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REDWOOD CITY FAIR AND AFFORDABLE HOUSING ORDINANCE <br /> <br />Economic & Planning Systems, Inc. 27 Cumulative Impacts <br />Other External and Market-Based Cost Pressures <br />Stakeholders emphasized that the proposed Ordinance’s impact should be <br />considered in the context of other cost pressures already affecting the financial <br />performance of rental housing. These external cost pressures are not caused by <br />the proposed Ordinance but may affect owners' ability to absorb additional <br />requirements. Key factors cited by stakeholders as driving the operating and <br />management cost of commercial real estate are summarized below. <br />Insurance Costs <br />Stakeholders reported substantial increases in insurance premiums in recent <br />years, reducing operating margins and limiting owners’ ability to absorb new <br />regulatory costs. This concern is consistent with broader market conditions: the <br />Federal Reserve found that multifamily property insurance costs increased by <br />more than 75 percent from 2019 to 2024 in real terms 22, and the California <br />Department of Insurance has identified wildfire losses, liability, inflation, and <br />building-material costs as factors driving higher insurance rates.23 <br />Owners also noted that insurance coverage has become more restrictive and less <br />predictable for certain property-level incidents, particularly water damage. <br />Industry data supports the broader concern: National Multifamily Housing <br />Council’s (NMHC) 2023 State of Multifamily Risk Survey found that multifamily <br />property insurance costs increased by an average of 26 percent over the prior <br />year, while many respondents reported higher deductibles, new policy limitations, <br />and reduced coverage amounts24. <br />Stakeholders also reported that water-damage claims may be denied or only <br />partially covered where an insurer determines that the damage resulted from <br />tenant conduct, negligence, deferred maintenance, or failure to prevent further <br />damage. This is consistent with California Department of Insurance guidance <br />indicating that sudden and accidental water damage is generally covered, while <br />seepage, leaks, wear and tear, maintenance issues, mold, and neglect are generally <br />excluded or subject to policy limitations25 As a result, repeated or disputed water- <br />damage claims may increase operating risk for rental property owners by <br />contributing to higher premiums, higher deductibles, reduced coverage, or greater <br />difficulty obtaining coverage. <br /> <br />22 Rising Property Insurance Costs <br />23 Factors Driving Insurance Costs <br />24 NHMC State of Multifamily Risk Survey and Report <br />25 California Department of Insurance, Residential Insurance: Homeowners and Renters <br />8.A. - Page 86 of 168 <br />96