How to buy a home in Miami, the sinking city

By almost every economic measure, Miami is a god-awful place to be a millennial. The rent is too damn high, the wages are uncommonly low, and streams of dirty offshore money looking for a safe real-estate investment keep affordable homes off the market.

But I’ve made up my mind to settle down here.

I grew up in this city, swimming in its ocean and cursing at its traffic, and after a decade up north, I want to build a life here and buy a house.

Yet climate change has me thinking twice about purchasing property, given that we live in an area considered one of the world’s most vulnerable to sea level rise.

Business cycles aside, what risks does a millennial like me run when deciding to make one of the biggest investments of their lifetime – in Miami? Could whatever equity I attempt to gain in a property be financially or physically underwater by the time I want to sell?

The South Florida Regional Climate Change Compact’s predictions are where the county and city get their sea level rise estimates, and they projects at least 6 to 10 inches more of water by 2030. A recently published report from Florida Atlantic University estimates that it would take only 6 inches to render our drainage systems useless, turning southeast Florida into a soggy, sodden mess.

Another study predicts up to 380 high-tide flood events per year by that date – which is just around the time I’ll probably finish paying the mortgage.

So why would anyone my age bother to buy a home in a Miami?

Maybe, if they’re like me, their huge, way-too-loud, and uncomfortably close-knit Hispanic immigrant family won’t stop pestering them until they’ve settled down close by.

Or maybe they just can’t live without the pastelitos and croquetas, and want to spend their days in the only city in the world where no one criticizes their Spanglish.

The sea level rise checklist

Whatever the reason, many of us are making a go of it in Miami, regardless of the city’s watery future.

It’s a small wonder that the South Florida real estate market doesn’t yet seem to reflect the city’s coming troubles in its pricing – even though 65 percent of local real estate professionals are worried about the rising seas. Median home sale prices in the region rose by $100,000 over the past five years.

“Look, I have a young family, and we just purchased a home, so I think about this stuff as well,” says Jane Gilbert, the City of Miami’s new resiliency manager.

Ms. Gilbert’s job is to make sure the city is ready to deal with whatever climate change throws at it. Her home sits in a 100-year flood zone in Morningside, which means it has a 1 percent yearly chance of experiencing a catastrophic flood. Federal law forces anyone with a federally backed mortgage to purchase nationally subsidized flood insurance because of the flooding risk.

The first thing she checked when buying her property was its elevation certificate, which establishes her properties’ height above sea level. The second thing she checked was her home’s location on the Federal Emergency Management Association (FEMA) flood zone maps, which determine whether or not she needs flood insurance.

She says anyone else should do the same.

When I ask her if it’s really all that wise to buy so close to the water, she surprises me by saying that her family is actually investing in the property, putting in a new roof and solar panels.

According to her, even though the seas are rising, the percentage chance of a catastrophic 100-year flood hasn’t increased all that much.

“The probability gone up slightly from 1 percent, but it hasn’t doubled, meaning it’s not even 2 percent – and that’s of a hurricane storm surge event,” she says.

A moral hazard

I was somewhat soothed by Ms. Gilbert’s math. But even she recognizes that the federally subsidized flood insurance, which would reimburse her in the case of such a catastrophe, presents a moral hazard.

“The cheap insurance warps the market, and keeps people close to the coast,” Gilbert admits.

Even though many Floridians have been complaining about rising flood insurance rates since Congress overhauled the National Flood Insurance Program in 2012, the rates are still well below what a free market would price them at.

I decided to call up the experts on moral hazard, Miami developers.

“Look, the press, the city, everybody here needs to have a good bedside manner about this issue (of climate change)” says Ben Solomon, president of the South Florida Builder’s Association, which represents Miami’s politically powerful developers.

Basically, he talked about Miami as if it were a patient suffering a terminal disease.

“It’s definitely going to affect the market here,” he assured me. “I just hope that this thing is far enough away that we still have at least five or six good business cycles left.”

Solomon’s cynical calculation hinges on the fact that many developers don’t quite care about what happens to Miami 30 years from now, since they don’t really plan on owning the properties they construct for anywhere near that amount of time.

It’s nice to know that, at least from a developer’s point of view, there’s still some money to be made. But that doesn’t help a potential homeowner who might saddled with an asset that could very well be both physically and financially underwater by 2045.

Which is precisely why James Murley, Miami Dade County’s chief resilience officer, insists that a potential home buyer like me needs to be very, very smart about where they purchase their homes, and that they need to work hard to gather all the available data on their prospective property before purchasing.

“Just checking the flood maps and the elevation level isn’t nearly enough,” he explains.

A dangerous domino effect

Even homeowners who don’t lie within the flood zones should purchase flood insurance, he believes. But the guy whose job it is to keep Miami from sinking into the sea tells me that even if I buy a house that’s well elevated, and take out flood insurance policies on it to protect against the increased storm surges we’re sure to see in the future, I could still run a huge financial risk.

That’s because real estate markets don’t just rely on the supply and demand of available units to set prices. They also depend on the level of financing available to homebuyers, and the institutions that lend to those homebuyers rely on complicated insurance schemes to mitigate risk.

It’s a complicated ecosystem, but at the top of its food chain sits the world’s giant reinsurance companies. Corporates titans like Swiss RE or Lloyd’s of London, which make their money off of insuring other insurer’s insurance policies, might very well decide to pull out of the South Florida real estate market long before the water starts lapping at our door.

“That would definitely be one of the worst case scenarios,” says Mr. Murley.

Such a decision would lead to a cash crunch in the region that could bring house prices – including that of any I might own – tumbling. Ominously, the regional bank BankUnited has already quietly stopped generating mortgages in the area.

County officials have spent the past three years holding high-level talks with major reinsurers, assuaging their fears. Murley doesn’t think they’re pulling out anytime soon, but he’s looking ahead to a Miami that might have to abandon the beach and pull back from its barrier islands.

“We may even have to retreat from some areas, we just don’t know,” Murley says.

Will technology save us?

But he also believes Miami might be able to innovate its way out of a soggy, sodden future.

“When people came to South Florida it was a very inhospitable swamp. Mr. Flagler built that railroad down that coastal ridge because it was the highest ground, and technology made South Florida livable: air conditioning, mosquito spray, and airplanes. I don’t see why new technology won’t keep it around,” he postulates.

Murley’s faith in a technological solution to the county-sized engineering nightmare that Miami will face in the coming decades leaves me with a sinking feeling in the pit of my stomach.

I want to buy a house. I want to stop paying my grubby landlord. I want to put roots down in the city that I grew up in and know they won’t be wiped out by the rising waters seeping up through its porous bedrock.

But when it comes to the future of the Magic City, there is no certainty. Miami might be saved by the very forces of innovation and progress that created it. Or it might survive on into the next century like some terminal patient on life support, kept alive as a subsidized playground for the rich.

It might also flounder, a 22nd century Detroit where nobody can get a mortgage, where the flood prone neighborhoods get their services cut by a cash-strapped county government, and where my future house isn’t worth the soggy land it’s built on.

So, any realtor ready to start shopping with me?

By Mario Ariza
Mario Alejandro Ariza is a Dominican immigrant who grew up in Miami. A Michener Fellow in poetry at the University of Miami’s Master in Fine Arts program, he is currently working on a nonfiction book about South Florida and Sea Level Rise. On a day with a good swell and northeasterly breezes, you’ll find him surfing on South Beach (yes, there’s actually surfing Miami.)