26 Nov 2014

Hurricane Economics: Housing

Robert D writes:*

First in 2005, and once again in 2012, the U.S. Was devastated by both hurricane Katrina and Sandy. Of course these disasters impacted society in countless ways, the housing market (or in some cases the lack there of) provides an interesting perspective on these impacts. With both hurricanes, thousands of residents were displaced due to the severe damaging of houses. This led to an overall decrease in housing prices in areas impacted by the storms. At the same time, these displaced resident were now in search of new (and affordable) housing. Traditionally, the replacement housing and or compensation for damage is provided by the federal government. But as you might recall, there was (and still is) some serious doubt about the government's capability in providing these 'goods'. If the government is inadequate in providing support for hurricane victims then what are the alternatives, and does this mean that there is a potential market for hurricane relief?

In New Orleans alone, over 214,700 houses were damaged and approximately 400,000 residents were displaced. This created an overwhelming demand for emergency relief shelters. This demand could not be met through federal means, therefore new systems should be implemented to account for the (possible) demand. One possible system is the Exo unit, which is a small, affordable, emergency housing unit for up to four people. These units are designed as “upside down coffee cups” and therefore they are easily transported. Even if this solves the short term housing issue, there are still long term consequences like whether the change in housing prices correspond with the impact of the storm. More specifically, the price of houses may drop too much or too little due to the federal supply of houses immediately after the hurricane.

But even if we implement a new relief system before it is too late (i.e. another catastrophic hurricane occurs), there must be an initial investment towards the system. At this point, it becomes a matter of risk. How large of a risk are the investors of the new relief system willing to take? This question depends on the expected level of destruction for a hurricane as well as what is considered 'enough' in terms of emergency housing relief. If there becomes a lack of investment, it is difficult to see a solution that does not involve the intervention of the government.

Bottom Line: In post-hurricane areas, the federal supply of housing units disrupt the housing market so much that prices may not reflect the damage caused by the storm. This calls for a change in hurricane relief policies in regards to housing.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, other perspectives, data sources, etc.

1 comment:

Ezra S. said...

The impact of natural disasters on the housing market is a very interesting issue, especially since predictions show that the number of those disasters might increase due to climate change. The question whether or not a potential market for natural disaster housing relief exists, is in my opinion the most crucial question. If governments are incapable of providing emergency housing for victims of natural disasters, other alternatives are necessary. Producing very cheap housing units, similar to the exo unit you mention, which the producer sells directly to people that have lost their homes might be a solid business model. If a company has the ability to provide emergency housing at a very low price that at least some victims of natural disasters are able to afford, an alternative for governmental troubles to tackle the issue would come into place.

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