The cost of repairing the 95,000 properties in New Orleans damaged by floodwaters from Hurricane Katrina will total between $8 billion and $10 billion, according to a study released today by the Mortgage Bankers Association, a mortgage industry trade group.
The study used property level damage reports on more than 117,000 properties inspected in the city of New Orleans and applied repair cost estimates based on structure types, location, degree of damage, and current builder quotes. It was written by MBA’s Vice President of Research and Economics Jay Brinkmann and the President of Real Property Associates and retired head of the Real Estate Market Center at the University of Orleans Wade Ragas.
Major findings of the study included:
- Of the estimated 143,000 single-family (1- to 4-unit) residential structures in Orleans Parish, almost 95,000 suffered some degree of flood damage. On the East Bank of the city, roughly two-thirds of the single-family structures suffered flood damage equal to 25 percent or more of their pre-Katrina structure values.
- Damage percentages vary widely by ZIP code, ranging from 95 percent of the structures in ZIP code 70124 to only 2 percent in ZIP code 70130.
- The estimated cost of repairing the flood damage to single-family structures is between $8 and $10 billion. The pre-Katrina market values of those properties totaled between $17 billion and $18 billion. Flood insurance is expected to cover somewhere between $4 billion and $5 billion, leaving anywhere from $3 billion to $6 billion in uninsured losses.
- A minimum of 29,000 homes that suffered any amount of flood damage did not have flood insurance, with the more likely number in the range of 34,000 to 35,000. Many of these homes were either owned outright or likely located outside FEMA designated flood zones. In both cases, there is no legal requirement for those homeowners to have flood insurance.
- Given average repair costs versus average pre-Katrina market values, approximately 35,000 single-family structures on the East Bank may not be economically worth repairing, particularly given the potential of post-Katrina market value declines. This includes 68 percent of the single-family structures in ZIP code 70126, 66 percent in 70122, and 58 percent in 70117 and 70127.
- A proposal to pay property owners roughly 60 percent of the pre-Katrina values of their properties would cost roughly $9 billion (excluding administration costs) if every home in the city with 25 percent or more damage were purchased at the 60 percent maximum. Narrowing the scope of the program to just the six hardest hit ZIP codes would lower the cost to around $4 billion.
- A proposal to compensate owners in the six hardest hit ZIP codes for 100 percent of the pre-Katrina values of their land would cost a little over $2 billion, ignoring commercial sites, multifamily properties, and vacant land.
“Given the major negative economic consequences of the storm and the expectation that the loss of jobs will cause the long-term supply of buildable lots to far exceed demand for housing over the foreseeable future, it is important to harness available capital and resources in rebuilding areas targeted for redevelopment,” Brinkmann said. “In particular, we must find a way to free up the capital investment people have in properties where the economics of rebuilding are questionable in the near term and no market exists into which they can sell.”
“As noted in the study, the damage estimates are based on the best information now available from public sources. As more data become available, the damage estimates and degree of flood insurance coverage can be determined with a greater degree of accuracy,” Brinkmann said.
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