Rent and sale price are not the only costs of keeping a home: utilities, internet, property taxes, insurance, and maintenance are all direct costs that renters and/or homeowners must factor in as part of their housing costs.
Property insurance is essential to preserving the value and useability of a home. When there is major damage or disaster, insurance can cover the costs of repair and rebuilding. To make a profit, private insurance companies must generate sufficient revenue through premiums to pay out claims for covered losses. However, the rising frequency and cost of natural disasters has made it challenging for private insurers to provide insurance at affordable rates. NOAA reports that in 2023, the US experienced more than two dozen natural disasters that resulted in over $1 billion in direct costs. “Greater levels of risk translate to higher property insurance premiums as insurance providers raise rates to maintain profitability and ensure sufficient resources to cover future customer losses. The resulting sharp increase in insurance premiums for homeowners and property developers has exacerbated housing affordability challenges across the U.S.” Furthermore, the rising cost of construction makes rebuilding more expensive.
Property insurance rates have been rising since the last quarter of 2017. Over the following five years, homeowners' insurance premiums rose 40% faster than inflation. The national average cost of homeowners insurance premiums is estimated at $1,750 to $2,500 annually. As a result, some homeowners may forgo insurance if not required by their mortgagor. Survey results indicate that 12% of homeowners nationwide do not have insurance, and nearly half of those homeowners have incomes below $40,000 per year. While comparable data is not available for Massachusetts, it is clear that the rising cost of insurance will be challenging for low-income homeowners, especially those in vulnerable areas. Those who choose to opt out of insurance due to the cost will put all of their property assets at risk.
Nationally, in some high-risk areas some insurance companies have ceased issuing policies because the potential cost of a disaster is too high to support affordable premiums. When this happens, homeowners have fewer choices and are likely to face higher costs.
U.S. families spend an average of 3.1 % of income on energy bills, but the average energy burden for low-income households is three times that. Recent research found that average neighborhood energy burden is positively and significantly associated with eviction filing rates, holding rent burden constant. The cost of energy is likely to continue increasing due to the need for new renewables, grid modernization, and increasing demand. Some recent state policies help mitigate rising energy costs. First, in regard to new construction energy codes - notably the growth of Passivehouse- certified construction in multi-family (where there are currently over 23,000 units in the pipeline) is dramatically reducing energy costs for tenants and/or property managers. Second, the Mass Save weatherization program, particularly for low and moderate income, households is mitigating energy costs for mostly single-family households. Finally, the Department of Public Utilities is also expanding electric discount rate categories to cover moderate income as well as low-income households.
Energy is not the only utility that can be costly for households. Despite the ubiquity of 5G signals and Wi-Fi networks, high-speed wired connections are still essential for households to fully take advantage of the internet for learning, health, economic opportunity, and entertainment. This was no more evident than it was during the Pandemic, when a digital divide disproportionately impacted some populations more than others. According to the MBI Digital Equity Plan, “As more aspects of everyday life depend on the internet and as online activity grows more sophisticated and demands higher speeds for full participation, the availability of broadband has a greater impact on quality of life than ever before.” That report found that the statewide median price for broadband service was $75 per month, or $900 per year. Half of survey respondents said it was either somewhat hard or very hard to pay their internet bill each month; and two thirds of households who said they don’t have home internet services say that cost is the principal factor. Lack of competition is one contributing factor to high internet costs. Until July 2024, the American Connectivity Plan subsidized internet access for low-income households. The state is now implementing a Digital Equity Plan that aims to bring low-cost internet to communities that need it. One implementation strategy being implemented by the Mass Broadband Institute is installation of free internet at public housing developments, along with device distribution and digital literacy training.
Recent polling from MassINC report housing and transportation costs are the top two identified burdensome expenses—specifically amongst women, renters, public transit riders, and low-income residents. Transportation is a key determinate of affordability and opportunity. The average US household spends $13,000 per year on transportation, equal to 15% of average household income. (Second-largest category, after housing.) Low-income households are particularly burdened by transportation costs; those in the lowest quintile of income (<$28K/yr) spend >30% of income on transportation. Auto-dependence is a huge driver of transportation costs: Auto ownership constitutes 93% of household transportation spending. Households (at any income level) without a vehicle generally spend only 5% of their income on transport. However, in order to live without owning a car, households need to find a) housing they can afford, in b) a neighborhood with transit or pedestrian access to most of the things they need. When such homes aren’t anywhere to be found, households are forced to auto-dependent areas where any bargain on housing costs is likely offset by the costs of auto-ownership and operation. Therefore, one way to increase overall affordability is to create more homes in places where people can live with only one or no cars.
For car-free households, one hidden cost may come in the form of a free parking space. Parking spaces in new multifamily development may cost anywhere from $10,000 to $40,000 per space. If parking spaces are automatically “bundled” with the rent or the cost of a condo, then car-free households are required to pay for an amenity they do not need. The availability of space may actually encourage higher rates of car ownership and all its attendant costs and congestion. Research has found that middle-income households in urban areas were more likely to purchase a car if they moved into an apartment that had free parking.