Thursday, April 10, 2014

The cost of insurance does not control building activity in Florida

Recently The Economist had a couple of articles focusing on Miami.  The above image comes from an article about Miami's recovery from the most recent real estate slump.  The Economist argues that Miami attracts investment from the ultra rich around the world but most notably those in South America.  Compared to apartment prices around the world, Miami is still relatively cheap.

There is a common belief that pricing insurance appropriately will control overdevelopment or reckless development.  Yet, trends in real estate sales and development do not suggest that this belief is true.

The cost of windstorm insurance in Florida has been relatively high since 2005.  The graph above shows that real estate sales have risen since 2008.  

Only recently, has the industry and decision makers expected that policyholders's costs will level or decrease as a result of increasing competition within the industry.  The graph above shows that real estate sales have tapered off since 2011.

It appears that building activity in South Florida is influenced by a number of factors such as, capital market conditions and political conditions in other countries.  But it seems to have little to do with social conditions in Florida including the public's ability to afford the cost of insurance.

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