The convergence of climate, subsidence, moon wobble, and complacency = Real Estate bubble

The growing bubble you might not have heard about.

A recent academic study shows that current US property values have not accurately accounted for potential flood damage to the tune of about $200B. An earlier study by an actuarial firm was more pessimistic, estimated that US real estate was over-valued by $500B, with “almost 3.5 million homeowners facing a decrease in property value greater than 10% if flood risk were priced correctly.” Bubble trouble: Climate change is creating a huge and growing U.S. real estate bubble » Yale Climate Connections

Not surprisingly, Florida is the most over-valued state, grossly underestimating the flood risk.

The question is when will the bubble burst? It may require another Katrina-like event, perhaps in Miami, where the damage is so expensive that insurance companies fail and FEMA refuses to rebuild. Or perhaps it will be frequent and persistent flooding up and down the coasts that overwhelm resources over time. This may happen in the mid-2030s as the lunar cycle is predicted to significantly increase the risk of flooding in the U.S. for a decade or so. Meanwhile, Antarctica and Greenland are melting.

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I think the more salient question is whether there’s a bubble at all.

I mean, let’s highlight Miami. That map shows that the overvaluation in Miami-Dade County is in the $1-5 billion range. The assessed valuation of real estate in Miami-Dade County is about $425 billion. Generally, the assessed value is materially lower than market value - so figure $500 billion for real estate in Miami-Dade. Which would put the overvaluation due to mispriced flood risk at somewhere near…

One percent.

A rounding error, honestly, when looking at county-level figures. No doubt there are plenty of specific parcels where that under-pricing is significant. But at the macro level, it’s a pretty small issue.


That’s not the right way to analyze the map. The properties that are over-valued because of under-appreciated flood risk are those that (drum roll please) are at risk of flooding.

Much, if not most, of Miami-Dade county is not.

What you should do is take the $5-10B over-valuation estimate from the map and divide it by the value of the property in the flood zones of Miami-Dade Co, not the value of the entire county.

I suspect the most over-valued properties with respect of flood risk are in flood surge zones 1-2 (yellow and orange). The map shows that this area holds about 20% of the establishments in the county. Taking your $500B value for the entire county, 20% is $25B. If we then assume that zones 1-2 is overvalued by $5B, that comes out to a 20% overvaluation for this region.

Lots of simplifying assumptions I know but it seems like more than a rounding error to me.


OK, $25 billion. The economic impact of Katrina was estimated to be $150 billion, and the US economy did what? Nothing. Barely a blip. I’m not saying it wouldn’t be a terrible thing if Miami got hit, but it seems facile to say it would devastate the US economy in any meaningful way.

Funny thing about hurricanes: they’re very big, yet very local. The banking crisis of 2008? That went on all over the country, crazy times from Seattle to Boston, California to Florida. That’s the kind of thing that lowers the boom on the country, not “storm surge.”

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I don’t think the two are comparable. Katrina was a one-time thing. Okay, maybe one-time every 20, 50, or 100 years, or whatever. In this case, they are saying that it will become endemic. First a few floods here and there due to storms and other surges. Then continuous flooding in many areas due to higher sea level and tide activity. And later, huge portions of the Florida peninsula essentially underwater. And I’m not exaggerating at all, this is literally what they are saying will happen. And they are saying that it will happen rather quickly. The last statement I heard said that “vast swaths of the peninsula could be underwater by 2050”.

And just to add, apparently it’s already started. They were trumpeting two things this week:

  1. The photos of two fancy houses in Jupiter, FL (more than 50 miles north of Miami) “falling into the ocean”.
  2. The photos of two even fancier houses in Dana Point, CA also “falling into the ocean”. The other ocean in this case.
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Didn’t say that a flooded Miami would devastate the nation’s economy. My argument is that higher frequency flooding in Miami with high costs might make it impossible to get insurance for development in flood zones and might finally deter rebuilding in flood zones after disasters. The state and federal governments may no longer want to take the risk.

If that happens the property values of a lot of coastal areas are going to plummet. That would be a lot wealth that suddenly disappears.

And note that we are not just talking about Miami. San Francisco just got an estimate that it will cost $100B to protect San Francisco Bay from rising sea levels. And that’s just for shipping, protecting the city itself from flooding is extra.

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Two things:

First, 20% of $500 billion is $100 billion. If that were overvalued by $5 billion, it would only be 5%

Second is a point you couldn’t have known unless you’re familiar with the area: almost all of the yellow and orange area in that map is undeveloped. That area is agricultural, rock mining, and the Everglades/Biscayne national preserve. If you look at the map and see the two diagonal lines running down to the tip of the peninsula, those are Card Sound Road and U.S. 1. Where they meet represents the southernmost extent of urban development - everything south of that point is ag land or environmental preserve. So too everything to the west of that point and the roadway running north from there - that’s the western edge of urban development. Nearly all of the floodable land north and east of that point is also undeveloped - that’s all agricultural land outside the County’s urban development boundary.

Almost none of Miami-Dade’s urban development area is in those zones. It’s floodable because it’s swampland. Nearly all of our actual developed land is on higher ground. Only on the barrier islands and a few older neighborhoods lying immediately along the coast. I doubt even as much as 5% of the developed land area of the County is in zone 1 or 2.

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That is EXACTLY what was so surprising to me when I saw this storm surge flood map here. Miami Beach and downtown Miami, where most of the expensive real estate is located, is hardly yellow or orange!

Yes - for a very good reason. The earliest folks building in Miami built on the high ground.

If you look at a map of early Miami, nearly all of the development took place where the existing natural elevation was highest. That’s why downtown Miami is where it is - it’s the high point of a natural geographic feature called the Cutler Ridge. It’s an area of natural high ground running from the mouth of the Miami River all the way south towards…well, the city of Cutler Ridge and down into Homestead. All of Miami’s early settlements were along that ridge and northward from the Miami River, where the ground is higher. Miami Beach is a little different - most of that area was filled to be a higher elevation, so much of it is higher up.

Florida Man notwithstanding, we’re not complete idiots. Miami development has been shaped by flooding and hurricanes since long before climate change was ever a thing shaping public policy. Most of our development - and nearly all of the expensive development - is on higher ground (relatively speaking). Most of the low-lying areas that aren’t environmental preserves are used for agriculture, not development. There are some older neighborhoods in the southern part of the County east of the Cutler Ridge…but those are more modest neighborhoods and almost entirely single-family and low-level commercial, so there’s not a ton of real estate value there.


Absolutely!. The smart real estate play in Florida isn’t ocean front property. It’s those few areas that are 30 or 40 ft above sea level which may become oceanfront in your lifetime. If the Greenland ice sheet melts, it could happen pretty quickly – it’s not going to be an “inch per year” thing.



Ha!. My bad. I was thinking 1/20 and wrote down 20%. Nevertheless my point still holds. The study combined standard actuarial analysis of potential flood damage with accepted property valuation methods to determine what the value of real estate should be with flood risk accurately taken into account.

Sure but it is still not uninhabited, the map says 5000+ establishments. We can throw in the zone 3 if you want. Zones 1-3 have about 10% of the establishments in the county. That’s $50B in valuation. If most of the miss-pricing due to ignorance of flood risk is in this region, then the buildings here are 10% overvalued. That is still more than a rounding error.

Point is that the overvaluation due to ignoring flood risk is highest in zone 1 and declines as the risk of flooding declines. For those impacted, the reduction in property value is not trivial.

Yup the poor and working class, as always, are most severely impacted. From my link:

Property overvaluation is particularly widespread among low-income households, which tend to be located in high-risk flood areas where land is cheaper. … If a crash in real estate values occurs, the U.S. wealth gap is likely to widen, because many households’ most valuable asset is their home.

Florida is estimated to be $50B overvalued. If Florida property ever has to be valued at levels appropriate for flood risk, that’s a lot of lost property tax revenue.

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Well…it’s just not all that much. Again, in context, the total value of real estate in Florida is about $4 trillion dollars. So this is barely a percentage point or two.

So from a macro perspective, this is a relatively minor thing. Again, starting with Miami, the amount of overvaluation is about 1% of total value. For Florida, the amount of overvaluation is about 1-2% of total value. And the same is true nationally as well - total value of real estate in the U.S. is about $47 trillion, so a $500 billion overvaluation is (again) about 1% of the value.

In absolute terms, those look like big numbers. But in relative terms, it’s a pretty small number - well within the amount that property values might vary from year to year.


That overvaluation is growing every year as the flood risk grows. If Florida coastal development significantly slows because of insurance costs, what will that do to coastal land values? What will that do to the attractiveness of Florida as a retirement or vacation destination?

Crystal balls are always murky, but I doubt this issue is trivial.

A nice description of the national flood problem is in the Economist, though may be behind paywall.

Only if you are going to live to be very, very old. And probably not even then.

For example, this modeling study by Goelzer et al. found that for the most extreme scenario, the sea level contribution for Greenland this century could be 90mm (3.5 inches). More likely would be half that.

It always good to have mental models that are in the right ballpark.



This is probably true, but there is a significant probability for the exception. This is the problem with tipping points, they aren’t predictable.

For example, if the AMOC (major Atlantic ocean current) were to collapse, sea levels in many areas are modeled to rise one meter pretty quickly. How likely is that to happen in the next 10 years? No one really knows.

It is much like stock market crashes. The stock market is much less complicated than climate, yet no one can predict when the next Black Tuesday will occur. All even the best experts with the biggest computers can do is say that certain metrics are over-valued. When these imbalances will be corrected and how abruptly (soft or hard landing) is literally just guesswork. The stock market tipping points are ultimately unpredictable.

That’s why the responsible investor is always prepared for a crash and responsible governments do their best to avoid conditions that make reaching a negative economic tipping point more likely. We really should be doing the same with climate change because the consequences there are much greater than Black Tuesday.


Even if that were to happen (and we just discussed a 1000-year horizon in another thread) that would be nowhere near the 30 or 40 feet that intercst was talking about in his lifetime. Not a good premise on which to base your real estate decisions.


How quickly? My google-foo failed me. I couldn’t find any discussion of how fast sea levels would rise after the AMOC collapsed - just that it could be as much as a meter, but not clue whether that’s in a year or a decade or a century after the AMOC flips off.

I could not find anything either, but that may be due to nobody having a clue about other changes might ALSO occur as a result of an AMOC collapse. Perhaps one (or more) other changes could happen (as a result of the collapse) that might cause the creation of a new current (or multiple new currents) in the ocean to redistribute cold/warming waters to totally different areas of the world.

Not a lot. Coastal values have been going up faster than the rate of real estate escalation for years, probably decades. (Everybody wants an ocean view.)

So if that “value rate” slowed down, it would probably find itself just about pacing other real estate, which is not a fate worse than death. It’s not even the same as death. It’s the same as … the same.

Real estate: “they’re not making any more of it”.

Of course that’s not entirely true, but close enough for message board discussion.

Best guess here based on my limited knowledge of the issue. There will likely be a near immediate effect (within months) based on observations that linked unprecedented sea level rise along the eastern US in 1909-10 with a temporary 30% slowdown of the AMOC during the same time period. Extreme sea level rise event linked to AMOC downturn | US CLIVAR

Another study showed that changes in AMOC circulation corresponded to changes in Mediterranean Sea levels as measured on a monthly time scale.

The full impact is largely uncertain and will likely unfold over decades as there will be major climatic shifts. Europe will become much colder (3C drop per decade), the Asian monsoon pattern is expected to destabilize, and global weather patterns will be almost immediately disrupted. One prediction is that there will be a permanent la nina condition, which was associated with flooding in Australia and drought in California.

But really I don’t think one knows the final impact of a sudden AMOC shutdown as I suspect such a collapse will trigger other tipping points. Pretty confident though that the world will be very different after such an event, with sea level rise, despite being consequential, probably the least of our worries.

The worth of Florida is very much dependent on its coastal properties.

Florida ranks higher when evaluated in terms of the percentage of the total statewide insured property value that is situated in coastal counties. For Florida, this coastal percentage is 79 percent ($2.9 trillion as a percentage of $3.6 trillion worth of total insured property for the state). Insured Property Values in Coastal States Top $10 Trillion; Florida Has Most at Risk; Miami Ranks 2nd Among Metros).

If frequent flooding due to climate change makes coastal development prohibitively expensive or uninsurable, a big chunk of Florida’s property value is going to significantly decline. How much is a property worth to a private individual if one can’t develop it?

It is good to have opinions, but they are generally more valuable if they are informed.

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