An expert on the impact of climate change on financial markets has advice for anyone thinking of buying a home in Florida: don’t.
Spencer Glendon of the Woods Hole Research Center said last week on the Florida Roundup that financial institutions are going to wreck Florida’s economy if they don’t confront the risk to coastal real estate and slow their lending. He warned that home buyers in the state should no longer be receiving 30-year mortgages.
“What maybe seemed like a long time horizon or something that’s far away actually isn’t far away,” Glendon said. “The longer we wait to start adjusting, the more painful it will be.”
Insurability is the main issue. Thirty-year mortgages come with the condition that a borrower have insurance, which is renewed annually. But insurers can choose to stop offering insurance at any time, or make prices prohibitively expensive, which would cause a homeowner to violate their debt. Eventually, lenders would be forced to stop lending, causing prices to plummet.
In Florida, where many parts of the state are increasingly under risk of flooding and infrastructure erosion, both insurance companies and reinsurance companies have begun to sound the alarm and suggest they will not be working in Florida markets in the coming years.
“Things that are a 1 in 20 year event, or a 5 percent risk, are essentially uninsurable in most parts of world. That’s too often for an insurance company to want to intervene and have to want to deal with claims,” he said. “In most of coastal Florida, that threshold has already been breached.”
Meanwhile, thousands of people continue to move to Florida each week, many of them within 50 miles of the coast — where risk is highest for disaster from rising waters. The state is currently home to some 21 million people.
Kevin McCarty, the chairman of the Florida Association for Insurance Reform and Florida’s former insurance commissioner, said on The Florida Roundup that banks aren’t likely to stop lending in Florida anytime soon — “unless something happens dramatically to shift the burden to [them] to actually have to pay.”
He compared the threat of sea-level rise in Florida to earthquakes in California.
“It’s interesting because there’s a huge number of homes in California that are provided mortgages that don’t have earthquake coverage … Millions and millions worth of mortgage property on fault lines that don’t have simple protection,” he said. “We know earthquakes are going to happen in California and when it happens it will be devastating. Yet the mortgage industry continues to provide.”
McCarty agreed that Florida has failed to sufficiently address sea-level rise and climate change.
“There have been some efforts made at the local level, particularly in southeast Florida,” he said. “But the state has not made a comprehensive effort to address that. We need to make communities more resilient and therefore more insurable.”
Glendon recommended a more dramatic approach, and encouraged people to start preparing now for the future, such as by paying down mortgages and/or selling.
He called for climate change and adaptation to be taken up on the local and state level and by Congress.
“If we start acknowledging some of the misplaced capital now and misplaced expectations now, the adjustment will be easier,” he said.
“The Invading Sea” is a collaboration of four South Florida media organizations — the South Florida Sun Sentinel, Miami Herald, Palm Beach Post and WLRN Public Media.