Are Miami real estate buyers crazy, or am I?
Making sense of the "suspension of belief" phase of climate transformation
In a recent conversation about what it would look like to invest in real estate in climate durable places, a friend cautioned that even if it’s correct that the value of real estate in climate durable places will rise disproportionately in the future, the timing is hard to predict and it may take decades. To buttress this argument, my friend noted that even though most climate experts believe Miami faces a bleak future, with rising seas inundating its streets and salt water contaminating its drinking water, there’s virtually no evidence of that prognosis weighing on Miami’s real estate market today.
It’s true. A quick scan of Miami homes on Zillow turns up: a cute 1,100 sf bungalow for $1.2 million, a 4-bedroom 1,941 square foot modern home for $1.5 million, and this 3-bedroom, 2,640 square foot condo (with ocean views!) for a cool $4.4 million.
What should we make of these sky-high real estate values in a city believed to have a particularly difficult future ahead because of climate change? Some possibilities:
Might climate change not, in fact, represent a dire threat to Miami’s existence?
Do people not think decades ahead, preferring to enjoy life in the present?
Is a crash in property values so far off that applying a discount rate to projected future rents actually supports these high property values?
Are housing prices boosted by the fact that Florida’s political leaders are actively backstopping the home insurance market?
Does the fact that Miami hasn’t experienced a powerful hurricane since Hurricane Andrew 30 years ago contribute to a false sense of security?
Or is the planetary discontinuity of climate change simply too vast to fully internalize, even for many who know climate change is real?
It’s likely a mix of factors 2-6, excluding #1 – in the fullness of time there’s no realistic scenario where the Miami we know today is still here. But I want to focus on the last one. I think we’re living through an uncanny, disorienting moment where lots of people are worried about climate change, but lots of others aren’t, and a large subgroup of the worried seem to not fully grok the implications (which contributes to real estate bubbles).
This wide spectrum of views and understanding can make it surprisingly easy to slip into a familiar mindset that assumes biosphere stability and continuity. To help see things clearly, it’s useful to revisit the fundamentals of climate change. This summer’s unending string of weather calamities provides plenty of raw material.
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In his aptly titled newsletter, The Crucial Years, OG climate writer Bill McKibben paints a vivid, textured picture of just how severe recent extreme weather events have been globally:
China is enduring a truly remarkable heatwave—by some accounts “the worst heatwave known in world climatic history.” …The heat just never lets up over some of the most densely populated land on planet earth: It hit 113 degrees Fahrenheit in Chongqing Thursday, the highest temperature ever recorded in the country outside of desert Xinjiang. It hit 110 in Sichuan, which is a province of…80 million people, or two Californias. When it gets that hot, water just evaporates—Sichuan is 80 percent dependent on hydropower, but the reservoirs behind the great dams like Three Gorges are falling nearly as fast as Lake Mead and Lake Powell.
In America, this summer has seen the warmest nights ever recorded here; the ongoing drought and evaporation have forced the federal government to order states to come up with plans for cutting consumption, a mandate the states have so far not managed to meet.
But of course the damage is deepest in the poorest places. Somalia, and the surrounding region in the horn of Africa, are in the fifth straight rainy season without rain, and the toll is almost unimaginable. A million people have been internally displaced; the ones who haven’t managed to move to grim camps will soon starve. “They have no chance,” one refugee explained. “It is just a matter of time until they die. Even here we might die because we have nothing”.
McKibben then explains why it’s no mystery that we’re seeing acute droughts and calamitous flooding at the same time:
[B]asically it’s physics. Warm air holds more water vapor than cold, and from that the main events of post-modern twenty first century will descend. Some of them won’t be so bad: in suburban America, swimming pool owners are beseeching maintenance companies to find the leaks in their backyard oases, not understanding that the leaks are called ‘evaporation.’ But most of them will be terrible. We live on a different planet than we used to, and the most obvious change is the way that water moves, or doesn’t, across our earth.
The earth has the same quantity of water as before, but hotter weather evaporates more of it, warmer clouds hold more of it, and hotter and wetter air allows more drops to fall all the way to the ground. The results follow logically: extreme drought in some places, extreme flooding in others.
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A big reason weather disasters have escalated so dramatically in the past several years is the damage caused by climate change is nonlinear. If climate change makes an extreme rainstorm 15 percent more intense, that change may have minimal impact if manmade infrastructure like drainage systems were only previously reaching 80 percent capacity during heavy rains. But if those systems were already hitting 95 percent capacity, a 15 percent increase will be catastrophic.
In a recent tweet thread on climate impacts’ nonlinearity, Texas A&M Professor of Atmospheric Sciences Andrew Dessler says:
[I]f you're wondering why climate impacts seem to be getting much worse suddenly, let me introduce you to the concept of non-linearity. In a linear system, things change in straight line. If climate impacts are linear, then every 0.1°C of warming would give you the same amount of damage. In a non-linear world, on the other hand, every 0.1°C of warming produces larger damage than the previous 0.1°C. The reason for the non-linearity of climate impacts is that individuals and communities are impacted by climate when it passes thresholds. With 1.1°C of global-average warming, we are departing the climatic conditions that much of the infrastructure designed in the 20th century was designed for. Every 0.1°C of warming is going to push us past an exponentially increasing number of thresholds in the climate system.
As an example, he cites potential subway flooding. If a rainstorm floods streets up to an inch *below* the height of subway entrances, the subway is mostly fine. But if the flood water rises just a tiny bit more, water starts to pour into stations.1
Similarly, if heavy rainfall causes a river to rise up to the level of its banks there may be little to no impact, but if it rises just slightly higher water in vast quantities will rush on to roads, into communities, and toward homes. The threshold is key.
This is what has been happening around the world in recent months (and years): hotter temperatures are evaporating more water, which is being held in larger volumes by warmer clouds, and then dropped by rainstorms in more intense bursts. The result is too little water in many places (drought, falling reservoir levels, drying up rivers) and too much water too fast in many others (floods). Because more thresholds are exceeded as weather events grow increasingly extreme, the extent of destruction and other harms (e.g., water shortages) is growing on a nonlinear trajectory.
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These thresholds are determined by features of natural systems and the tolerances to which manmade systems have been engineered. We haven’t had to think about them much up to now because we have all lived until fairly recently in a period of remarkable climate stability. But having destabilized the earth’s biosphere by burning fossil fuels, these thresholds now represent tipping points between community stability and community suffering.
When these tipping points are reached devastation often follows, especially for those with the fewest resources. This Twitter thread, about what’s happening in Kentucky2 in the aftermath of the recent floods there, captures some of this pain.
Nobody wants to say it out loud, but the tragic truth is the communities in the hills of Kentucky that were hammered by these floods have been mortally wounded. (Her tone suggests the author of the tweet thread understands this.) The floods kick-started a death spiral, and in a climate vulnerable place that generates little economic value, it is unlikely this fate can be averted. The timeline is uncertain, but not the outcome.
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Communities in Kentucky are dying because the flooding they experienced exceeded the thresholds, the tipping points, of the relevant natural and manmade systems. This summer, we’ve seen critical thresholds exceeded in countless regions, while in other areas these climate impact tipping points have been approached but not yet exceeded. The latter group includes Miami, and other climate vulnerable places.
A few closing thoughts, which I’ll elaborate on in the future:
It’s correct that the timing of climate transformations are hard to predict.
But markets are a mechanism through which known future trajectories can influence asset values today.
As demand for real estate falls in climate vulnerable places hit by weather catastrophes, it will rise in climate durable places.
Lastly, I’m periodically overwhelmed, as many are, at the enormity of the climate transformations underway. The tragedy is already immense and widespread. I find I often have to keep the vast reality of it all at emotional arms length, even as I write about it. This creates a funny inconsistency verging on hypocrisy: even as I wonder why some people aren’t acknowledging the discontinuous reality of climate change, I’m also expending emotional energy to keep it from taking up too much space in my own subconscious. I suspect this is another factor interfering with the human collective’s full comprehension of what’s happening.
And this threshold is affected by the threshold of the surrounding water drainage system, which will influence how much rainwater can be diverted before exceeding capacity.
A low-income area where almost no one had flood insurance.
Hi Ethan:
Regarding those folks owning houses and condos on Miami Beach, I agree with you - they are crazy.
So are too many folks in Tampa, Ft. Myers, etc. etc.
I'm surprised that here in so many South Florida cities, the banks still provide 30-year mortgages for houses barely above sea level.
Regards,
P.Trombley