An Investment Expert Says Florida Homeowners Should Sell Property Now As Climate Impacts Worsen
By Jessica Weiss • May 24, 2019
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 Friday 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.
In testimony before the Senate Armed Services Committee in April, Navy Secretary Richard Spencer announced that a rewrite of the Navy’s Arctic strategy was underway. Asked by a reporter after the hearing what prompted the new strategy just four years after the Navy issued its U.S. Navy Arctic Roadmap 2014-2030, Spencer stated “the damn thing melted.”
Secretary Spencer was right. The Arctic is melting. Just this month, the National Oceanic and Atmospheric Administration (NOAA) issued its annual Arctic report card for 2018. NOAA’s headline “Effects of persistent Arctic warming continue to mount” was an understatement. Among the agency’s findings, air temperatures in the Arctic are warming at twice the rate of the rest of the world and sea ice “remained younger, thinner, and covered less area than in the past.” The implications of these changes for U.S. national interests cannot be ignored. Consider recent developments.
In late August, a container ship operated by the global shipping behemoth Maersk, left Vladivostok bound for St. Petersburg though the Northern Sea Route. While that was a first such transit for a commercial container ship, it surely won’t be the last. Meanwhile, the operating environment in the Arctic, even for experienced shipping firms, is incredibly difficult: the weather is poor; the conditions unpredictable; and much work remains in the way of charting the sea floor and identifying maritime hazards. Nevertheless, given warming trends, opportunities for transit and exploitation of natural resources in the Arctic will continue to grow.
Those potential opportunities are already drawing a crowd as allies and adversaries alike position themselves to benefit from the melting ice. Russia’s build up in the high north is ongoing. As to China, a recent report by CNA’s Mark Rosen and Cara Thuringer estimates that Chinese firms have already invested about $90 billion dollars in Arctic and Arctic-related infrastructure. These developments increase the risk of international disputes or an accident that could take generations to recover from.
In October, the U.S. joined eight other countries, including Russia and China, and the European Union in signing the Agreement to Prevent Unregulated High Seas Fisheries in the Central Arctic Ocean. The agreement precludes commercial fishing in the area until there is sufficient scientific data to determine how such activities should be managed. It also commits signatories to establishing a Joint Program of Scientific Research and Monitoring to inform when and how commercial fishing activity ought to be permitted. Forging international consensus to preclude commercial activity — prior to such activity even being initiated in any significant way — was an historic achievement. While agreements like this are important for protecting the Arctic ecosystem, they are also critical to reducing the risk of future conflict.
Mitigating the worst impacts of climate change ultimately depends on significant reductions in global carbon emissions.
The United States should rejoin the international community and recommit to aggressive cuts in CO2.
However, we cannot ignore the implications of warming that is already happening. Forging consensus with the international community is essential to dealing with these implications, avoiding future conflicts, and keeping the Arctic a cooperative part of the planet.
Lee Gunn is a retired U.S. Navy Vice Admiral
Joe Bryan is a senior fellow at the Atlantic Council’s Global Energy Center and a former Deputy Assistant Secretary of the Navy for Energy.
We’ve all been there. A well meaning relative looks outside at the snow and pronounces climate change a bunch of bunk. So here is Lee’s advice on how to politely respond. Enjoy!
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