I was recently debating with a friend about climate risk in Florida. He is less concerned about climate risk than I am and part of his argument was, "Why would the world's elite move to Florida only to get pushed out by sea-level rise in the near future?"

My view is that we shouldn't necessarily view the migration of high-net-worth individuals to the state as clear confirmation that they all believe everything will be fine (though I'm sure some or many do). Instead, I see it as rational consumer and economic behavior.

If you're a wealthy individual and have the means to be highly mobile, Florida offers two obvious benefits: warm winters and lower taxes (including little to no risk of something like a California wealth tax).

Let's look at some numbers.

If you had a $100 million capital gain from your private placement in SpaceX and you switched your tax residency from New York City to Miami, you would save 14.776% in state (10.9%) and city (3.876%) taxes, equaling about $14.8 million at t = 0 (definitely not tax advice!).

You could then use these tax savings to buy a waterfront home and get this benefit for all future income streams. In addition, you would get the benefit of warm winters going forward and the optionality of bottle service at LIV whenever you want to see David Guetta. I'm personally not an EDM fan. I prefer house and techno, but to each their own.

So in a total doomsday scenario, if the market started pricing in climate risk and your $14.8M waterfront property went to $0 at t = 10 years, it would still be a rational lifestyle and economic decision. And if the value destruction happened at t = 25 years, it would matter even less. It's probably outside of the forecasting period.

For wealthy people, the value of their personal residence generally makes up a much smaller percentage of their net worth compared to that of the middle class. And my assumption is that the wealthy are making self-serving economic decisions and/or they really want to live in Florida for lifestyle reasons.

The greater concern is for less-wealthy people for whom an erosion in principal residence value would have a more meaningful impact on their financial health. At a certain point, the tax benefits and lifestyle benefits may not outweigh the climate risks, assuming you believe this is a risk in the foreseeable future.

Cover photo by Alex Guillaume on Unsplash

Over the weekend, Berkshire Hathaway announced that it has come to an agreement to buy Arizona-based homebuilder Taylor Morrison for US$6.8 billion in cash. The agreed-upon price is $72.50 per share, representing a 24% premium over the company's closing stock price on the prior Friday. Once the transaction closes, Taylor Morrison will be delisted from the New York Stock Exchange and become a privately held company within the Berkshire Hathaway conglomerate.

Now, the press release only says so much, but I did find the canned quotes interesting. Greg Abel of Berkshire said that the company wants to "unify our site-built homebuilding operations into a combined platform." And Sheryl Palmer, CEO of Taylor, said the acquisition "will allow us to scale the Taylor Morrison platform in ways that would not be possible as a standalone company.”

Berkshire has a long history in housing. It also owns a manufactured home company (i.e. not site-built), and various companies that make up the housing supply chain: bricks, paint, insulation, roofing, sales, and more. So it'll be interesting to see what they are able to achieve by way of a "combined platform." It has elements of both vertical and horizontal integration.

The other interesting thing about this announcement is that it also seems to signal the following: Abel wants Berkshire to be more of an active manager (finding those "synergies" across its subsidiary companies), and he likely feels the housing market is at or near the bottom of the cycle (despite current inflation risks). Regardless, the US has a structural housing deficit and so homebuilding is probably a good business to be in for the long term.

Cover photo by Josh Olalde on Unsplash

I hope you all had a great weekend.

Yesterday was the annual Bike for Brain Health ride in Toronto. It was an absolutely beautiful morning (much warmer than last year) and I rode 60 km. I'm sorry, I didn't have it in me to do the 90 km circuit. I'll try to be more committed next year.

The good news is that Bianca didn't go into labour while I was on the DVP and so I didn't need to show up at the hospital in full spandex. While clearly suboptimal, I feel like that would have made for a useful story to embarrass our daughter with in the future.

It's starting to feel a lot like summer in the city and with that comes the feeling of nostalgia. There's something obviously magical about this time of year, and this past weekend was particularly nostalgic for me because on Friday I also had my 25-year high school reunion.

Unnecessary details: I went to two different high schools and this reunion was for the first one, which was also my elementary school. It was nice of them to invite me.

Seeing friends that, in some cases, I hadn't seen in over 25 years reminded me that you can't replace the people that you grew up with. High school is a high-definition time.

Among many other things, it's when you're figuring out which clique you belong to, what music defines you, what it means to nervously ask a girl out on a date (and have her say no), and what it's like to have your heart broken.

My unproven theory (rigorously developed over the weekend) is that you will always share a unique bond with the friends that you had during this period of personal development. I mean, they were there during the really awkward years.

We also had small class sizes and everyone knew everyone. I'm sure that helped. I'm still close with a number of people from high school and from elementary school, but this weekend reminded me that I should make even more of an effort.

I'd also like to be a better cyclist, but let's not get ahead of ourselves here. Something tells me that I'm going to have less rather than more free time going forward. And I can't wait.

Regularly scheduled city-building programming will resume tomorrow.