Tuesday, August 6, 2013

Managing the Multifaceted "Miami"

The Financial Times quoted me in a follow up to the Rolling Stones article about Miami and climate change.  The FT article' author, Simon Kuper's observed through his years of traveling back and forth to Miami that it "isn’t exactly a city; it’s the world’s biggest holiday resort."  This is an astute observation as Miami has long capitalized on the luxury vacation sector.  Perhaps the resorts have influenced the culture of the area so that all of Miami is looking for a good time all the time.  However, that is not to say the "Miami" is one big resort.  It is home to a great many people.  "Miami," I believe, needs some clarification.  

When people say Miami, they often think of South Beach and the Will Smith song, Miami.  Perhaps we owe this misnomer to the local politicians of the 1990's who sought to capitalize on Miami's fanfare by changing the county name to Miami-Dade County.  Luxury condos on the beach often reside in a unique municipalities like Miami Beach or Sunny Isles.  These areas are not the City of Miami, nor the the area that is known as unincorporated Dade. But the distinction is not often made and this hides realities about managing the area.    

"Miami" as a generalized name for a county, suffers from severe income inequality with wealth and poverty concentrated and localized with everyone else sprawling in between and west.  Despite the large population of transients, "Miami" has a great many people that permanently live there with little intention of going elsewhere.  I myself can claim to be a third generation "Miami" kid (though I'm currently not living there).  I have an extensive network of family and friends that live there, are from there and also have ancestral roots there.

I make this brief point because I believe that it is important to recognize that there are many, many people that do claim "Miami" as their home. When we think about planning for the future it is the local residents that need to be considered, their needs, and their well being.  The pursuit of Miami as a vision of luxury tourism enables oversight of those that call the area home.   Fostering the idea that Miami is but a vast tourist trap will masks burdens being placed on local residents as public policies are made.            

Portofino Tower South Point, Miami Beach

For example, I clearly remember Portofino Towers being built in the 1990’s.  It was highly controversial and a symbol of unscrupulous South Florida politics.  The endeavor came after a lengthy battle over a redevelopment plan for the area.  In 1973, a building moratorium was put in place for the southern most area of Miami Beach due to “blight.”  The area was home to an elderly low-income population and the city government goal was to bring tourism back there.  The moratorium and designation of urban decay was a self-fulfilling prophesy and partly responsible for continuous degradation.  Alex Daoud the young politician, lifted the moratorium in the early 1980’s and in its place came a redevelopment plan (see more in Daoud's Sins of South Beach).  The plan had little if anything in it to protect affordable living for residents in the area. As then aspiring politician Janet Reno who would one day be Attorney General to the Clinton Administration , put it,
The purpose of this (redevelopment) plan is not to clean up a blighted area.  The plan makes clear that primary purpose is the construction of a ‘tourist-oriented area.       
In any case, Thomas Kramer a German real estate developer bought up a bunch of land at the South Point area of Miami Beach with plans of developing the area much as it is today.  Local residents of Miami Beach were firmly opposed.  A political battle ensued over building regulations- especially density and building height.  Long story short, local residents won some battles but lost the war.  Today, real estate in the area is dominated by cash transactions with international investors.

Public policy that does not account for the realities of resident can have unforseen consequences when trying to manage the community on a larger scale.  For example, the measurement of risk and cost of insurance for a structure is tightly bound to aspects of its intrinsic value through the use of replacement value.  Though price and value are often posed as the equivalent, they are not the same thing.  Further, “value” is a multifaceted concept and not all perceive the value of something equally.  In an editorial in the Financial Times, John Kay, explains,
The fundamental value of an asset is derived from the cash or earnings or utility the asset generates. Prices can deviate from fundamental value because future cash or earnings or utility are uncertain, or because of momentum – the belief that overvalued or undervalued assets may become yet more overvalued or undervalued.   But there are few cases where prices are forever divorced from fundamental values – that was the lesson of tulips, dotcom stocks and collateralised debt obligations. 
The value of gold is that it is both beautiful and scarce. These characteristics made the display of gold a symbol of wealth, enhancing the value of the metal further. Diamonds acquired similar cachet in the 20th century as a result of inspired marketing. Yet the value of diamonds still lies in the utility they offer the wearer, even if that utility derives from the envy of others. 
I sometimes wonder about art masterpieces – how can owners obtain $100m of benefit from a painting so valuable that the original must languish in a vault? Still, many people can own a copy of a Picasso that only a few experts could distinguish from the original, but only one person can own that original. The utility derives from the owning – and perhaps from being known to be the owner – of the painting, rather than the joy of looking at it. The price of diamonds and old masters does not deviate from their fundamental value in use, even though the use and the fundamental value may be influenced by the price.

So, in the case of some properties, the value enjoyed by the owner is not necessarily equivalent to those that live their and have to look at it for their lifetime.  This is a problem for the implementation of a successful insurance regime because insurance is, by design, a socializing mechanism.  Insureds share in the collective risk because there is a shared interest in well-being.  Contempt towards a subset of the risk pool causes instability in the good-will necessary for smooth running of insurance.

One of the special things about "Miami" is that it carries a fun loving atmosphere and there are few if any place like it.  But it should not be mistaken for it being one large resort.  Certainly, for some Miami is a great vacation spot. But for many, many more it is home.