Imagine that in the 1970s you bought a plat along the coast in Florida that was on a large pile of sand that was basically at sea level upon which you planned to build a four-hundred unit, twelve story tall, condominium complex. This complex was to rest on a slab of concrete that rested atop the pile of sand and a lot of long pilings driven deep into the pile (but not to bedrock). If you will, the building(s) were to rest atop a concrete many-legged table with sand beneath the table top itself.
Imagine that, for several years now, there had been an encroachment of sea-water onto the property during high tides; that with each encroachment, the sea-water wet the sand beneath the table supporting the building, then drained away. That with each wetting, a small amount of sand was removed from beneath the building, shrinking away from underneath the table’s top. The sand pile was slowly being lowered with each wetting, leaving the table’s slab top resting on only the top of the pilings. That there was subsidence in the area.
What if, during an adjacent construction project, someone were to drive piles at times when the area of the sand pile was saturated with sea-water; each blow of the hammer sending an earthquake like shock wave through the neighboring wet sand?
In the 1970s, there was still little public knowledge of Climate Change. Even the insurance companies probably did know that much about it. Hurricanes were something they could still actuary around.
Of late, they have been reaching a breaking point on the hurricanes; now this.
In the broadest of strokes: Insurance is all about the odds of an occurrence. The term ‘100 year —-‘ is an actuarial term speaking to the statistical probability of an event’s occurrence; in this case, a 1% probability or a 1 in 100 chance of occurring in any given year. Actuarially, an insurance company would quote a premium of about $10.00 plus overhead and profit for a one-year policy coverage of $1,000.00 for such a possibility. Likewise, an insurance company might quote an annual premium of $1.00 plus overhead and profit for coverage of the possibility of a ‘1,000-year event’ given that the probability of the event occurring was 1 in 1,000, or 0.01%.
What about an event with a probability of occurrence of 97%, or, a 97 in 100 chance of occurring? The insurance company would most assuredly want at an annual premium of at least $970.00 plus overhead and profit for one a one year $1,000.00 policy: about $970.00 + (15% of $970.00) + (10% of $970.00 + $97.00) = $970.00 + $145.50 + $111.55 = $1,227.05.
97% of climate scientists agree that human-caused Climate Change is happening. What would be the one year premium quote for a policy covering damage from Climate Change?
Follows the collapse of the condominium in Florida, the first of many steps in the our retreat from sea-level rise, from the effects of Climate Change. Here, in America, we will see more retreating from the low-lying coastal areas, from the drought stricken areas of the west (just as we are now seeing in the Middle-East, Africa, …).
The step(s) that needs be taken, more quickly, more often, are those that address the causes of Climate Change. In this, insurance companies will, no doubt, be playing an ever more important role in assessing the true cost of Climate Change, on bringing their assessment to bear in the marketplace. We’ve seen some action being taken by finance; we need to see a lot more. They have a lot at stake. They need to make the assessment as to what will be the cost of Climate Change to their firm’s, to the world’s, finances.
What will this do for the property value of reclaimed wetlands in South Florida?
Ron, realistically that depends on what the buyer knows and when he learns it.
I can point to at several cases in my own state where the risks of losing your home should be well known as pretty high, but people bought there anyway.
Dozens of homes were built in a freeway right-of-way, and when the freeway was finally built, they were demolished. The homes that were left in those tracts would have noise walls separating their back yard from a 6 or 8 lane freeway. Some had been there for decades. Of all the cities in the right-of-way, only one stuck to their guns and prohibited permanent building on the site. Would you believe a real estate salesman saying “the freeway will never be built”? A lot of people did.
Yep, that is where I was going with it. People are nuts and in places like the NC OBX and Padre Island our FEMA encourages it. People owning vacation homes at the beach and collecting rents get insurance and people struggling to earn a living growing our food on flood plains are on their own.
A developer from NJ bought the land around me planning to put up condos. His plans are running into some headwinds. The only value enhancer for our location is proximity to data centers for QTS and Facebook. We are in Sandston, VA, a low country community east of Richmond. Building basements and multi-stories here can be problematic as we also have proximity to White Oak Swamp. It’s all good. Two of my neighbors lost their rental homes owned by the guy that sold out cheap to the developer and now broom sedge and pine trees are taking over their yards. Areas as remote as mine do not usually have Verizon Fios service as I do.
Real estate is crazy. Buyers are crazy; builders are crazy; and the government is crazy.
I wonder how many of the buyers are just young. I know there were a lot of questions I didn’t ask about my first home.
I would not be surprised to find many people who don’t realize that the reality of roads in CA is 50-70 years after planning. I am still waiting for a 4 lane planned in the 50’s. Just 5 or 6 miles left to go. Was going to be completed in 2016, then 2020, then 2022. If they are going to make 2022 they need to start soon.
it’s hard for ordinary people to know. I bought a property without due diligence. When I sold the property the buyer did practice due diligence… cost them over 20,000 dollars to find out what they were getting into. Didn’t affect what they wanted to do with the land. Did affect the price.
one aspect of this was that the state changed the land use laws. i operated on the basis of a land use law that only existed for a couple of weeks… long enough to give the then owners time to do what they wanted to do…before it was changed to prohibit what I wanted to do. no notice of that change was offered by the county, state, realtor, or previous owner. I needed a lawyer, but could not have afforded 20k to be told not to buy the property. That may seem stupid…it does to me… but at the time i did not know any better. And I have expert testimony that i am officially not stupid.