Looking Back at 2025: Overcoming the Challenges
By Michelle Gamble
In 2025, some of the biggest challenges to property owners involved shifting renter expectations, financial concerns with high interest rates and escalating property costs, and regulatory influences that make it harder to do business. A lot of pressure exists to balance affordability and rent costs.
Rents, especially in the Bay Area, remain high and often rise faster than renters' incomes, making it squeeze the individual's and families' budgets. It puts a strain on many reliable, good renters. Owners have to balance what the market will bear versus what renters can pay or afford. So, many issues have hammered the industry itself, and property owners scramble to strategically get out ahead of the problems rather than lose business or succumb to them.
INCREASED INSURANCE COSTS
Keeping the fine line between escalating costs and renter needs means solving ongoing challenges that escalated in 2025. Consider the big one right now, which is insurance costs. Insurance premiums have escalated, especially here in California where natural disasters forced providers to increase their rates or completely withdraw from the state. Many owners from the Pacific Palisades fires reported their insurance policies were canceled often weeks or months before the fires. This left owners vulnerable, and some had paid into those policies often for years. Those owners have also faced the regulations being issued by the local government that doesn't promote rebuilding and actually creates barriers to it. While this happened in Southern California, it could easily occur in the East Bay, too.
According to an AI response on Google, "California property insurance premiums have risen significantly, with the online marketplace Insurify projecting an overall increase of about 21 percent for 2025," which is a significant increase when you consider the total costs. Major insurers have received approved rate hikes, including State Farm's 17% increase for homeowners and Allstate's 34% rise for homeowners in late 2024. These increases are a response to increased claims from catastrophic wildfires and other extreme weather events, leading to higher repair costs and a greater need for reinsurance."
What were the biggest drivers of the insurance rate hikes? These issues include the wildfires that burned down the Palisades and Altadena regions that increased insurance claims. Reinsurance costs designed to cover catastrophic losses, and the cost of this coverage has increased, which then gets passed on to the owners. Higher repairs costs for material and labor to fix damages. And, insurance companies have been working to implement better cost programs.
INTEREST RATES
The interest rates issue dogged all of 2025. The average interest rates in 2025 were between 4.25% and 4.50%, which went down in September to 4% to 4.50%. These rates are on the high side, as historically the federal funds rate has averaged around 2% to 3% over the long term. Interest rates dramatically rose, according to financial experts, due to post-pandemic inflation.
Interest rates shape the whole housing market, so it's important to see the rates decrease in order for property owners to flourish. At 4% to 4.5% that meant that mortgages stayed in the 6% to 7% range for much of 2025, which is very high. It stagnated the market because property owners didn't expand their businesses/properties. Investments weren't made in housing, and that's not productive for California that suffers a housing inventory and affordability crisis. And new buyers reduced their acquisitions when faced with larger monthly mortgage payments, which in turn, decreased the number of sales.
These same high interest rates impacted the supply chain and loans for things like renovations, upgrades to appliances and structures, repairs to broken systems that can be costly like HVAC or roof replacements. It created a boomerang effect that pressured owners to increase rents to cover costs. Since housing starts directly impact the economy, this situation, especially in California created overall rising costs of business and living. Home ownership itself went out of the reach of the average citizen.
UNTENABLE RENT INCREASES
Another major concern that evolved in 2025 was the increase in costs coupled with overall rising costs to do business. It pinched the budgets of many property owners that were forced due to economic viability to increase rents. "My biggest challenge this year was striking a balance between meeting my rising costs and keeping my units occupied," said Martin Orefice, founder of Rent to Own Labs. "Raising rents too quickly tends to do more harm than good. I focused on two areas: cutting costs wherever possible, and keeping rent increases low for my most reliable renters."
A big driver in rent increases involves rising maintenance costs. "The number one challenge facing property owners going into 2026 is rising repair costs," said Rob Carrillo, property manager, Haggerty Co. "We continue to see repair and maintenance prices increase as vendors are forced to pass on their rising material costs onto their customers. This is why avoiding deferred maintenance is pivotal in trying to help circumvent these rising costs. If we can identify issues early then we can get at them when they are less severe and less costly. So we can steer clear of having to address these issues when they have become larger as has their costs. And this is why the need for regular inspections is a necessity."
Another unexpected cost comes from owners who have properties under the supervision of a homeowner's association (HOA). The increased rules and restrictions can inadvertently increase costs that get passed down to renters. Larry Kirschner, partner with HOA Loan Services, said, "Increasing HOA dues and assessments" can be expensive, and where do these costs land? The renters. There are over 300,000 associations (HOAs, POAs, Condo, and Townhome Associations) in the country so chances are good that a large number of property owners have property within a planned community."
According to Jason Fox, branch manager and influencer with NMLs, "As a mortgage lender and personal owner of 18 homes, (17 rentals, 1 Primary) the biggest issue that I'm facing is rising cost with HOAs and condo dues. Last year we had assessments of over $25,000 that were due right away just to bring the HOA's and condo reserves up. Because of the new inspection requirements (reserve study) this is making it very hard to profit from real estate rental condos. With the high interest rates and these new fees, homeowners and investors are having trouble affording the mortgage payments. Going into 2026, I see rents going up again and homeowners looking to take cash out of their homes just to pay the bills."
These increases can spiral out of control. Renters on fixed incomes often facing annual rent increases feel the effects. It caused some renters to default on their rent and be forced to move out. This unpaid rent and loss of money from vacancies can be costly. Renters often can't help it, as millions of Americans face inflation that outpaces wages, increases vacancies and rent payments. Also, on a side note: this kind of market pressure keeps many renters from ever achieving the dream of home ownership. High rents and inflation leave people with little extra money to save for things like down payments.
OVER-REGULATION
The regulatory environment in California has also cost property owners and created dozens of challenges. Some of the key examples of regulatory pressures in California include:
California Environmental Quality Act (CEQA), which requires a comprehensive environmental review for development projects. It is being criticized for delaying or blocking housing construction. In a state suffering from an affordable housing crisis and a need for increased inventory, this regulation hurts more than it helps.
Zoning and local government opposition that creates resistance for development, strict zoning laws, and restrictions on multi-family units. In this issue, we will be discussing the impact of restrictions on high-density housing. These pressures slow down construction of new housing.
The big one, disclosure and mitigation requirements, especially in wild-fire zones. California has suffered numerous fires in the last several years. New laws require sellers to disclose wildfire risks and retrofit for safety measures. This adds additional costs.
Balcony and structural laws, a big one in the East Bay, require inspections, safety upgrades for older buildings. These extra and sometimes unanticipated expenses often delay or reduce property values.
IN PERSPECTIVE
State and local leaders and property owners do need to balance the needs of owners with the health and safety or renters. However, this balance needs to consider all aspects of the challenges property owners face going into 2026. Owners need to stay actively engaged in local and state politics, policies and outcomes to stay informed and plan ahead. Owners also need to be heard and respected. Sometimes the community needs seem to trump owner business requirements just to operate. Property ownership is not a social program to solve renter needs. It does require compassion, consideration and appreciation for challenges on both side. Equal weight given produces overall positive outcomes.
Michelle Gamble is the editor of Rental Housing Magazine. The article appeared in the Nov/Dec 2025 Issue.