The Law of Unintended Consequences

From the Miami Herald, we have Beatrice A. Garcia reporting on Citizens insurance to drop some properties.

The state-run insurance pool is getting ready to move second homes, vacation homes and most investment properties off its books.

If owners of non-homestead properties can't find coverage from another insurer, they can stay with Citizens. However, they will be charged a 25 percent surcharge.

Let's see if we can analyze what the consequences of this policy are likely to be.

Firstly, let's talk about whether the government should act as an insurer of last resort. By law, Citizen's must charge above the market rate. (This means that every insurer will dump their "crap" onto the government. Wouldn't you?)

Also, that means that everyone who gets dumped will see massive increases in the rates for coverage.

The government has decided that second homes which can't get coverage will be charged a 25% surcharge over the going rate. If they can't afford it, they will sell their property.

Now let's ask the important question : who is likely to own a second home?

The answer : either rich people, or speculators.

The former didn't get rich by pissing money away, and the latter are notoriously skittish. Both are likely to cut their losses, and run. Effectively, this policy puts a cap on the price of houses in Florida, and even worse, causes people to want to sell their houses (putting severe downward pressure on what is already the most over-inflated bubble in history.)

We've been here before.

Florida had a massive bubble in 1926. Prices didn't recover in inflation-adjusted terms till the mid-80's. (Yep! you read that right.)

Lastly, if you don't get insurance coverage in hurricane-prone Florida, you're not very likely to buy a vacation home there. This is going to fuck up Florida's "business model" completely.

Do you believe that the politicians thought through these "unintended consequences"?

If so, I have a bridge in New York I want to sell to you!