Peak Sand, Climate Change, And The Coastal Property Bubble

Taxpayers are propping up wildly-inflated coastal property values. At some point, we’ll stop doing that, and coastal property values will crash. Unless they have already crashed because Miami gets hit by its equivalent of Superstorm Sandy. Or because the smart money pulls out of coastal real estate ahead of time after realizing that our climate inaction has made the crash inevitable — due to a combination of faster-than-expected sea level rise and ever-worsening storm surges.

The main prop is the National Flood Insurance Program, which covers $484 billion in Florida property alone, “often at below market rates,” as Reuters has explained. Florida state officials denying the reality of climate change does not help either.

But a recent study, “Climate Adaptation and Policy-Induced Inflation of Coastal Property Value,” points out that taxpayer-subsidized beach sand replenishment programs are also inflating the bubble. The researchers found “that a sudden removal of federal nourishment subsidies, as has been proposed, could trigger a dramatic downward adjustment in coastal real estate, analogous to the bursting of a bubble.”

How big a crash would the subsidy removal trigger? “Values could erode by as much as 17 percent in towns with high property values and almost 34 percent in towns with low property values,” in parts of New Jersey and North Carolina, one author explained. The crash would be bigger if we waited a decade before removing them.

Just how big are these subsidies? The study explains, “Between 1995 and 2002, the U.S. federal government spent $787 million on beach nourishment and has historically subsidized two-thirds of total nourishment costs to coastal communities.”

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