that property tax revenues increased 5.4% from 2019 to 2020 and — despite the pandemic — 1.6% in 2020. In 2021, property tax collections rose by 1.8% and another 3.6% in 2022. For 2023 the increase was 6.9%.

These numbers might seem small, but they add up. If property taxes were $3,700 when a home was sold in 2018, then on average they moved up to $3,900 in 2019 and $3,962 in 2020. By 2021 they reached $4,033 as well as $4,179 in 2022. The property tax cost in this example hit $4,467 in 2023 — $767 more than in 2018.

However, our example understates property tax increases. That’s because when a home is listed for sale, the current property tax is shown. The listing information is correct, but the seller’s property tax costs and exemptions are wiped away at closing. A new property bill will be computed based on the latest sale price, and that bill is likely to be significantly higher than the old one.

Property Insurance

Property insurance is required in virtually all cases if you have mortgage financing. If a home is mortgage-free, owners will still get coverage to protect what is often their largest asset. A 2024 study by the Consumer Federation of America found that just 7.4% of all residential properties are uninsured.

“At the national level,” said S&P Global Ratings, using data from the Insurance Information Institute (Triple I), “premiums for owner-occupied properties increased 18.2% during 2022-2023 and 33.8% during 2018-2023.”

How much homeowners pay depends in large part on location. According to Insurify, the typical homeowner’s policy cost $2,377 in 2023, but just $1,782 in California and a whopping $10,996 in Florida. In some cases, property insurance costs are now larger than monthly payments for mortgage principal and interest.

Premiums don’t tell the whole story. For example, policies may have one deductible for typical claims but a far larger deductible for hurricane or fire damage – the very events most likely to create massive financial costs.

Between higher premiums and bigger deductibles, insurance costs are causing some owners to move. But – at the same time – demand in high-risk flood and fire zones has actually increased in some areas.

“Ballooning insurance costs and intensifying natural disasters are driving thousands of Americans out of risky areas, but those people are quickly being replaced by other people for whom climate change isn’t the top concern,” said Redfin Senior Economist Elijah de la Campa in August.

“For a lot of Americans,” he continued, “things like cost of living and proximity to family take precedence over catastrophe risk, which can feel less immediate and more abstract. But the cost-benefit calculus seems to be shifting in places like California and Florida, where skyrocketing home insurance costs and an uptick in high-profile disasters have had a tangible impact on residents and made national news.”

Climate Change

Increasing insurance costs reflect several realities. Home values have rapidly grown during the past few years in most metro areas, requiring higher coverage and bigger premiums. Inflation has made repairs more costly. But perhaps most importantly, massive storms and natural events are creating enormous claims.

The Insurance Information Institute estimates that insured property losses — corrected for inflation — amounted to $30.5 billion in 2014, $29.9 billion in 2015, and $40.9 billion in 2015 versus $106 billion in 2021, $114 billion in 2022, and $79.6 billion in 2023. When property prices, repair costs, and claims increase, so do insurance premiums.

The issue is not just that property insurance premiums are rising, coverage is increasingly unavailable at any price from the private sector.

“The increasing frequency of natural disasters and related events (ranging from wildfires in California to storms in Florida) over the past several years has also been a major driver of rising homeowner insurance premiums,” according to S&P Global Ratings.

“For example, hurricane activity in Florida has led to increased risk of housing damage in the state, and insurance for some homeowners is either prohibitively expensive or impossible to obtain in the private market. According to the Insurance Information Institute Inc., as of 2022, over 5% of Florida’s population uses state-run Fair Access to Insurance Requirements (FAIR) — Citizens Property Insurance Corp. — as an insurer of last resort. In contrast, the population share in most other states that use FAIR is less than 1%.”

Private insurance companies will exit local markets when claims consistently exceed premiums — meaning private-sector coverage can be unavailable at any price. In effect, states have no option but to provide last-chance property insurance. Large numbers of properties might be foreclosed without such coverage — foreclosures that will drive down local home values and thus property tax collections for the state.

Special Assessments

Large numbers of residential buildings today are 50 and 60 years old — and sometimes more. Wind and weather are wearing away structures that are no longer new or modern.

It’s no longer acceptable to delay maintenance or minimize potential repair costs. The reason? In large measure, there’s a lot more concern as a result of the highly visible 2021 collapse of the 12-story Champlain Towers South beachfront condominium in Surfside, Fl., just north of Miami. This event resulted in 98 deaths, produced court settlements worth more than $1 billion, and is forcing states to adopt new inspection and disclosure standards.

Under legislation passed in 2022 and 2023, Florida residential buildings must have a structural integrity reserve study (“SIRS”) every ten years if they are at least three stories high, and 25 years to 30 years old, depending on their distance to the coastline. The purpose of the SIRS program is to identify required maintenance and repair work and then set aside reserves to cover such costs.

“Whether you are a building owner or a resident these new inspection laws will have a big impact on your association fees and building maintenance costs,” explains G. Batista Engineering & Construction, a Florida-based structural engineering firm. “The maintenance and repair of common areas can quickly add up during these inspections especially if your building has not been well maintained or you live near the coast.”

According to a 2023 report by the Community Associations Institute, reserve funding and reserve studies are required in less than a quarter of the states. That’s likely to change because no one wants another Surfside incident.

However, reserve standards are unpopular because they can create huge costs for unit owners. The new Florida rules mean there can be big expenses for consulting fees, required reserve payments, and actual repairs. Some unit owners have been hit with one-time “special assessments” of $22,100, $60,000, and even $100,000 in addition to regular association costs.

“Special assessments make it possible to maintain the safety and livability of a condo building and are more often than not worth the inconvenience in the long run,” explains South Florida Law, a legal practice with offices in Coral Gables and Hallandale Beach. “However, special assessments can also be prohibitively expensive, so much so that it is not unheard of that condo owners are forced to sell their unit in order to pay.”

The new Florida standards have teeth. Just in Miami-Dade and Broward Counties, at least several dozen buildings have been deemed unsafe. The good news is that several have been upgraded and re-opened.

It’s not just condos and high-rise structures being impacted by rising costs. Steeper insurance premiums and higher property taxes are also a problem for single-family dwellings. More money will be needed for repairs. It’s no surprise that the FHA’s Limited 203(k) program – a program directed toward home improvements, environmental efficiency, and upgrades — will increase its allowable loan size from $35,000 to $75,000 in November.

$123 Billion Per Year – And Rising

Maintaining our current housing stock in the face of climate change will not be cheap. In 2022 the US Army Corps of Engineers estimated that it will cost $52.6 billion to make the New York/New Jersey waterfronts less vulnerable to hurricane surges. In California, reported the San Francisco Chronicle in June, “Cal Fire, the state’s firefighting agency, has spent more than $30 billion on battling and preventing wildfires since 2017.” According to the National Centers for Environmental Information, between 2019 and 2023, disasters – droughts, flooding, freezing, severe storms, tropical cyclones, wildfires, and winter storms — cost an average of $123.4 billion a year.

One way or another, owners will pay for rising risks. According to the Insurance Journal, Fannie Mae and Freddie Mac – as one example – have been considering updated property insurance requirements for mortgage borrowers, requirements that would force owners to have “replacement cost basis” coverage and not “actual cash value” insurance.

The difference, according to the North Carolina Department of Insurance, is that actual cash value (ACV) equals repair costs minus discounts for age and use. Alternatively, “replacement cost basis” coverage means today’s cash expense for replacements or repairs. Since the property is security for the mortgage, it’s easy to see why lenders and mortgage investors prefer replacement cost coverage.

What Can Be Done?

Small car sales have increased of late, in large measure because they’re available at lower cost than SUVs and pick-ups. The public is logically reacting to fast-rising auto prices, and the same thing is happening with homes. The Census Bureau figures that between 2021 and 2023 median home sizes shrank from 2,303 sq. ft. to 2,177 sq. ft. At $200 a square foot, that’s a potential cost reduction of $25,200 ($200 x 126).

The Census Bureau also says more than 33 million homes are owned mortgage-free. Despite the risk, more and more of these homes are likely to be partially or entirely uninsured, especially as premiums and deductibles grow. Disciplined owners will save unpaid premiums for future repairs and remodeling.

Lastly, watch for new investor interest. Think of buying not just a unit but an entire multifamily property and then replacing it.

“What has just begun to evolve,” wrote The Palm Beach Post in August, “is an environment where some buildings whose owners can afford it choose to bite the bullet and undertake the repairs. For others, selling out to developers offers a solution: a lucrative buyout that sends them on their way while their building gets razed to make room for new, bigger, and more expensive condos in their place.”