How Climate Change Is Fueling the Miami Real Estate Boom
Bloomberg Businessweek
Miami Beach, Florida
As a city sitting virtually at sea level, Miami has been called ground zero for the problems posed by climate change, a place where rising sea levels threaten its future existence. The latest forecast of sea level rise from the Intergovernmental Panel on Climate Change, for example, predicts that by later this century, global sea levels will be two feet higher than they are today, quite possibly higher. Under that scenario, the nuisance flooding in Miami that periodically comes with high tides will be a daily affair, the storm surge impact of hurricanes will be amplified, and lower-lying areas of the city will be uninhabitable. That’s actually not the worst of it: Under higher sea levels, the Biscayne Aquifer—where southeast Florida draws its drinking water—will increasingly suffer from saltwater intrusion, a problem for which there is no foreseen solution other than the investment of billions of dollars in water treatment facilities.
As bleak as this future would seem to be, few with real skin in the game in Miami—residents, real estate investors, and companies—are backing away from long-term investment. Exhibit A: Miami has been undergoing a nearly unprecedented surge in real estate construction, with planning discussions centering less on who will leave first and more on how high new projects can be built. Among the projects under way, for example, is an 80-plus-story behemoth in Brickell Center, the city’s urban core. If Miami is on the verge of being a modern-day Atlantis, those who would have the most to lose are apparently not buying it.
Why this apparent deafness to the dire warnings? Well, here’s a paradox. If one talks to developers and city commissioners in the area, it’s hard to find evidence of overt denial of current and future risk; Miami was a city, after all, almost completely destroyed by a hurricane in 1926, and most concede that a recurrence is a matter of when, not whether. Likewise, few deny that the city’s unique geography makes it vulnerable to the effects of rising sea levels. It’s a long-term problem that the planning commissions of Miami and Miami Beach acknowledge exists and threatens to get worse.
Where locals disagree with outsiders, however, is about how best to deal with the problem. Rather than sounding alarms and cutting back on development, there’s an implicit sense that the best approach may be, ironically, to do the opposite. And while a strong case can be made that this behavior has no rational basis, it may represent Miami’s best long-term hope for dealing with the threats posed by climate change, one that other cities might be advised to mimic: The best strategy, in fact, may be to foster a collective belief that there’s no threat—or at least not one serious enough to lose sleep over.
Before I explain why, let me first address the two standard explanations for the building boom, explanations that are indeed part of the puzzle. The first is that real estate developers, by their nature, are gamblers with short planning horizons. In the late 2000s, the real estate and equities crash quickly wiped out many builders. One might assume that would have made them skittish. To the contrary, the quick recovery that followed taught most that big risks are worth taking, and are survivable. While developers today may concede that sea levels are rising, it’s a risk that lies well beyond their investment horizons, and in any case is dwarfed by the more immediate risk of a returning recession.
The second explanation is that many of the buyers for all the new condo units are cash investors from Latin America, and the risks of Miami real estate—overdevelopment, speculation, environmental unsustainability—remain small relative to similar investments back home. No one is saying that real estate isn’t risky in Miami, or that sea level rise is fiction. What they are saying is that all investment carries risk, and development there is a bet they’re prepared to take.
But there’s another rational reason why even risk-averse residents in South Florida might, paradoxically, hope that buyers and sellers remain collectively naïve, or at least act as if they are, about the risks of sea level rise. South Florida relies almost exclusively on real estate taxes to fund public infrastructure. If the threat (or reality) of sea level rise suppresses property valuations, there will be less public money to address the risk. As an illustration, the head of public works for Miami Beach recently argued that the city would be wise to accelerate its investments in storm water drainage improvements ($100 million now and $400 million planned) simply because the city has the tax base to afford it—something it could not necessarily count on in the future.
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