Insurance Costs Now Define Housing’s Affordability Equation

Affordability’s New Frontier

For decades, the affordability conversation has focused on mortgage rates, wages, and construction costs.

Another factor has now muscled its way into the equation: the cost and availability of homeowners' insurance.

The numbers are sobering. According to the September 2025 ICE Mortgage Monitor, property insurance costs have risen nearly 70% in five years, far outpacing growth in mortgage interest or property taxes. The average annual premium for single-family mortgage holders now stands at nearly $2,370, accounting for almost 10% of all housing expenses within a typical PITI payment — the highest share on record.

This surge is reshaping affordability at the same time as consumers are feeling economic strain. A Realtor.com survey found that 75% of buyers are concerned about rising homeowners’ insurance costs, while nearly half report they’ve already experienced hikes. For one-third of buyers, those concerns have even changed the geography of where they search for a home.

Against this backdrop, homebuilders must now navigate an uncharted territory: how insurability interacts with land planning, design, and sales velocity.

Insurance has become a more influential factor in development decisions,” says Martin Minassian, AVP, National Sales at Westwood Insurance Agency. “We work to help identify potential coverage challenges tied to location, design, or materials so our builder clients can plan confidently.”

Builder Confidence Meets a New Risk Factor

The homebuilding sector already faces shaky confidence. The September NAHB/Wells Fargo Housing Market Index showed builder sentiment stuck at 32 — far below the break-even threshold of 50. Nearly 40% of builders are cutting prices, and two-thirds are offering sales incentives to move homes.

While mortgage rates have moderated, builders worry that insurance costs could become the new deal-killer.

Location plays a major role. Whether a community is near brush, water, or in a flood zone can significantly impact insurability,” Minassian explains. “Carriers also look closely at proximity to emergency services. The distance to the nearest fire station, for example, has become a key factor in underwriting decisions.”

For builders trying to pencil out land deals and pro formas, it’s no longer enough to model lot costs, construction expenses, and absorption rates. If insurability is uncertain, the business case may collapse — even after ground is broken.

Design and Materials as Affordability Levers

Historically, design choices like roof pitch or landscaping were about curb appeal, construction efficiency, or modest cost differences. Now they are becoming central affordability levers.

Roof design plays a big role in how carriers assess risk, whether it’s hip, gable, or flat,” Minassian says. “Hip roofs tend to perform best in high-wind areas because they deflect wind from all sides. Landscaping is another key factor, especially in fire-prone regions. And roofing materials matter too. Non-combustible options like asphalt shingles or tile are far safer than something like wood shake, which can ignite much more easily.”

These design moves carry real economic weight. Cotality, a housing resilience research firm, estimates that retrofitting homes with resilience features costs thousands up front, but prevents claims that could destabilize the entire housing system. The firm warns that without such investments, the U.S. could face an “insurance-driven housing shock” reminiscent of the 2008 financial crisis — only this time, the fault line runs through coverage gaps.

For builders, investing in resilience isn’t just about doing the right thing. It’s about ensuring their homes remain marketable — and insurable.

Carrier Behavior and Market Fragility

Insurance carriers themselves are responding to climate-driven volatility with heightened caution. The Insurance Information Institute reports at least 15 carriers have reduced new policy issuance in multiple states since early 2023.

Builders feel the fallout directly.

We take a diversified approach to managing carrier relationships,” Minassian explains. “For example, if we’re supporting four different communities, we’ll align each one with a different insurance carrier. That way, if one carrier changes its appetite or stops writing in a particular area, we’re not left scrambling. We’ve already built in flexibility to keep things moving.”

This diversification strategy serves as a hedge against carrier retreat — a phenomenon that is increasingly determining whether subdivisions can achieve their absorption targets. A J.D. Power study reveals that 47% of homeowners have experienced insurance rate hikes in the past year, eroding trust and prompting many to shop for alternatives. Buyers who feel left in the dark are far less satisfied, while those who are offered transparent options score far higher.

For builders, the lesson is clear: insurance is no longer just a closing-table compliance step. It’s a moving target that must be managed strategically.

Too often, builders only recognize the insurance challenge midstream. A project moves forward with financing secured, lots developed, and model homes under construction — only for carriers to flag design or landscaping elements that jeopardize coverage.

Builders might not notice an issue until a few homes are up and they realize, ‘Why are policies taking longer to get written here than in a nearby community?’” Minassian says. “That’s when we step in—like in one case where an entire neighborhood had to change its mulch because the carrier flagged it as a fire risk.”

Such discoveries are costly. They slow absorption, require redesigns, and can tarnish a builder’s reputation with buyers.

Meanwhile, consumers themselves are nervous. The Conference Board Consumer Confidence Index declined to a five-month low in September, as consumers grew more anxious about inflation and job prospects. In such a fragile environment, surprises at the insurance desk can derail deals.

Future-Proofing With Risk-Ready Packages

Minassian argues that builders have an opportunity to flip the narrative — to turn insurance from a liability into a sales differentiator.

If builders are aware of specific risks in certain areas—like flood or wildfire zones—they can offer tailored packages, such as a wildfire-ready upgrade,” Minassian suggests. “It might cost a bit more upfront, but if it leads to lower insurance premiums, it can pay for itself in the long run.”

This approach echoes the findings of Realtor.com’s buyer survey, which showed younger buyers are especially willing to adjust their search behavior to address insurance challenges. For them, a “wildfire-ready” or “hurricane-ready” package is not just an add-on — it’s a form of trust and reassurance.

Insurance as Peace of Mind

At its core, insurance is about more than compliance. It’s about protecting the biggest investment most households will ever make.

At its core, insurance is about peace of mind,” Minassian says. “If you’re investing hundreds of thousands of dollars into a home, you want to know that investment is protected. Otherwise, the risk could outweigh the reward.”

That peace of mind is becoming harder to come by in a climate-stressed, risk-averse insurance environment. But for builders who engage early — integrating insurability into land planning, design, and sales conversations — it can also become a differentiator.