THE PRICE OF PARADISE
Area sees middle class exodus
BY GREGG FIELDS AND JENNY STALETOVICH
ndahlberg@MiamiHerald.comHousing aid is a recruitment toolMarathon sees middle class leave in drovesTransplants find paradise in GainesvilleHe was known as Gator on KISS Country, 99.9 FM. But these days, Kevin Kilpatrick is living in the land of catfish and grits rather than gators and bagels. Last November, he moved to Tennessee from Plantation.
`I just wanted to get away from the congestion, the idiots driving,'' he said. ``And we won't have to worry about hurricanes anymore.'' Kilpatrick, 37, had a good life in South Florida, but a new career as an independent voice artist meant he was free to relocate.
The home price differences made the decision a no-brainer. In Broward, where he was renting a house from his in-laws, the median home price is more than $377,000. In southern Tennessee, about an hour from Nashville, he has 10 acres and a 4,000-square-foot home built two years ago. The price: $280,000.
``We just felt we could have a better quality of life'' by moving, he said. There are always people moving in and out of South Florida, which overall continues to grow. But in the last year - too recent to appear on radars like federal Census data - experts are seeing powerful anecdotal evidence of an outbound migration trend.
Indeed, 25 years after Time magazine's infamous ``Paradise Lost?'' cover story, South Florida is once again losing its allure for the middle class. This time, it isn't high crime and cocaine cowboys driving people off. Rather, the trouble in paradise is the quality of life - everything from grinding traffic to costly homes and gale-force increases in windstorm-insurance premiums.
It's prodding growing numbers of people in their prime earning years to conclude - correctly - that the smartest economic decision they can make is to leave South Florida. Lisa Kirkham is an example. She recently left Cutler Ridge for Maryland. A new marriage was one reason, but other factors had her looking to leave before she met her husband. `There are days when it has taken me two hours to go 20 miles'' to work at a cargo airline. Meanwhile, her mortgage payment kept rising because of windstorm insurance. ``I don't know how people can afford it.''
MIDDLE-CLASS DECLINE
A recent study by the Brookings Institution, a Washington think tank, found that many apparently can't. Middle-income neighborhoods, as a proportion of all metropolitan neighborhoods, have been declining nationally - to 41 percent, from 58 percent in 1970.
The study found that Miami-Dade County had the nation's fifth-lowest proportion of middle-income households, barely ahead of perennial losers like New York City and Los Angeles. Broward fared nearly as badly, ranking 82nd. Palm Beach County placed 80th. Although the study was based on 2000 Census data, in all likelihood the problem has worsened in the interim, said Alan Berube, Brookings' director of metro studies.
`The run-up in housing prices in South Florida is comparable to a lot of coastal areas,'' Berube said. ``As a family moves up, there's nowhere to go but out.'' As one indication of middle-class discontent, public-school enrollment has been declining - in Miami-Dade since 2002 and in Broward last year for the first time in more than 20 years.
Certainly, South Florida remains an immensely appealing location. And some professionals think the problem may be overestimated. `I personally don't know anyone who has left,'' said John Beauchamp, a vice president in Fort Lauderdale's Intercoastal Realty. Beauchamp does think high real estate taxes are a growing issue, but of home prices, he said: ``I'm a positive person, and my answer is, there's a price to paradise.''
GETTING OUT
But economists and urban planners worry that the high price could render South Florida a stratified community, where the rich live well, the poor get by, and the middle class get out.
`From a policy perspective, we need to revisit the norm,'' said Jim Tarlton, head of the Broward Alliance economic development agency. ``Things have changed, the dynamics have changed, from when our norms were established.''
For instance, the South Florida norm has always been to ``pay in sunshine.'' Translation: The area depended on low-wage service jobs, on the theory that there would always be arrivals who would work cheap for the weather. With today's economy, that's not possible.
Also, the Save Our Homes initiative of a few years ago tied property taxes to a home's purchase price, and caps the increases forever after. That has unintentionally resulted in a situation where someone who wants to move would pay such a high tax bill on a new home that it might make more sense to leave South Florida altogether. On a $500,000 house, for instance, property taxes can easily surpass $12,000 a year - or $230 a week.
`The fact that people can't move from one house to another because of the way property taxes are structured will impact us,'' Tarlton said. ``It impacts the workforce directly, and without that workforce, it makes it very hard for companies to keep their cost structures down.''
Companies that can't keep their cost structures down are likely to move to locations that afford them that ability.
Lauren and Julio Ascensios are an example of the middle-class families caught in the South Florida squeeze. She is a project manager for a commercial real estate company; he owns an Internet photography business. Four years ago, they sold their South Beach condo and bought a 1935 two-story Mediterranean just a block and a half from Biscayne Bay in northeast Miami.
But now, with a baby, they are concerned about schools. Although they have equity in their home, it won't help them move locally because prices have risen across the region. Staying where they are could mean expensive private schools.
`You're squeezed from every side, and you're trying to decide which way to go,'' Lauren said.
Now their house is on the market and they are planning to move to North Carolina, where Lauren says she can cut expenses 50 percent. ``If we didn't have kids or intend to have more, we could do Miami,'' she said. ``We can work and battle it out. But we want that quality of life for our children.''
Worth noting, of course, is that quality of life isn't just about affordable housing.
`AN ANGRY PLACE'
``I find it to be an angry place,'' said Adele Paul, a Coconut Grove optometrist, who operates a practice with her optician husband, David Fitzgerald. ``We went to Amelia Island last year, and everyone was so nice.'' So the couple are selling their home and building a house in Fernandina Beach.
Paul's situation illustrates why powerful economic forces are prying loose South Florida's middle class. First, there are thousands of households with formidable amounts of home equity. Paul and her husband could have roughly $500,000 in profit from their home, even after accounting for renovations.
Second, there is the property-tax jump if you move. Third, even those fortunate to have an affordable mortgage at a fixed rate are being pummeled by a rapidly rising cost of living. Windstorm insurance is one example. In the case of Paul, the tiny building where she practices optometry has seen its assessment rise to more than $1 million, from $345,000.
`THAT'S A LOT OF MONEY'
`We were $8,000 short on our escrow account, and if you're running a small business, that's a lot of money,'' she said. ``I can't just charge higher fees because insurance and government reimbursements are fixed.''
Moving to Nassau County in northern Florida has also provided a couple of unintended economic dividends. ``Malpractice insurance is two-thirds what it is here,'' she said. ``And car insurance goes way down.''
A few key statistics show how quickly, and powerfully, the economic winds have shifted in South Florida. In 2001, the Florida Association of Realtors estimated that the median South Florida home cost $158,000. That was about 7 percent more than the national median. With 10 percent down, that would have meant a monthly payment of $898.80 for principal and interest at prevailing mortgage rates then.
Today's median home price of $378,000 locally is 73 percent above the U.S. average. It also means that principal and interest total $2,150 monthly. And that's after a 10 percent down payment - $37,800.
``The hardest thing for them is coming up with a down payment,'' said Kimberly August, a mortgage planner with RegionsBank. August noted that mortgage payments are already on the rise for households with adjustable-rate mortgages. But even families with fixed-rate home loans are finding their housing costs soaring, she said, because of skyrocketing insurance premiums, which have nearly doubled in the last several years and will nearly double again if proposed rate increases are approved.
``Insurance is taking the place of your rates going up,'' August said.
Could housing prices deflate? In theory, inflation in housing can't outpace income growth forever. The reality, however, suggests it can, absent a disaster. In a recent survey of the U.S. housing market, the Joint Center for Housing Studies at Harvard University said the imbalances in affordability don't self-correct very quickly - and the solutions are often worse than the problem.
``In most cases, it takes significant job losses - or a combination of overbuilding, modest job losses and population outflow - to drive house prices down substantially,'' the Harvard study concluded.
CONDO SALES DOWN
Although there is growing evidence of overbuilding in condos, it isn't clear whether that is the answer to the housing affordability problem. In fact, even as the new buildings soar, sales of existing condos were down more than 30 percent in June in both Miami-Dade and Broward.
The other factors that Harvard said will cool off housing prices are not factors. The labor market is drum-tight, for instance, and the population continues to grow with influxes from Latin America and the handful of cities, such as Boston and New York, that still make South Florida look like a relative bargain.
Those who stay find that the home-equity windfall doesn't actually produce a higher living standard. ``The problem with real estate is, yours goes up but what you want to buy also goes up,'' said Oscar Aleman, 43. He and his wife are selling their one-bedroom North Miami condo and teaming up with his parents. They hope to find a triplex, which would allow them to rent the third unit for rental income.
Even working two jobs - in security and as a medical technician - he is having a hard time finding something affordable. ``Basically, [it's] the only way people without a lot of money can afford a mortgage,'' he said.
COMMON COMPROMISES
John Bryan Page, chair of the anthropology department at the University of Miami, said the kinds of compromises being made by Aleman's family are common in cities with stratospheric housing costs. ``To look at what kinds of adaptations take place, you need to look at places like San Francisco and New York City where people have been living [in over-priced markets] for a long time,'' he said.
They have roommates or put another generation under the roof. Commutes grow longer, traffic gets worse. ``People are opting for living down in Homestead and places they can afford,'' Page said. ``If I had that kind of commute, I would slash my wrists.''
Scott Leidel took another approach. He drove off. A native of Miami, he found himself priced out of his hometown. ``It was either move to another place and pay off all our debts, or stay in Miami and get further in debt,'' said the 28-year-old computer technician.
He sold his Sweetwater condo for $190,000 - earning $80,000 on it in just two years - and decamped to a Chicago suburb. His new abode is twice as big as his old condo and cost $20,000 less. ``It's kind of that Coral Gables-South Miami feel wherever you go,'' he said of his new community. ``We have a friend who just bought a home for $500,000 up here and that's a lot of money, but his home is the size of one of those Star Island homes.''
