Monday, April 23, 2012

Is insurance really the unaffordable part in Florida housing?


Florida's Citizens Property Insurance Corporation is charged with increasing the availability of affordable property insurance in the state.  What is "affordable"?  The term is undefined in the law creating Citizens.  Perhaps, this is intended as it allows a great deal of flexibility over time in deciding what is or is not affordable.  Undefined, the term serves as a politically symbolic gesture, meaning different things to different interests. Concurrently though, the term is reminisce of "affordable housing" mandates.  Since the National Housing Act of 1937, affordability algorithms have changed several times. Today, households with housing costs over 30% of income are considered "burdened."   

The following graphs are from a US Census report using 2006 housing data.  Admittidly, they are several years old and before the mortgage debacle of 2008, but nonetheless...  

The following definitions apply:
Monthly owner costs:
•Mortgage
•Second mortgage and/or home equity loans
•Real estate taxes
•Homeowners insurance
•Condo fee (if applicable)
•Mobile home cost (if applicable)
•Utilities – Electricity, Gas, Water and Sewer, and Other Utilities
Without burden = under 30% of income spent on housing costs
Moderate burden = 30% to 49.9%
Severe burden = over 50%




SMOC = Selected Monthly Owner Costs
The above graphs give some interesting ideas to ponder. Consider that Florida has the second to lowest median income level in the country ($50-59,000), but it's median property values are second only to that of California and Hawaii.  The percentage of Florida mortgage holders that are considered burdened is between 40 and 49.9%, however those states with similar burden levels (HI, NV, NJ, RI, and MA) have greater incomes than that in Florida.  Figure 11 indicates that burden increases with property value until a certain point (i.e. property values of $500k or more).

When monthly home costs are considered as a proportion of the total cost, it is evident that the majority of the monthly cost is the mortgage.  In Florida the proportion is 63.6% (2% lower than the national average) of income while insurance is 21.9% of income (3.6% higher).

Hence, is the perception of a Florida homeowners insurance affordability problem actually a problem of insurance cost or is it really a problem of the cost of Florida homes in a state with relatively lackluster incomes?

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