Friday, July 18, 2008

Air Conditioning and Global Tourism Increase the Demand for Southern Florida in the Summer

Seasonality is a boring word. Many environmentalists are now talking about it saying that in a world of high energy prices that trucking berries and other fruits from distant farmers to urban consumers will rise in price and that these urban consumers will respond by eating a more seasonal diet. High energy prices will encourage eating "locally".

This New York Times article turns this logic around. In a nutshell, it argues that South Florida used to be a seasonal place. Nobody wanted to be there in summer (too hot and humid) while everyone wanted to be there in Winter.

Air conditioning and global tourism (fueled by cheap air travel) have transformed southern florida into a year round place. At the end of the article, the global tourism point is fleshed out. British tourists love the fact that Southern Florida is warm and sunny. South American tourists view it as "cool" relative to their home climate and given that their seasons are flipped they want to be there during their "winter" (our summer).

This article has some nice economics detailing how a real estate owner makes substitution decisions when the price of renting her unit varies so sharply over the course of a year. I don't see much behavioral economics here.


New York Times
July 18, 2008
At Home in the Florida Sizzle
By CHARLES PASSY

DENNIS ROONEY can tell you all about the lazy joys of a sticky Florida summer. The beaches that beckon with water temperatures in the nearly bathlike 80s. The roads that are suddenly traffic-free. Even the sight of those tropical afternoon thunderstorms, which constitute a kind of nature-as-theater.

But as it turns out, the real joy of a Florida summer may come in the winter. Because Mr. Rooney chooses to vacation in his two-bedroom home in Delray Beach during July and August, he’s free to rent it out in the prime winter stretch.

“The going rate is four grand a month,” said Mr. Rooney, a Manhattan writer and audio producer. He adds that the winter income “pretty much” covers his year-round costs for the home, including mortgage and maintenance.

But Mr. Rooney’s story is hardly an isolated one in South Florida, long known as a haven for winter seasonal residents (a k a snowbirds) seeking escape from the northern cold. As owners of vacation homes face the financial realities of having that special South Florida getaway, they’re often making something of a devil’s deal. That is, they spend portions of the summer in the state, when it’s at its most hellishly hot and humid (and hurricane prone). In return, they’re fully able to realize the potential for rental income in the blissfully mild winter.

Then again, it’s not strictly about the money. Some appreciate the fact that summer is a decidedly quieter time in South Florida, as evidenced not only by the lack of congestion on the highways, but also by the fact that you can garner a table at some of the most popular restaurants without so much as a reservation.

Plus, some folks just like it hot.

“We have the reputation of staying out from sunrise to sunset,” said Marilyn Horton, a semiretired educator who has a vacation home with her husband, Jim, in Fort Myers Beach. The couple, whose other home is in Niantic, Conn., spend a few weeks every year there in the off-season, dividing the daylight hours between the pool at their gulf-front condo building and the beach.

The Hortons also visit in the winter, but they recognize a certain supply-and-demand business aspect to vacation-home ownership. They’re careful to leave the peak period, from February to mid-April, open for renters.

The reason is that they are often able to more than double the rent for the unit in the winter — $1,400 a week versus $575 to $850 for the occasional summer rentals they book. But just as important, they don’t have to scurry to find tenants in the high season. The rental business comes almost automatically to them, particularly through the Web site WeNeedaVacation.com, on which the couple advertises their property.

“We get hundreds of inquiries,” said Mr. Horton, also a semiretired teacher.

To be sure, such strategizing isn’t entirely new to vacation-home owners in South Florida. And the concept isn’t limited to just that part of the country. In ski areas in New England and Colorado, there are more than a few owners who try a similar approach, staying in the mountains in the summer — they’re just as beautiful without snow — and leaving the skiing to their high-paying tenants in the winter.

But there are factors that have made South Florida particularly suitable for this going-against-the-grain way of viewing vacation-home ownership.

FIRST and foremost, the dynamic of many South Florida vacation communities has changed, with the concept of high and low seasons starting to blur. A half-century ago, Miami Beach all but rolled up its sidewalks at the end of April. Now, those same streets are alive with late-night revelers throughout the summer, since the South Beach clubs pay little heed to the calendar.

Miami Beach “is an all-year playground,” said Laura Adler, a real estate agent who splits her time between South Florida and Aspen, Colo., catering to vacation-home buyers in each.

Much the same thinking extends to the Palm Beach area, where theaters that used to stay quiet during the warm-weather months now keep busy year-round, and the Florida Keys, where a huge fishing community settles in during the summer, taking advantage of the calmer waters.

A result is that property owners need not feel they are being cheated by visiting in the summer. At the same time, they’re still able to take advantage of the fact that winter is the most desirable period, so they can sharply raise their rental rates.

On top of that, South Florida is seeing a growing number of foreign buyers, who often view the summer as the true peak season. In the case of South Americans, that’s because our summer is their winter — they come to escape the cold (or, at least, the cooler) temperatures right when many South Floridians are wishing they could escape the heat. And Europeans, particularly Britons, simply take a more benign view of the summer, perhaps because they’re contending with damp, rainy weather for much of the rest of the year.

“I’ve never once run into a European who said it’s too hot,” said Paul McRae, president and broker at the Fort Lauderdale-based Galleria Collection of Fine Homes, which handles all sales for the Trump International Hotel & Tower in Fort Lauderdale. The condo hotel has 298 guest rooms, with the remaining units starting around $700,000, and is set to open early next year. Mr. McRae estimates that more than 50 percent of his buyers are looking primarily at summer use.

Which brings up another factor behind the summer boom: the rise in condo hotels throughout South Florida in the last decade. After all, this form of property ownership, in which a buyer buys a hotel unit and then lets the hotel rent it out in exchange for the hotel’s taking a cut of the receipts, is built around the idea of building rental income to defray the owners’ costs. So it is only natural that those who buy units, which they can readily use at any time, would be hesitant to grab the prime winter dates for themselves. At the Trump International Beach Resort in Sunny Isles Beach, between Fort Lauderdale and Miami Beach, a two-bedroom unit can go for close to $1,200 a night in February.

OF course, the concept of maximizing rental income does not apply only to condo hotels. As South Florida experienced a huge rise in values of all kinds of housing, from roughly 2000 to 2005, it became a speculators’ market. And those speculators are now eager to get the highest possible rental receipts, since they are planning to hold on to their properties only until the market rebounds and they can make a profit.

Others who use their Florida homes only in the summer include people who have bought homes for their later retirement years. “If it’s something they’re buying for future use, the goal is to cover as much of the expenses as they can,” said Kathy Jones, Florida coordinator for WeNeedaVacation.com.

The same applies in the case of a home that’s been inherited. Martha MacPherson, who works in software sales in Boston, takes as much advantage as she can of a Marco Island home passed down to her and her sister from her mother. But since Ms. MacPherson is really thinking ahead to retirement, she’s now renting out the home in the winter as a financial necessity.

“The place is paid for, but you’ve got condo fees,” she said.

Still, those who rent out their units in the winter aren’t necessarily deprived of the occasional in-season vacation. The key is being flexible.

That is how Linda Spencer, a Deerfield, Mass., pottery designer, approaches vacation-home ownership. She has three properties throughout the Florida Keys. If her rental business is strong, she stays ensconced in New England. If there’s an opening on the calendar, she’ll grab it, regardless of whether it’s summer or winter.

In fact, she prefers summer in the Keys, particularly for the great boating and snorkeling opportunities it affords. “I wouldn’t be hanging out that long in the water during the winter,” she said.

But what about the brutal heat and humidity?

As far as Ms. Spencer is concerned, it’s hot almost anywhere you go in the summer.

“It was just 101 degrees in Cape Cod,” she said, “and people there don’t have air-conditioning.”

3 comments :

Anonymous said...

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Auto A/C said...

the Changing climate haunting tourism
It is often said that farmers are on the front lines dealing with global warming, their livelihoods being extraordinarily dependent on the weather. But tour operators and resort owners are not far behind.

Imagine a ski resort whose chairlifts are in the lower reaches of mountains, without decent snow. Or a scuba club whose reefs succumbed to warmer and stormier seas. Or a golfing hotel in a district where water shortages made it impossible to keep fairways green. All are real possibilities, industry experts say, and in fact, early effects are already being felt.


Cheers,
Georgia

Anonymous said...

^^ nice blog!! ^@^

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