Real estate is famously all about location. And in Florida, climate change is expected to put some of the toniest locations underwater over the coming decades — either permanently or during storm-driven flooding.
Insurers are taking notice and hiking rates accordingly. Developers and homebuyers, however, seem oblivious to the threat.
Florida’s geography makes it vulnerable to storms from both the Atlantic and the Gulf, where warmer water is increasing their size and intensity, and rising sea levels make storm surges more devastating along the low-lying coast. And hurricanes aren’t the only problem, as the amount of rain dumped by even normal storms has been increasing steadily for decades, leading to more flooding even in inland areas.
Yet people keep moving to the Sunshine State. Despite the looming threat of the next big hurricane, flooding on a sunny day and maps depicting much of the coast underwater in a few decades, residential construction is struggling to keep up with demand, and the prices of waterfront homes keep climbing.
Buyers do periodically bring up the question of climate change, said Jay Parker, CEO of Douglas Elliman Florida. “But it’s really just that: a question,” he said.
Water under the bridge
The last hurricane season was the most active and fifth-costliest on record, with 30 named storms and 13 hurricanes, six of them Category 3 or higher. The east coast of Florida was largely spared, though, while the Gulf Coast states suffered significant damage.
That doesn’t appear to have put a damper on deals.
Between July and January, residential sales volume hit nearly $33 billion in the tri-county region of South Florida, a 47 percent increase year-over-year, according to data from Analytics Miami. Buyers from the Northeast, Midwest and California came in droves, many of them closing on $1 million-plus properties.
“Thankfully, we’ve had two [hurricane] seasons now where we’ve escaped wind damage and flooding,” Parker said. “It’s really important for the overall comfort of our market.”
With commercial investment, major asset managers and debt and equity providers are pulling back from the cities most vulnerable to climate-driven disasters, but the same can’t be said for residential real estate, especially in the Miami area.
Buyers are more focused on the major tax savings, cost of living and quality of life that come with living in Florida, especially during a pandemic that kept people inside their homes and shuttered businesses around the country. And despite some states reinstituting business closures, Florida is still open.
Buyers don’t usually consider extraordinary events like flooding when purchasing a home — and that goes for markets beyond South Florida as well, said Ana Bozovic, founder of Analytics Miami.
She pointed to the percentage of New York City homes in flood zones and how that has “never deterred appreciation of New York City properties and people moving there.”
“Climate change is not high on the scale of what people are considering when they’re relocating,” Bozovic said.
No safety net
Some Florida residents, however, are selling their homes because they can’t afford the rising cost of flood insurance, which certain lenders require if a property is in a designated flood zone. Others don’t want to experience another deadly hurricane, or are concerned about the rising cost of living.
That’s the case for some of financial planner David Treece’s clients. One who lived in Key Biscayne decided after Hurricane Irma hit in 2017 to sell her waterfront home and rent elsewhere, Treece said. Other clients are opting to move to less expensive parts of Florida.
Doug Jones, managing partner of South Florida-based JAG Insurance Group, said pricing isn’t affected only by local climate disasters because the companies are insuring properties around the world.
“We went through a 10-year period with no major storms, and prices continued to go up,” Jones said. “They’re global companies. They still insured wildfires in California or tsunamis in Asia, so they’re taking losses around the world.”
Insurers will open and close ZIP codes on an almost weekly basis, especially in Miami Beach and other coastal communities, leaving homeowners with fewer options.
Even beyond risky areas, Jones said, major companies such as Allstate and State Farm have pulled back from writing new policies across the whole region.
“We happen to be in a time now where we have very few carriers willing to offer insurance in South Florida,” he said.
The more expensive a property is, the fewer insurance options there are. And every year, the premiums increase relentlessly — unlike the cost of a typical long-term mortgage. And that’s a mismatch Jones does not expect to last.
“I’m surprised we don’t see more lenders turning down 30-year mortgages,” Jones said. “I can see that being a problem down the road on an older home where there’s a good chance water is going to walk right in the front door.”
With the influx in out-of-state buyers, many of them don’t realize how expensive insurance can be in Florida until after they make an offer on a house, he said.
“They’re absolutely shell-shocked when it comes to the price they’re paying for insurance. These folks are buying the largest properties on the water, which makes them the least desirable to insurance companies,” Jones said.
Sean Harper, CEO of Kin Insurance, said the cost to insure a residential property in Florida is double the national average. His company prices policies in part by looking at when a home was built or whether it was updated recently.
As a result, Kin may write cheaper policies for homes in the same ZIP code if they have a new roof or were built in the past 10 years, since new waterfront homes are built at a higher elevation than their older neighbors.
Just days after Hurricane Irma, cryptocurrency investor Mike Komaransky and his wife closed on a waterfront home in Coconut Grove, a neighborhood that was largely flooded by the storm surge. But the $7.6 million bayfront mansion was built about 40 feet above sea level, with the living area beginning on the second floor.
In pockets of South Florida where flooding is common, residential sales are affected, but it is not often a primary reason for homeowners to sell, said Sebastian Jaramillo, a partner with Miami-based law firm Wolfe Pincavage.
Jaramillo said that some condo owners are leaving areas such as Brickell, where people can be seen kayaking down Brickell Avenue after a heavy rainstorm. But those owners could also be moving further inland just because they want more space, he said.
What, me worry?
For brokers and many buyers, climate change just isn’t a near-term concern, despite the many projections forecasting a partially underwater Florida.
Texas is in a similar (leaking) boat. The Lone Star State is also experiencing a boom in home sales, has mostly warm weather and no state income tax — but also plenty of hurricanes.
Ironically, the fact that these regions have long been buffeted by the very sort of extreme weather that climate change will make worse may actually lead their markets to downplay the threat.
“No one has told me they’re not buying here because of sea-level rise or hurricanes,” said Ron Shuffield, CEO of Berkshire Hathaway HomeServices EWM Realty in Coral Gables. “A lot of other places are having some pretty crazy weather. Our market has always had hurricanes. We’ve learned how to deal with them.”