Florida homeowners playing climate change ‘chicken?’

Who will be the first to blink as accelerating sea level rise causes an eventual drop in Florida home values? It's a question many climate change and real estate watchers in Florida are starting to ask.

Florida's pricey coastal real estate market poses a unique set of questions as sea level rises. How long will strong demand continue to grow? How long will already sky high values continue to rise? And what will ultimately trigger a likely crash in prices as sea levels rise and make many homes unsalable, even before they become unlivable?

Climate change wild card: Rate of sea level rise

Climate change-driven sea level rise is one of the biggest wild cards in the next 30 years. Tidal gauges show sea level is now rising 3 times as faster in Miami than just 10 years ago. That’s faster than many climate models predicted.

Current trends and some projections suggest sea levels in Miami could rise 1 to nearly 2 feet by as soon as 2050. That’s just a little longer than a 30-year mortgage.

What may be developing now in Florida real estate looks a lot like a game of 'climate change-chicken.' Demand, and property values on the coast are high. But warning signs of a possible real estate bubble burst are growing. As sea level rises, so does the risk to homeowners, insurers, and banks. Some homeowners are already selling in anticipation of being caught in a future down market trend.

This week on MPR's Climate Cast I spoke to Bloomberg's Christopher Flavelle about his recent piece, "The Nightmare Scenario for Florida's Coastal Homeowners."

Then, I asked Marketplace senior economics contributor Chris Farrell about the psychology and economics behind a "bubble," when the value of something goes up and then crashes.

You can hear this week's Climate Cast here.

'Black Swan' scenario ahead?

You may have heard of a concept called a Black Swan Event. That’s a low probability, but very high impact event. Think Katrina, or Fukushima. It's a scenario I can see unfolding with a growing probability in Florida in the next 10 to 20 years.

Take another hurricane like Katrina or Andrew with a direct hit on Miami, or series of hurricanes like Florida saw in 2005. The storms occur on top of the background of higher sea levels, producing exponentially more damage. That could be a trigger that produces sudden, unexpected economic shock-waves.

Suddenly banks stop lending, and insurance companies won’t write policies in areas with a ‘high climate risk.’ Homeowners choose not to rebuild, or sell and decide to move away from the increasingly unstable conditions. That could trigger a collapse in home values along the coast, and even in inland areas.

That’s why climate change driven sea level rise is such a wild card going forward. We don’t know the precise effects those unexpected changes will produce.