Florida’s coastal Ponzi scheme


Linkedin Story

Miami Beach is up there with the world’s best when it comes to vulnerability to coastal hazards and sea level rise. Travelling to Florida on a Churchill Fellowship, it has been interesting to see first-hand just how dire is their situation. A few years back, Rolling Stone magazine famously included a quote from Harold Wanless (University of Miami) whose verdict is that Florida is ‘toast’ in the long term. There plenty who quietly agree, even locals. The key word is ‘quietly’.

The Miami-Dade County is doing its best to stay positive in the short term and is throwing US$500M at elevating roads, sewers and pumps as part of the Rising Above program. I noticed works underway (see image) to raise main roads 60cm. This might hold some roads above nuisance salt water flooding for a while, but I can see numerous buildings and assets which will now be below grade.

Perhaps more interestingly, let us consider some background trends. The beaches, which underpin the massive tourism economy, are in perpetual need of renourishment. Miami-Dade has already depleted all borrow areas for offshore dredging and now trucks in sand from a quarry upstate. Once that is gone, they are preparing to import sand from the Bahamas. Scarcity will increase costs significantly, assuming other countries are willing to sell their sand. When Miami-Dade sought access to offshore sand near neighbouring counties, there was little hesitation from those counties in declining the request.

How to pay for the substantial and growing costs of coastal protection? In Florida, the state does not levy personal or business income taxes and has a low corporate income tax. Instead, it relies on property taxes for revenue. Consequently, the substantial cost of constructing and maintaining protection works, and perpetually renourishing the beaches, on which the local economy relies, needs a constant uplift in property value to generate the necessary state revenue. The local government is therefore somewhat captive to the real estate market, and the market is driven by resort developers who clearly understand that the premium is in beachside locations. More and more development on the beachfront means a higher risk exposure to coastal hazards and that, to close this slightly bizarre loop, requires more engineering works, asset elevation and beach renourishment. Which is paid for by more development in beachside locations …. (and repeat).

It feels like a coastal Ponzi scheme. We know how those things end.

It is possible, of course, to begin diversifying the tax base or considering a Plan B should anything interrupt this ever escalating cycle, but I don’t see any appetite for that. Any talk that could undermine confidence in the Miami real estate dream is avoided because it can cause land values to decline, and therefore reduce government revenue. Best to make sure that all sharp objects stay away from the bubble.

Right now, the development of more hotel rooms, already around 60,000, grows at about 2500 each year on Miami’s thin barrier islands barely above sea level.