Caveat Emptor When Buying Land in South Florida

Caveat Emptor

The principle that the buyer alone is responsible

for checking the quality and suitability of goods

before making a purchase.

I recently read the following article:

Miami is Racing Against Time to Keep Up with Climate Change.

The article sparked my financial curiosity. In law school, everyone takes a class in real property law. There you learn about the various type of interest someone can buy, hold or transfer in land. The highest form of ownership someone can hold in land is called fee simple absolute. A fee simple absolute interest gives the holder of it the full possessory rights and obligations now and in the future in the land. It is restricted only by government powers (the right to tax it, use eminent domain to seize it and police powers) and encumbrances or restrictions contained in the deed or arising by law. Essentially it's your land as long as you pay the taxes on it and don't do anything illegal on it.

Contrast this with a leasehold estate which gives the holder the right to possess but not own the land. When you rent an apartment, you have a leasehold estate in the property for the term of the lease. When the lease expires you no longer have the right to use the property. 

When you buy a piece of property you are usually mean  acquiring a fee simple interest in the property. It's yours for an indefinite amount of time (until you transfer it to someone else). Obviously, the price of something is greater if it grants you the right to hold it indefinitely than if you can only hold it for a specific period (this is why it is [seemingly] cheaper to lease a vehicle than to buy it outright).

A common principle of insurance is that you don't typically insure the value of the land (since land is rarely ever destroyed (yes I know, sinkholes exist in Florida but very little land in the big scope of things gets destroyed). The property on it may be destroyed or wear out, but the land will be there as it has for thousands of years. 

However, as the article points out, it is possible that large amounts of land in Miami-Dade County may no longer exist within the next 100 years.

If that happened, just how much wealth would be destroyed?

The taxable value of all the real estate in Miami-Dade County is reported to be around $283B (2016). I'll assume that the fair market value is at least 25% higher, or $353.75B. If we assume that personal property is 50% of the value of the real property you are looking at $530.625B in total property values at risk. This excludes anything that is property tax exempt (government buildings, schools, houses of worship, etc...). I'm gonna guess that this is probably no more than 5% to 10% of the property in Miami-Dade, which takes us to $557B - $583B.

To put that in perspective, that's about 14% of the total current US federal budget. The closer this comes to reality, the more likely that insurers are going to pull out of the state (or at least the areas subject to flood) and thereby ensure that the property owners end up being the financial losers. 

It seems to me that any decision to buy property in Miami needs to assume that what you are really doing is buying a ground lease that has a finite expiration date on it; that is, you are looking a buying a leasehold rather than a fee simple interest in the property.