Behind A Former Florida Mayor's Idea For Real Estate Climate 'Restoration Bonds'
Politicians and developers in South Florida love to cheerlead about how great the region is, often brushing off concerns about climate change to instead talk about beautiful beaches and tax advantages. But Philip Stoddard, a Florida International University biology professor and the former mayor of South Miami, has a darker take.
“My biggest concern is infrastructure collapse,” Stoddard told Bisnow during a recent call.
Every day, people are taking out 30-year mortgages on homes in the region, but there’s likely to be at least one more major hurricane in the next three decades, Stoddard said. That chance, combined with the threat of sea-level rise, means that sooner or later, flood insurance rates will become unaffordable and banks will stop lending. Property values will drop, the tax base will fall out, and there won’t be any money to pay for teachers, parks or police, he worries.
“This is how societies unravel,” Stoddard said.
But he's not all gloom and doom. Stoddard thinks that South Florida is "paradise" for the near future, and that local governments should still invest in infrastructure like rail and seawalls. But those bodies should also be preparing now for future impacts of cllmate change.
To that end, Stoddard's floating an idea he has for "restoration bonds." Essentially, in exchange for giving developers permission to build now, “We could require people to have surety bond money available to clean a site and restore it when the site is no longer suitable for commercial use," Stoddard said.
There are different types of surety bonds, but in a typical scenario, before beginning a job for a developer, a builder will be required to put up money — a fraction of the bond amount, anywhere between 1% and 20% of a bond's value, depending on the builder's credit history — with a surety company.
According to online insurance broker Embroker, for a $50K surety bond, a construction company with good credit could pay as little as $500 to $2,500. If the builder doesn't complete the work or it's not up to par according to the contract, the surety company kicks in the full amount of the bond to pay for another contractor to complete the work.
A similar approach could be applied, with cities requiring developers to put up money prior to beginning a project and making sure they carry out their environmental obligations, Stoddard said. These sorts of bonds are considered a relatively small cost of doing business and could be easy to implement, he suggested.
Stoddard pointed to places where coastal living is already untenable. St. Bernard Parish in New Orleans was largely rebuilt and partly rewilded after Hurricane Katrina, but with a third fewer residents. The Army Corps of Engineers is evaluating buying out homes in flood-prone areas. Florida has set aside $75M to buy out homes damaged after Hurricane Irma.
“That’s all coming on the public dime,” Stoddard said.
Developers are still building now because they expect more people to keep moving to Florida in the short term. Although sea-level rise is probably inevitable, the exact timeline is uncertain. Waters could prompt people to retreat in 10 years or 110, Stoddard said.
Developers are fully aware of this, Stoddard said, and if they say otherwise, “they’re just bullshitting."
"These are smart people. If you get them after a couple drinks, they’ll say, ‘We have a couple more development cycles before the whole thing explodes on us, so we would like to enjoy the profits and then move elsewhere'," he said. "They’ll all say this if you get them in an unguarded moment.”
Stoddard said the U.S. economic system allows for privatizing profits while keeping liabilities public. Should buildings eventually get consumed by the sea, costs will fall on governments to deal with the mess. His idea is to try to privatize the liabilities just like the country has privatized nearly all development.
Why not let developers build now, he said, let people enjoy South Florida as long as they can, and then one day knock the buildings down for re-wilding? The building materials could even be used as fill to raise roads or build higher. Stoddard says developers hate building moratoriums, so restoration bonds could be a good alternative.
In recent years, with disaster budgets stretched thin and insurance premiums rising ever higher, resilience bonds, developed in 2015, have become another tool being used to prepare for climate-related problems. Almost like insurance for climate disasters, the bonds would pay out after a trigger event, but their pricing would also incentivize property owners to put resilience measures — like seawalls and flood barriers — in place.
Stoddard said he discussed the restoration bond idea with Coastal Construction Executive Vice President Patrick Murphy, formerly a Democratic congressman representing Jupiter, Florida.
“I think it’s critical that all ideas are on the table and local leadership is critical to fill the void left open by our state and federal government," Murphy told Bisnow when asked about Stoddard's idea. "We are only as strong as our weakest link when it comes to climate change, especially in vulnerable areas like South Florida. Some progressive developers will see these proposed bonds as a distinguishing factor to increase sales/value for their project, but the devil will be in the details."
Daniel Deitch, an environmental consultant and the former mayor of Surfside, just north of Miami Beach, compared Stoddard's idea to a life insurance policy, and said it was creative.
"If you don't do upfront, it'd be damn sure difficult to do it on the back end," he said, pointing to how hard it is to get polluters to pay for cleanup of Superfund sites.
But Deitch's long-term outlook is grim.
"I don't want to sound despondent, but what does it matter?" he said. Like Stoddard, he's convinced that in a region just 6 to 9 feet above sea level, "at some point, we're not going to live here."
A geologist and anthropologist who considers history in terms of eons, Deitch thinks housing prices could peak within eight years. Nevertheless, neither he nor Stoddard intend to move anytime soon, but as for buying a new house, Stoddard said he wouldn't.
“I don’t expect Miami real estate to gain value in the long run," he said. "I expect its value to go to zero.”
Boosters of the city have tried to muzzle him, Stoddard said, but it is better for people to anticipate and plan for problems than ignore them. As for his idea about the bonds, it's not something he has written out or presented to commissioners, he just wants to float the idea as a conversation starter.
“You can never solve a problem people don’t think you have,” he said.