Affordable Housing Institute : US

A trio of articles from the most recent Economist support my earlier speculations about the shape of New New Orleans.

 

[Reference: Previous posts on New Orleans here, here, here, here, here, here, here, here, and here.]

 

“Shoulda been readin’ that AHI blob ….”

 

The key business drivers will be back in business quickly (September 8):

 

The port and the airport re-opened this week.

 

Even as mobile homes will be creating new communities (September 2 and September 16).

 

FEMA, for instance, is working to amass up to 300,000 trailer homes for evacuees. Its goal is to put 30,000 families in trailers every two weeks, homes in which they could stay for up to five years.  One FEMA official has suggested this programme is near the scale “of building the pyramids”.

 

many who leave New Orleans will never return (September 5):

 

Those who lived in the worst-affected areas … are now dispersed, some as far afield as Montana. They have no assets to tie them to New Orleans. Many will find work in Texas or Mississippi before their neighborhoods are habitable again. No one knows how many will come back.

 

Much of the submerged city will be unsalvageable because of mold (September 15):

 

The Army Corps of Engineers estimates that the city will be dry by October 8th.  [A month under water! -- Ed.]

 

Baton Rouge will win big because money flows through it (September 8), and tourism will rapidly rebound (September 14):

 

Holed up in Baton Rouge, the city’s exiled business leaders are already plotting a quick come-back for the French Quarter and other tourist traps, most of which saw little serious damage.

 

Insurance will dictate rebuilding (September 1):

 

The sun was brilliant, the Mediterranean sparkling, the Bentleys and Lamborghinis polished to perfection in front of the Hotel de Paris. It might have been just another care-free day in Monte Carlo. But across the plaza the chatter under the awnings at the Caf√© de Paris was far from light-hearted. There, the world’s insurers and re-insurers were counting the cost of a hurricane 5,000 miles away.

 

 

As will litigation:

 

This being America, legal wrangling will also color Katrina’s long-term consequences. The insurance industry is bracing for battles over whether property damage was caused by winds or floods (see article). Hurricane damage is covered by private property insurance, but since 1968 flood insurance has been provided by the government, through the National Flood Insurance Program.

 

Although this insurance is both subsidized and obligatory for anyone with a federally-insured mortgage, remarkably few people in the Gulf Coast seemed to have it. In Mississippi’s coastal countries, less than one in five households have flood insurance; even in New Orleans it is under half. In Mississippi, Richard Scruggs, a lawyer famous for taking on the tobacco industry, has already asked the state’s attorney-general to challenge private insurance firms’ ability to exclude flood insurance on the grounds that this exclusion is “unconscionable”.

 

Which came first, disaster or catastrophe? 

More on this in a future post.

 

More than likely, the Federal government will spread its healing balm over fractious litigation disputes (September 1):

 

Whatever details Mr Bush lays out, one thing is clear. They will involve money—and lots of it. Congress has appropriated more than $60 billion to cover the immediate costs of the disaster.

 

            […]

 

The final tally of losses from Katrina will not be known for some time. At the high end of estimates, RMS, a catastrophe-modeling firm, puts insured losses at $40 billion-60 billion, which would make Katrina by far the costliest natural disaster insurers have ever faced (see table). However, depending on how responsibility is parceled out between America’s federal flood-insurance program (see article) and private coverage for storm damage, business interruption and so forth, the bill could be lower—or much higher. There is already talk of legal action in Louisiana to settle claim disputes.

 

Wish-projection talk, we might add. 

 

Some insurers will flirt with insolvency, while others will migrate out of insurance entirely:

 

So far, it is unclear how many companies will follow Allstate, a primary insurer in America that has declared it will no longer write certain property and casualty policies in Florida because of storm risk. With two other big American insurers, State Farm and St Paul Travelers, Allstate has especially large exposure where Katrina struck. A $36.3m bond offering for the New Orleans levee system was cancelled on September 10th when MBIA, the world’s largest bond insurer, terminated its agreement to insure the debt because of damage caused by Katrina.

 

“If I were heading a big re-insurer,” says Mr Thierry, “I might ask, ‘Why do I stay in this business when it seems to be dangerous?’” General Electric has indicated that GE Insurance, hardly a minnow, may be sold in an initial public offering when the time is right.

 

The entire insurance industry is in for a price shock (August 30 and September 1):

 

Because Katrina-related claims are likely to absorb so much capacity from the global reinsurance industry, premiums are expected to rise not just in America, but worldwide. “Rates will come up whether you’re talking about Dutch motor insurance or US catastrophe re-insurers,” predicts Tim Carroll of GE Insurance Solutions. Energy-insurance rates have already started rising: increases of up to 25% have been reported for renewal premiums outside the Gulf of Mexico.

 

What’s striking here is that with the globalization of capital, the economic interdependencies are so complex that the pain will be distributed globally:

 

“It will not be easy for the small guy with a motor car in Europe to accept an increase in his premium due to Katrina,” says Jean-Philippe Thierry, host of this week’s gathering and president of AGF, a French insurer owned by Allianz, a German giant.

 

The Economist also flags a further issue that I hadn’t mentioned because I hadn’t decided how I wished to treat it: the correlations and interdependencies among neighborhood submergence, poverty, and race:

 

The storm’s most dramatic political effects could turn out to be local. It has seriously aggravated race relations in New Orleans. Blacks tell pollsters that they are mad at Mr Bush for the slow federal response. Whites are more inclined to blame the looters, the thugs who shot at rescue boats and Mayor Nagin, who is black.  […]

 

Two thirds of New Orleans‘ registered voters are black. But the floods could change the city’s racial mix. Those who lived in the worst-affected areas were typically poor, black and renting.

 

Sotto voce, Democrats fret that a loss of black voters could end their grip on the city, and perhaps even tip the tight race for the governorship of Louisiana. Ernest Johnson, head of the Louisiana arm of the National Association for the Advancement of Colored People, promised this week to organize displaced blacks to make sure they can vote back home.

 

Much of submerged New Orleans was poor.  Much of that was owned and operated by the Housing Authority of New Orleans, one of the nation’s worst.   A 1996 HUD audit found:

 

Public housing in New Orleans remains mired in bureaucratic bungling despite two decades of attempts to bolster living conditions there, a recent General Accounting Office, or GAO, report has found.

 

The Housing Authority of New Orleans, or HANO, is one of the nation’s largest and most problematic public-housing authorities, operating more than 13,000 housing units with 24,000 residents, according to the GAO.

 

The report says that HANO has failed to carry out routine maintenance such as repairs to plumbing, heating and electrical systems and modernization work such as replacing roofs and razing unsafe buildings. More than 25% of the apartments are vacant because of years of neglect and deterioration, according to the report.

 

Since 2001, HANO has been operating under HUD receivership, with discouragingly little visible progress.  When the full story is told, I fear that not only will HANO’s properties be among those that vanished, it will have been HANO’s former tenants who were disproportionately responsible for the looting. 

 

In complex systems, no one thing deterministically compels any other thing, but many things can tend to reinforce one another.  Poverty, race, overcrowding, under-employment, under-education, substandard housing — they all link together.  Thus, even as New New Orleans is a unique opportunity for 21st century urban planning (September 12 and September 8):

 

But other experts of every stripe are offering their ideas to remake a better New Orleans. Engineers have plans to raise not just levees but the entire foundations of the city by several feet; environmental scientists want to restore vast tracts of wetlands to protect against future floods; urban planners want to rejig the city’s economic and racial make-up by mixing low-income housing into more affluent neighborhoods.

 

It may also be an opportunity to reinvent the concept of a large public housing authority:

 

In theory, Mr Bush could use this opportunity to reform the system and reduce the extent to which Uncle Sam subsidizes people living in disaster-prone areas.

 

In a future blog post I’ll cover HANO’s sordid past, and the possibility of using New New Orleans radically to reinvent the concept of the housing authority.

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