Affordable Housing Institute : US

A fascinating (he knows more than I do), intriguing (he thought of things I didn’t), and insightful (he agrees with me!) op-ed by Joel Garreau argues that the Old New Orleans probably is gone forever:

 

 

The city of New Orleans is not going to be rebuilt.

 

The tourist neighborhoods? The ancient parts from the French Quarter to the Garden District on that slim crescent of relatively high ground near the river? Yes, they will be restored. The airport and the convention center? Yes, those, too.

 

From New York Times: Electrical wires, which once ran parallel to train tracks outside New Orleans, now lie twisted in a multicolored whip.

 

So far Mr. Garreau exactly parallels my blog speculations.

 

But the far larger swath — the real New Orleans where the tourists don’t go, the part that Katrina turned into a toxic soup bowl, its population of 400,000 scattered to the waves? Not so much.

 

A cemetery melts into parallel gray lines of crypts and crosses outside New Orleans.

 

When Republican House Speaker Dennis Hastert said that it makes no sense to spend billions of federal dollars to rebuild a city that’s below sea level, he added, “It looks like a lot of that place could be bulldozed.” In the face of criticism, he hurried to “clarify” his remarks.  But according to Washington lore, such a flap occurs when someone inadvertently tells the truth.  

 

What Mr. Garreau adds not only reinforces the points I made in my earlier blog, he piles up a half-dozen I hadn’t thought of, all of which bode ill for the Big Easy:

 

1.         The city’s demography was waning anyhow

 

New Orleans has had a good run for 287 years, but even before Katrina hit, the city was on the wane, as its steadily dropping population figures for decades have shown.

 

New Orleans, politically defined, is the 180.6 square miles making up Orleans Parish. (In Louisiana a “parish” is comparable to a county.)  This place is roughly three times the size of the District of Columbia, though in 2004 it was less populated and its head count was dropping precipitously.

 

[Louisiana is the only U S state whose laws are modeled on the Napoleon Code.  Those of us who do business there have learned you must have local Louisiana counsel; this has long been if not a barrier to real estate volume, certainly a local cost of doing business.  Whether this proves to complicate the rebuilding effort remains to be seen.]

 

2.         Its economy has been shrinking, not growing

 

In an urban interconnected economy, people go where the jobs are.  New Orleans has been clinging to a job base, but not expanding it:

 

New Orleans’s economy is vividly illustrated by its supply of white-collar jobs. Its Central Business District has not added a new office building since 1989, according to Southeast Real Estate Business.  It has 13.5 million square feet of leasable office space.  [Roughly equivalent to 15,000 apartments’ worth! — Ed.] The office vacancy rate in New Orleans is an unhealthy 16% and the only reason it isn’t worse is that 3 million square feet have been remade as hotels, apartments and condominiums.

 

There are no national corporations with their headquarters in New Orleans. There are regional headquarters of oil companies such as Chevron and ConocoPhillips, but their primary needs are an airport, a heliport and air conditioning. Not much tying them down.

 

Once the people are scattered, demographic desires take over.  Absent its French Quarter New Orleans, with its oppressively humid summers, would not be first on anyone’s list to settle anew.

 

3.         New Orleans‘ valuable land is on higher ground

 

Before technology let us think we could do anything, cities were founded where they had natural advantages, and with the Mississippi’s might, its first cities all are on higher ground. 

 

The original reason for founding La Nouvelle-Orl√©ans in 1718 was the thin crescent of ground French trappers found there. Hence the name “Crescent City.” Elevated several feet above the Mississippi mud, it was the last semi-dry natural landing place before the open waters of the Gulf of Mexico.

 

Nouvelle Orleans, 1755

The French Quarter is already established … on high ground

 

Ports tend always to be the highest upriver navigable (Baton Rouge, London, Cairo) or lowest downriver anchorage (New Orleans, Alexandria).  So New Orleans’s founding was economically pragmatic, and it was there, on the high ground, that its history was written:

 

That crescent today is where you find all the stuff that attracts tourists, from the French Quarter, to the Central Business District (the “American Quarter”) with the convention center and the Superdome, to the Garden District and Uptown.

 

That tourist crescent is relatively intact. (Only two of the 1,500 animals at the Audubon Zoo died.) But it is only perhaps 10% of the city.

 

The places that attract people, and those that attract political resources, will cost little to rebuild.

 

4.         What will be rebuilt is only what is economic to rebuild

 

The desire to rebuild is emotional.  The financing of rebuilding is economic.  Thus rebuilding, like any other economic priority, is sequenced on rigorous benefit-cost analysis:

 

Sentiment, however, won’t guide the insurance industry. When it looks at the devastation here, it will evaluate the risk from toxicity that has leached into the soil, and has penetrated the frames of the buildings, before it decides to write new insurance — without which nothing can be rebuilt.

 

Here we encounter the paradox of consumer protection: High levels of consumer protection may have the effect of excluding low-income consumers because returning to operations will be too risky.

 

[Old New Orleans‘] necessity is no longer obvious to many stakeholders with the money to rebuild it, from the oil industry, to the grain industry, to the commercial real estate industry, to the global insurance industry, to the politicians.

 

Under US law, property owners are generally responsible for cleaning up any hazardous materials on their site, and they are generally liable for any health risks (real, perceived, or even potential!) their tenants suffer.  These fall heavily on apartment owners:

 

• Asbestos bankrupted Johns Manville and wiped out the real estate value of many properties. 
• Lead-based paint has been a 25-year remediation expense headache.
• Mold is the twenty-first century inhibitor.

 

Under the ‘Superfund’ (CERCLA) legislation, anyone who steps into the chain of title is potentially liable for the entire cost of renovation.  Thus, while a bank that makes a loan on an environmentally suspect site may have no exposure, if the lender forecloses it steps into the bullet’s path. 

 

So foreclosure is a hollow threat.

 

So the collateral is no good.

 

So no sane financing source will lend if it has to take this risk.

 

So it will not be rebuilt. 

 

Unless  …

 

Unless the Federal government steps in with a blanket amnesty (or, more plausibly, a specialized form of reinsurance), no one who owns income property situated in the ‘goop plain’ (as we will call the area under extended submersion) will ever be able to mortgage it again.  It will remain vacant because it has negative redevelopment value.

 

5.         What has been destroyed has little economic value

 

The benefit-cost equation varies dramatically.  Because the poor tend to be concentrated in the last-settled geography, not only is their property worth less when rebuilt, it will cost more to rebuild:

 

The rest to the north of the river — as distinct from the Algiers district on the south bank, which has always been something of an afterthought — is under as much as 25 feet of water. For the last 90 years, this vast bulk of the city has required mammoth pumps to clear the streets every time it rains. This is where you’d find working folk — cops, teachers and nurses — with bathtub madonnas and colored Christmas tree lights. It’s also where you would find areas of soul-destroying poverty, part of the shredding fabric of a city that had a poverty rate of 23%.

 

It’s a brutally dry fact of life that those who have no living tend to stay where they are.  And those who had no job where they were, and gain one where they have moved, have powerful reasons not to return.  Especially if they receive large cash settlements for property damage, and buy something nice new elsewhere. 

 

6.         Race and economics enforce their own triage

 

So far we have established pretty comprehensively that when there is a massive-scale disaster, the poor suffer more economically.  (They suffer more socially as well, but that’s another discussion.)  The poor suffer because:

 

·         They live on inferior (last settled) ground.

·         They are least likely to have useful insurance.

·         They are least likely to have their own hard equity to rebuild.

·         Their properties will have lower value when rebuilt.

·         With environmental risk, their properties may have negative rebuilding value (the Development Equation fails).

 

This isn’t intrinsically a matter of race — every culture everywhere has its own classification of those people — but in many parts of America, and certainly in New Orleans, economic class correlates with race.  Percentage-wise, more poor are black than white:

 

Does the end of New Orleans as one of America’s top 50 cities represent a dilemma of race and class in America? Of course. There are a lot of black and poor people who are not going to return to New Orleans any more than Okies did to the Dust Bowl.

 

7.         Ports are — well, portable — and need machines, not people

 

All of the foregoing notwithstanding, thinks the reader, The Mississippi River isn’t going to move.  America still needs a huge ocean port.  But though we think of the port as a single node, in fact it is a constellation of communities dotting the Mississippi’s big muddy banks:

 

Certainly, as long as the Mississippi River stays within its manmade banks, there will be a need for the almost 200 miles of ports near its mouth. But ports no longer require legions of workers. In the 21st century, a thriving port is not the same thing as a thriving city, as demonstrated from Oakland to Norfolk. The city of New Orleans has for years resembled Venice — a beloved tourist attraction but not a driver of global trade.

 

For example, the largest in the Western Hemisphere is the 54-mile stretch of the Port of South Louisiana. It is centered on La Place, 20 miles upriver from New Orleans. It moved 199 million tons of cargo in 2003, including the vast bulk of the river’s grain. That is more than twice as much as the Port of New Orleans, according to the American Association of Port Authorities. The Port of Baton Rouge, almost as big as the Port of New Orleans, was not damaged. Also, downstream, there is the LOOP — the Louisiana Offshore Oil Port out in the Gulf that handles supertankers requiring water depths of 85 feet. These ports are just a few of the biggest.

 

Illustrating how different the Port of New Orleans is from the city, its landline phones were back in business a week ago, says Gary LaGrange, the port’s president and CEO. “The river is working beautifully,” he reports, and “the terminal’s not that bad.”

 

Throughout the world, you see an increasing distinction between “port” and “city.”

 

Or, more precisely, trade versus people.

 

As long as a port needed stevedores and recreational areas for sailors, cities like New Orleans — or Baltimore or Rotterdam — thrived. Today, however, the measure of a port is how quickly it can load or unload a ship and return it to sea. That process is measured in hours. It is the product of extremely sophisticated automation, which requires some very skilled people but does not create remotely enough jobs to support a city of half a million or so.

 

The dazzling Offshore Oil Port, for example, employs only about 100 people. Even the specialized Port of New Orleans, which handles things like coffee, steel and cruise boats, only needs 2,500 people on an average day, LaGrange says.

 

8.         There’s a compelling historical precedent: Galveston

 

 

The historic analogy for New Orleans is Galveston. For 60 years in the 1800s, that coastal city was the most advanced in Texas. It had the state’s first post office, first naval base, first bakery, first gaslights, first opera house, first telephones, first electric lights and first medical school.

Then came the hurricane of Sept. 8, 1900.

 

 

As yet unsurpassed as the deadliest natural disaster in American history, it washed away at least 6,000 souls.

 

Like New Orleans, there was looting and despicable human behavior:

 

The price of bacon was pushed up to 50 cents a pound, bread 60 cents a loaf, and owners of small schooners and other sailing craft formed a trust, and charged $8 a passenger for transportation just across the bay from the island to the mainland.
 

Every part of the city was patrolled by 6 PM, but one evening a squad was besieged at St. Mary’s Hospital.  The squad was surrounded by a horde of armed thieves.  Several hundred shots were exchanged.  Sergeant Camp killed four looters with his rifle, and about ten or twelve were killed by the squad.  The solders then began picketing the city doing fourteen hours’ duty without rest.

 

By the third day after the storm, 75 men who had been caught robbing the dead, had been shot and killed.  One of these had in his pocket twenty-three human fingers with costly rings on them.  The fingers had been cut from the victims of the storm found on the beach, or floating in the waters of Galveston Bay.

 

Like New Orleans, there was also heroism and determination:

 

 

Civic leaders responded with heroic determination, building a seawall seven miles long and 17 feet high. Homes were jacked up. Dredges poured four to six feet of sand under them.

 

Galveston today is a charming tourist and entertainment destination, but it never returned to its old commercial glory.

 

Why?  Because Galveston lost out to Houston:

 

The leaders of Houston took one look at what the hurricane had wrought and concluded a barrier island might not be the best place to build the major metropolis that a growing east central Texas was going to need.

 

They responded with an equally Lone-Star-scale project, the 50-mile-long Ship Channel. It made inland Houston a world port. In the wake of the Spindletop gusher that launched the Texas oil industry, Houston became the capital of the world petroleum industry. As the leaders of the “awl bidness” were fond of saying, “Don’t matter if the oil is in Siberia or the South China Sea — you buy your rig in Houston or dig for it with a silver spoon.”

 

That makes the future Baton Rouge look a lot like the present Houston …

 

But there’s a happier vision for the future of New Orleans, which will be the subject of my next blog post.