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