Study: Lot and Road Elevation Contribute to Increased Property Values in Miami Beach

Resiliency

Susan Askew
Susan Askew

Study: Lot and Road Elevation Contribute to Increased Property Values in Miami Beach:

Return from private investments to floodproof properties even greater than public investments

The business case analysis of the City of Miami Beach’s efforts to combat flooding from sea level rise indicates that “the benefits significantly outweigh their costs,” according to Dr. Peter Schultz, Vice President of ICF, the climate adaptation and economics experts contracted by the City to review its resiliency program. The results presented to Mayor Dan Gelber and Miami Beach Commissioners at a workshop yesterday also showed an 11.9% increase in assessed condo values in Sunset Harbour representing an uptick of $41.2 million in property values, the “estimated effect of the road elevation project” there. 

Not cost beneficial according to the economic model created specifically for Miami Beach? Raising older homes, though elevating new construction is worth doing, the study noted.

ICF is one of several consultants engaged in the last couple of years to review various aspects of the City’s ambitious strategy to combat flooding. The Sunset Harbour project was the first to address flooding in one of Miami Beach’s lowest-lying areas. It has been touted both as a success for the number of floods it prevented – by some estimates 84 tidal flooding events – and as a potential view into what happens when private properties are lower than the road elevation based on anecdotal stories of some businesses experiencing flooding during heavy rains.

 

In this article we focus on the economic impact of the resiliency program. The RE:MiamiBeach treatment on the deep dive Commissioners took into the program including methods, prioritization, funding sources, and next steps is here. Regular readers know what that means – lots of details! 
 


The economic report is being described as a first-of-its-kind and one that will be an example for others to follow. “We know that there’s a lot of interest in what happens here,” Schultz said. “The design of the study itself has never been done to our knowledge.” Tailored specifically to the needs Miami Beach, “It’s pretty unprecedented,” he said.

Components of the business case analysis included the impact of flooding and public investments on expected losses/property damage, property values, insurance premiums, property tax revenues, tourism revenues, operational/response costs, traffic disruptions, and business closures.

The team of experts modelled flood reductions for the proposed First Street project for a hypothetical private home, conducted catastrophe risk modeling of the entire city, and created the model to estimate the benefits of both public and private resilience investments to homeowners.

In addition to ICF, other participants included AIR which provided catastrophe modeling and risk assessment; Kimley Horn, stormwater and infrastructure modelers, designers, and engineers; Brizaga, communication experts and engineering consultants in resilience and adaptation; and FAU’s Center for Environmental Solutions which helped on the property value analysis and other advisory services.

The analysis was based on the City’s 2013 stormwater improvement program policies and plans and includes an assumption of one foot of sea level rise from 2013. Schultz noted the team took “a conservative set of assumptions to provide a minimum impact of the value of investment.”

A preliminary look at the data on property values was released in October. Using a hedonic pricing model, “a statistical analysis technique to isolate how much people are willing to pay for a particular characteristic,” according to Schultz, the team developed a hedonic pricing model “to estimate effects of flood risk and infrastructure investments on residential property values in Miami Beach specifically.” The analysis included sales from 2005 up to January 2019. Models were developed that could be applied citywide for all homes, condos only, and stand-alone homes only. It included an independent peer-review.

The final conclusions:
  • Both factors – parcel elevation and road elevation – positively affect property values.
  • Home prices are higher for parcels at higher average elevations – 8.5% - 11.5% increase per foot.
  • Home prices are higher for parcels with more elevated surrounding roads – 4.9% -14.1% increase per foot.
  • Average parcel and road elevation increases have greater price effects when the initial average parcel or road elevation is lower.

In Sunset Harbour, specifically, where the roads have been raised, the team used the condos-only model reflecting the neighborhood’s multi-family residential character. They note there are 1,349 condos there with a total assessed value of $346.12 million. The estimated effect of the road elevation project on assessed condo values was pegged at an 11.9% increase in value or $41.2 million.

Explaining the methodology, Schultz said the equation starts with the purchase price, adds or subtracts market fluctuations which are defined as “common factors that change a property’s value unrelated to stormwater,” and then subtracts the value due to potential loss from flooding to get the current value of a property without public investment.

With investments, the equation begins with the purchase price, plus or minus market fluctuations, then adds the value gained due to public investments to get the current value. 

The new information presented to Commissioners included a look at the benefits of the proposed stormwater infrastructure project for the First Street neighborhood.

The conclusions indicate some areas of the First Street neighborhood could see a reduction of one foot of flooding during what is known as a five-year rainstorm, a storm that is likely to occur once every five years, and elimination of flooding in the finished first floor elevation of many homes during a five- and ten-year storm.

For this analysis, the model was based on a one-story single-family slab-on-grade home of 2,500 sq ft with an assessed value of $493,695, the 2018 median assessed value for single-family homes in Miami Beach with a square footage between 2,000 and 3,000. Finished first floor elevation used was 2.9 feet NAVD, the median for First Street.

The study considered three adaptation options: flood proofing (dry flood proofing), elevating the home, and complete reconstruction with elevation. It examined the costs and benefits of the options relative to a reduction in property damage, increases in home values, and lower insurance premiums.

The Key findings according to the study:
  • The City’s improvements reduce the flood risk to an individual property but do not remove the need for individual adaptation actions.
  • City investments in the right-of-way increase property values by 4.9 - 14.1% for each foot of additional road elevation. Lower elevation properties see the greatest increase from elevation.
  • If you are reconstructing a home, elevating the home is a good investment and the home would see a 3.6% increase in property value for each foot of increase in elevation – outweighing the marginal cost to elevate.
  • Dry flood-proofing can be a cost-effective strategy for homeowners.
  • If insurance rates increase, individual property adaption becomes even more cost effective.
  • Personal adaptation is a vital component of Miami Beach’s resilience.

With regard to costs, the study reviewed the project’s $8.2 million capital investment and the annual operations and maintenance costs of $205,000 per year. The analysis concluded the overall benefit to cost ratio is 1.28 – 1.31 based on reduced property damage estimates ($1,300 - $204,000), a projected increase in residential property value of $10,740,000 and the associated increase in property tax revenue of $48,000 per year, and an estimated 7% reduction in insurance premiums.

There’s a bigger estimated return on private property investments in the neighborhood which were estimated to have an overall benefit/cost ratio of 2.79.

Not cost beneficial, according to the analysis, the price to raise a single-family home, estimated to be “in excess of $200,000 to elevate and the benefits are significantly less,” Schultz told Commissioners.

“In the scenario where you’re reconstructing a house,” he said, “If you’re doing that, it is absolutely a cost benefit to raise it up,” with the cost of raising it up another foot, “relatively small compared to the overall reconstruction cost.”

[Update: In a subsequent email, Schultz clarified his statement. "I’ll add that there can be reasons why it would make financial sense to elevate a home. One of those reasons could be if the home has high cultural or historic value. Another reason is if the insurance characteristics are different than those we assumed in our illustrative home. We assumed the home is the primary residence and is subject to pre-FIRM rates [built before the Flood Insurance Rate Map or 12/31/1974].  For homes that are secondary, subject to standard NFIP [National Flood Insurance Program] rates, or both, the reduction in insurance premiums would be higher and could bring the benefits more on par with the costs over time. We know the City is separately working on an adaptation guide for historic homes, which could shed more light on the value of different adaptation options for historic homes."]

The biggest impacts projected from the First Street project, Schultz told Commissioners, come from the increase in property values, increased tax revenue to the City, and the reduction in insurance premiums neighborhood-wide. The reduction in traffic disruption is “relatively minimal” along with the economic impacts of potential business flooding “but in terms of quality of life” and eliminating the “nuisance factor” the benefits “could be significant,” he said.

“Overall,” he said, the study found the benefit/cost ratio was “around 1.3 with most of the benefit accruing to the private owners,” Schultz said. “The return on private investment is greater…  but both of those together is really what we should be thinking about.”

On the other hand, he said, “If the City does not invest… the damages would be significant. The investments contemplated significantly outweigh their costs.”

“The analysis made conservative assumptions, and we believe the benefits are underestimated,” according to the report. “Despite this, the investments are cost-effective.”

“Investments of at least $1 billion over the next 30 years would be cost-beneficial to prevent surge-related flood damages,” the report concluded.

“In addition, raising roads to 3.7’ NAVD across the city could conservatively increase property values citywide by over $1 billion in assessed value” which would result in a $6.6 million annual increase in tax revenue to the city,” according to the presentation. “Therefore, city-wide public and private investments of at least $2 billion would be cost-beneficial,” the team concluded.

Commissioner Mark Samuelian who is a strong opponent of raising roads took issue with the report which he was concerned did not separate the impact of road raising from the new pipes and pumps which he believes are working to solve the problem. Schultz clarified that the First Street analysis looked at the integrated project but that the Citywide analysis looked only at the impact of raising roads. The team indicated it was possible to tease out the individual factors in future analyses.

Samuelian did say he thought the results indicated the City should look at “opportunities for the City to do more to catalyze the private property owners” to make investments.

While saying the City needs to find the “the responsible rate” of road raising that combines “science and engineering” while taking into account disruption to the neighborhood, Mayor Dan Gelber noted, “At some point… people looking at homes are going to say I don’t want to live in a place where I can’t navigate the street 20% of the time.” 

“Once that spreads,” he said, there won’t be “a few people complaining about water in their yard,” but rather people saying “My most valuable asset has been diminished to the point where I’m underwater in the home I own.”

“What’s the responsible level,” he asked, “and can we get harmonization right” to ease the connection between roads and lower elevation homes? 

“A lot of experts, an insane degree of experts, are telling us what we’ve got to do,” he said. “It’s a science and a tolerance question, tolerance in money and tolerance in disruption.”

This Commission will have to “figure out the sequencing [of projects] and what we don’t want,” Gelber said. Noting “None of us are likely going to be here when it comes home to roost,” he said the danger lies in not doing enough, causing a future Commission to “look back on what we did and ask ‘What were they thinking? Property values have plummeted because we didn’t bother to say go to that line instead of that line’” in terms of elevation. “We’re not just voting for us but the ones who will be impacted [when we aren’t in office],” he said.

In an interview after the workshop, Samuelian was asked if the economic report changed his mind in any way. “No, my mind is that I do not want to compromise private property by putting them much below the street level. I do not oppose road raising if it doesn’t compromise the property or if the homes are at an elevation where that is okay, so some nominal road raising I’m fine with but, no, what I heard today didn’t change my mind.”

Regarding the report’s conclusion that property values have increased in Sunset Harbour as a result of the road elevation, he noted he hadn’t yet had time to fully review the study. “What I would say, though, is when you elevate properties and do some of this work, the impact on different parts of the neighborhood or even property by property can be different. Some people may benefit a lot. Some people may be neutral and, in some cases, in certain situations people believe they’re less well off. It’s really property specific.”

He does support the First Street neighborhood project. “That area has serious flooding, there’s a degree of community support [for it]. I really want that project to move faster, so I don’t think that there is any appetite not to proceed with our program. The question is how best and what tools work as we tailor to what I believe we need, neighborhood by neighborhood specific solutions.”


Photo: Road elevation on West Avenue

Miami Beach chooses “tough love” over “fun” for Spring Break


Susan Askew
Susan Askew
Expect enforcement and restrictions on alcohol sales and music

Beach renourishment underway


Susan Askew
Susan Askew
$16 million federal project to address areas in north and mid beaches