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Home insurance, which is more costly and harder to get than ever for foreign and domestic buyers alike as the most significant expense of owning property in Florida is set to get worse with industry projections saying home insurance premiums will rise 40 per cent this year.Bloomberg

Gus Carlson is a U.S.-based columnist for The Globe and Mail.

Canadians who own or seek to own property in Florida face a gathering storm of financial factors that have made buying and maintaining a place in the sun a lot more expensive.

The newest bogeyman is home insurance, which is more costly and harder to get than ever for foreign and domestic buyers alike, in some cases outpacing mortgages as the most significant expense of owning property in Florida. And it will get worse – industry projections say home insurance premiums will rise 40 per cent this year.

When combined with higher house and condominium prices, more expensive money and a stubbornly weak Canadian dollar, Florida, once a relatively cheap and convenient retreat for many Canadian buyers, is quickly getting out of reach and raising the question: How much is escaping the northern winter really worth?

Whether you consider Florida a sun-drenched slice of paradise or a dark corner of hell, the shift is significant when you look at Canadians’ strong investment profile south of the border. Canadians are by far the largest foreign buyers of property in the Sunshine State – US$2.1-billion last year – and second only to the Chinese as the biggest international buyers of residential property in the United States.

The clouds have been building over the Florida home insurance market for some time, driven by a surge in population growth, greater densities of people in high-risk coastal areas, and soaring fraud and litigation costs. The state has lost some form of home coverage from more than 30 insurers over the past three years. Since 2017, 11 property and casualty insurers have pulled out of Florida, and five have liquidated.

Many insurers that remain are adopting aggressive non-renewal strategies for home policies, tightening policy-eligibility requirements and increasing premiums. State lawmakers have been working furiously to stabilize the market, but so far economic and natural forces have neutralized their efforts.

This has been unfolding against a backdrop of soaring house prices, as millions of people have migrated south from high-tax, low-temperature states. This accelerated during the COVID-19 pandemic, when remote work enabled many people to conduct business wherever they wanted and millions took up permanent residency in places such as Florida, where there is no state income tax and the tropical lifestyle is alluring.

While prices have eased in some places as mortgage rates have risen, the influx continues to drive up demand for housing, exacerbating an already tight inventory of new houses and resales. Last year, Florida surpassed Texas as the fastest-growing state in the union, with a population of 22 million that is expected to hit 30 million within the next decade.

Many new Floridians want to live in coastal areas, which are considered high insurance risks. This was the case long before the climate change drumbeat got louder, but the sheer numbers of people choosing to live in locations with elevated risks of damage from Florida’s signature natural events – hurricanes and tropical storms – has climbed, and the financial fallout has been significant.

Recent storms, including Hurricane Ian, which caused more than US$100-billion in damage when it strafed Florida in September, 2022, have put a sharp point on the issue. Even the wide adoption of stricter building codes implemented following Hurricane Andrew, a Category 5 storm that hit Miami in August, 1992, have not stemmed the problem.

What surprises many new Florida property owners are the insurance issues specific to the tropics, such as separate coverage for wind, flooding and, in some areas, property elevation requirements set by the Federal Emergency Management Agency (FEMA) and local codes that can add hundreds of thousands of dollars to the cost of building or renovating a house.

But it’s not just the storms. Florida has been wracked by insurance fraud and out-of-control litigation costs. The state accounts for only nine per cent of all U.S. home insurance claims but 79 per cent of home insurance lawsuits, many of them fraudulent. The combination of these factors has meant two consecutive years of underwriting costs of more than US$1-billion for Florida insurers.

Mortgage rates, no matter what side of the border you call home, have ratcheted up, with average 30-year rates in the U.S. now hovering around eight per cent. And a sagging Canadian dollar, which has struggled below 75 US cents, is a complicating factor specific to northern buyers.

Whether or not this perfect storm will chasten Canadian buyers’ love affair with Florida real estate remains to be seen. What is certain is that a Mai Tai by the beach in January or a round of golf on a warm February afternoon will cost more, one way or another.

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