There is a catastrophic economic storm approaching. Homeowners, renters, businesses, investors, employers, employees and lenders are feeling the impacts already. We might be able to avert the worst of the economic disaster if Tallahassee can take and offer meaningful action now.
With no state income tax and a welcoming environment, Florida has been attracting new residents and economic development. However, rising home and rental prices, in part due to a lack of housing stock, makes Broward County, according to the experts, the least affordable housing market in the nation. But the threat to our economic vitality is not simply a housing stock problem or from the rising cost of goods and services. It is the category 5 impact of skyrocketing property and auto insurance premiums and new legislative mandates for condominium owners.
Average increases of property and auto insurance have reported as 42% and 24%, respectively. For seniors, increased pass-through monthly maintenance fees are devastating. For homeowners, increasing premiums are altering monthly spending decisions. Businesses are passing these increases on to consumers, further aggravating inflationary impacts. For new home buyers, it is tough enough to qualify for a mortgage, but the added impact of property insurance premium crisis is destroying the dream of home ownership. They cannot avoid the impacts of these premium by renting as landlords are forced to increase rents.
Legislative action on property insurance supposedly reigned in alleged claim abuses and were intended to lower rates. Reporting on the impact of those legislative changes is mixed at best. Either way, we don’t need a study to know premiums keep rising.
Florida law is now delivering another blow to condominiums and the owners. Enacted in response to the tragic Champlain Towers collapse, the law forces condominiums three stories and more to perform expensive strategic reserve studies related to structure and building integrity, and then to fully fund the necessary reserves by January 1, 2025 likely through assessments. If they don’t, board members can be personally liable.
When a strategic reserves study or a 40/50 year re-certification study reveals structural repairs and assessments are necessary, it gets even worse. Condo owners wanting to flee this storm by selling may discover their condominium has been removed from the Fannie Mae list of buildings approved for lending. As a result, until the structural repairs are completed, buyers cannot obtain a conventional loan and must instead seek higher rate unconventional loans. This impacts the sale price for owners and reduces the buyer marker. Refinancing is also more costly if owners have any equity.
We are already seeing the impacts. For single family homes, according to data from the property appraiser, average sale prices have increased 8% or more. However, the average sale price of condominiums has slipped from $210,000 to $205,000, even with limited housing stock and rising home prices. This data is a canary in the mine warning of the potential consequences for our seniors and hard-working families.
This crisis is a self-inflicted wound and different than the 2008 economic collapse, which was a systemic bank-induced market crash and was addressed with emergency infusion of capital, saving banks, and riding out the foreclosure crisis through local supports. Tallahassee and our Federal partners must put everything on the table, including emergency legislative action.
As to the insurance crisis, it has been suggested that a lack of State regulatory oversight, combined with Florida Law allowing companies to extract profits through management fees or being able to “cherry pick” policies, explain why the insurance market is not aligned with the economic goals of our state. Recent proposals to address the crisis focus on the complexities of the reinsurance market, necessary to spread the risk of primary insurers, as well as asking the Federal government to absorb more risk as a backstop by spreading the risk with other states. Resistance to solutions is slowing down the emergency relief we deserve.
For our condominiums, we need a legislative pause and amendments. While the goals of the legislation enacted after the Champlain Towers tragedy were laudable, like many things that happen with government, the pendulum swung way too far. We do not have a wide-spread problem of three-story buildings collapsing. Yet, this new law may cause our entire condominium housing economy to collapse if we do nothing.
Together, we need to galvanize as a community in a bipartisan way to demand immediate help, not long-term distant strategies or band-aid efforts. We need an Economic Emergency Operations Center, like what we implement for approaching storms and post-storm recovery. The Economic EOC must focus on new strategies to bring State and Federal help, consider legislative interventions, and develop meaningful strategies to save our homes.
It is not an overstatement that our entire economic vitality in South Florida is at risk. And, as South Florida goes, so goes the State.