Link to the full Jan-April 2026 Poverty & Race Journal pdf
by Ruthy Gourevitch and Jacob Udell
The Climate Crisis is a Core Driver
The 2008 subprime mortgage crisis put “financial distress” in the headlines, as millions of homeowners lost their homes from financial institutions enabling overleveraged valuations. Today, financial distress is back in the news, but this time it’s showing up in the rental market. Multifamily loan delinquencies are at their highest rate in 10 years, having nearly doubled in the last year alone, drawing the attention of many in the industry. And political outlets are tracking debates over distressed apartments in the context of a potential rent freeze coming out of Mayor-elect Mamdani’s election in NYC.
Financial distress is an all-too-common feature of our rental housing market. In our new brief, we explain what’s going on and why it should be a focus for researchers, advocates and policymakers in the years ahead. We focus on the impact on tenants, an often overlooked actor in housing finance debates, who have little say over their landlords’ financial decisions but nonetheless bear the brunt of the consequences of this escalating crisis. Here, we zoom in on some of our key findings, and explain how the climate crisis is exacerbating financial distress: it is one of the core causes of high insurance costs, worsening building conditions, and disruptions of housing supply chains—making resilient, high-quality housing an even more urgent social need.
What is financial distress, and what are its core drivers?
At a basic level, financial distress in the rental market happens when landlords cannot repay their loans, putting the rental housing stock at risk. Financial distress can occur from internal dynamics in a building or portfolio, like a fire or disaster creating unexpected expenses or a risky financial decision from a landlord to buy a bunch of property with an unattained goal of flipping a neighborhood leading to a portfolio in distress. It can also stem from external dynamics in the market, like changes to monetary policy, where the US is in the business cycle, and the state of political parties and movements, including the growing tenant movement.
In our financialized housing system, landlords rely on large loans to acquire properties, raise revenue and decrease expenses to indicate an increase in property value, and then refinance their properties for a profit. Increasingly speculative bets on rising property values means that landlords operate on tight margins; they have little wiggle room if operations become more expensive or property values fail to rise at the rate to which they project. This is where financial distress kicks in.
The ever-present vulnerabilities of the financialized housing system have been on display over the last few years as landlords and investors confronted significant economic changes. Landlord profit is largely reliant on easy financing, and since the mid-1980s interest rates have decreased in the aggregate, allowing landlords to carry relatively large mortgages with relatively low monthly payments, and to refinance their mortgages at similarly inexpensive levels to profit from rising property values. Interest rates reached all-time lows during and after the COVID-19 pandemic, and many landlords used these record-low rates to refinance existing debt or expand their portfolios through new acquisitions.
However, over the last couple of years—mostly to counteract inflationary pressures—the Federal Reserve has raised interest rates significantly. Higher rates put a general damper on speculation in the rental housing market, affecting landlord business plans and perceived profitability across the board. But they are especially challenging for landlords whose debt matures into the higher interest rate environment. The number of such landlords is considerable: in 2024, $250 billion worth of multifamily mortgages matured; in 2025, that number grew to approximately $300 billion, comprising almost 15% of all debt on multifamily properties. (Importantly, landlords with maturing debt are generally forced to refinance since multifamily mortgages are relatively short-term—five to seven years—compared to home mortgages and include significant balloon payments).
In the face of these headwinds, landlords with highly leveraged portfolios or who acquired properties at optimistically high values now find themselves teetering on the edge of financial distress.
What is the relationship between the climate crisis and financial distress in the rental market?
Financial distress occurs because landlords and their investors made plans based on a set of assumptions about market conditions that do not bear out. The drivers of distress are conditions that are fundamentally changing the context in which landlords do business. Distress dynamics in the current multifamily market can be divided into four categories: a changing financing and monetary landscape, changes in operating income and expenses, political instability, and a rapidly worsening climate crisis.
We unpack all of these in our new brief, but want to give special attention to the climate-related drivers, which can be divided into a few underlying phenomena:
1. The climate crisis is increasing physical property risk, and requiring new investments in homes:
Increasing extreme heat, for example, is driving up energy costs and making building upgrades like air conditioning installation all the more urgent, further straining operating budgets or making physical distress all the more likely. And damage from extreme weather events like floods, hurricanes, and wildfires has the potential to fundamentally change the existence of submarkets altogether. One study estimated that up to $160 billion in real estate will be underwater by 2050 from chronic flooding. The financialized housing system and restricted supply of high-quality affordable housing allow landlords to continue to defer maintenance despite a worsening climate emergency, but they also increase the risk of property damage and deterioration due to that same emergency.
2. The climate crisis is shaping how the home insurance industry is charging customers, driving higher costs for multifamily landlords:
Recent research shows that the average monthly property insurance cost increased more than 75 percent between 2019 and 2024. Insurance costs for multifamily rental properties increased nearly three times faster than total operating costs from 2023-2024, forcing landlords in every region of the United States to put more of their monthly income toward insurance instead of their loans. As CCI research explains, lenders typically require insurance as a condition for approving and maintaining a mortgage, making this a necessary part of the operating expense structure for multifamily owners and systemically entwining disaster insurance and the housing finance system.
3. At the macro level, the climate crisis exacerbates market instability:
At a broader level, climate change is exacerbating market instability in many sectors, all of which affect real estate. For example, climate-fueled extreme weather events are upending global supply chains that the multifamily market relies on for building and maintaining homes and geopolitics related to oil and energy prices could quickly change the projected profitability of real estate assets.
What does financial distress mean for the housing market and tenants?
Financial distress could mean an even worse rental housing crisis in the making, with landlords on the hook to pay back big loans and passing the burden onto tenants via rent hikes, fees, and deferred maintenance.
Although tenants do not have a say over what level of financial risk their landlord takes on, they are nevertheless impacted by these decisions. Just as tenants have suffered in recent decades due to rental housing speculation, so too do they bear the brunt of landlords’ financial distress, whether in the form of deferred maintenance that threatens health and safety or rent hikes as landlords attempt to meet their debt obligations and maintain returns to lenders and investors.
Despite the disproportionate repercussions for tenants, it is typically non-tenant market actors who determine how distress originates and what is done about it. In the 2008 Great Recession, for instance, policy and investment decisions led millions of homeowners and renters to lose their homes, while financial institutions were bailed out and large investors quickly recovered (and even found new opportunities to profit from housing).
Organizing and policy action around financial distress has a rich history in the United States. However, much of that history comes from the era of disinvestment, when the floor of property values fell out from under landlords in urban areas across the country. In this situation, financial distress created a vacuum filled by advocacy around neighborhood reinvestment, community development, and tenant-controlled housing. In the current US context of overvalued and overleveraged housing, the salient problem is the opposite: the incredible amount of money invested in the sector means that actors with a financial stake in the game—landlords, lenders, investors—will seek to maintain the status quo, tenant well-being notwithstanding.
Indeed, in recent years, it is tenant movement groups themselves—like the Tenant Union Federation and those organizing around the Signature Bank collapse in NYC—that have begun to study housing finance and innovate models for organizing in distressed properties. This makes sense, as tenants are in many ways the best equipped to tell the actual story of financial distress—how imprudent investments connect to the material conditions in their buildings, and how those conditions might point to early signs of financial distress. Many local- and state-level pro-tenant policies being advanced currently can also be seen through the prism of financial distress. Social Housing Development Authorities (at both the state and federal level) and Tenant Opportunity to Purchase policies, for example, seek to empower the public sector to intervene in instances of financial distress for the public good. And ideas like CCI’s Housing Resilience Agency proposal would relieve the burden of rising insurance rates without harming tenants.
Given the current state of affairs in the multifamily housing market and the escalating climate crisis, it is high time for housing policymakers, researchers, and advocates should take seriously the role of increasing financial distress in the multifamily market and craft solutions to both limit distress and ensure tenants do not shoulder the burden when and where it does occur. n
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