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Musings Report 2017:36 9-9-17 On Rebuilding 100,000 Damaged Houses
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On Rebuilding 100,000 Damaged Houses
Preliminary estimates set the number of flood-damaged homes in Houston at around 100,000. More recent estimates put the number at around 40,000.
No one yet knows how many homes in Florida will be damaged by Hurricane Irma, but the number will undoubtedly be a big one.
I am not an expert in repairing flood damage, or in dealing with insurance companies, FEMA or all the other pieces that will go into homeowners getting the funding needed to repair or rebuild their homes.
But I do know a bit about construction after 44 years in the field, and I have been pondering, with a sick-at-heart feeling, the many hurdles that face everyone involved in rebuilding or repairing tens of thousands--or even several hundred thousand--homes, more or less all at the same time.
Here are some semi-random thoughts on the challenges of repairing/rebuilding so many dwellings in a short period of time:
1. The average cost of homes in Houston is reportedly around $300,000. Just as a guess, many of the affected homeowners probably have mortgages in the $200,000 range.
It's been reported that only 1 in 6 have flood insurance, suggesting 85% of those whose homes were rendered unlivable will need to borrow money to fund the repairs.
It seems federal agencies offer homeowners loans for this purpose, or access to what is effectively a second mortgage.
If the repaired home will be worth $300,000--questionable, perhaps, for those houses which have been repeatedly flooded by lesser storms--then how much money will homeowners be willing to borrow to save the equity they have in the home?
If a homeowner has $50,000 equity and a $250,000 mortgage, and he has to borrow $150,000 to make the home liveable and replace all the ruined contents, does it make financial sense to have $50,000 equity and $400,000 in mortgages on a house that's worth $250,000? Hpw much is the emotional connection to the home and neighborhood worth?
How many homeowners simply can't afford to borrow the substantial sums needed?
If the homeowners affected by Hurricane Katrina are any guide, about a third of those without flood insurance will "jingle mail" their mortgage/title to their lender, i.e. abandon the property via default, leaving the lender to deal with the repair or demolition costs.
Lenders are notoriously reluctant to dump tens of thousands of dollars into ruined, abandoned homes without a clearer projection of the financial pay-off to investing substantial sums in defaulted properties.
2. What happens to property values in neighborhoods in which a quarter to a third of all homes are abandoned? If history is any guide, property values decline sharply until the point that the neighborhood has been essentially restored to its pre-damaged state. That is typically several years at best and a decade or longer in sub-optimal conditions.
3. Every construction project will need plans and specifications, a building permit and inspections of the construction progress for both the city/county and the lender. Do the affected cities have enough building department staff and inspectors to handle this massive wave of permit applications and inspections of tens of thousands of scattered jobsites?
4. It's a lot easier to build a subdivision of 100 nearly identical homes on a single parcel than it is to repair/rebuild 100 homes distributed over a wide area, each with a mix of unique problems to deal with.
In other words, it's very difficult to achieve any economies of scale in repairs/rebuilds of thousands of homes of different levels of damage, age, etc.
5. The building materials industries of North America are large enough to ramp up production to supply whatever materials are needed, but the skilled labor required is another story.
Demolishing waterlogged drywall and paneling, removing ruined flooring, carpets and furniture, etc. are fairly low-skill tasks that can be completed by relatively inexperienced workers. But tasks such as removing and replacing electrical wiring and outlets, installing new panel boxes, reframing damaged roofs, etc. do not lend themselves to lightly trained, inexperienced workers.
It seems likely that the local experienced work force will quickly be committed (at much higher rates of compensation, of course), leaving many homeowners scrambling to find contractors who can restore their house to liveability.
6. It can be very difficult to tell the difference between a fly-by-night "contractor" who smells opportunities for fraud and a legimate builder who moves in seeking legitimate work. All sorts of verifications of legitimacy can be faked: contractors' licenses, referrals, etc.
7. Each of these challenges could become a logjam that delays the rebuilding: some homeowners will struggle to get insurance claims settled, others will find the permit process has slowed to a crawl, others will struggle to get the second mortgage process completed, and still others will have the money lined up but be unable to find an experienced contractor to do the work.
8. How committed are homeowners to their neighborhood if it is in a flood plain? So much of American life is now transient; how old are these neighborhoods? How many residents have lived there for decades? These are seemingly ephemeral issues in the dollars-and-cents calculations of total losses and insurance claims, but they matter to those making the decision to stay and rebuild or pull up stakes and move to less vulnerable locales.
9. Disposing of the enormous quantities of construction debris generated by widespread flooding and other damage is another process we typically take for granted: debris boxes appear and are hauled off to some faraway place for disposal. But existing facilities might well be overwhelmed by the sheer mass of construction-related debris.
10. How many workplaces, schools and other institutions will be shuttered for repairs? How many people will be displaced as a result? Unemployment insurance is rarely a full replacement for wages/salaries lost to layoffs. Small business owners face the same calculus as homeowners--is it worth repairing the existing place or is it financially wiser to pull up stakes and move, or simply close up shop and move on?
Though the media will quickly move on to new crises, scandals and disasters, the process of repairing all these tens of thousands of homes will not be quick. The second-order consequences will stretch on for years: insurance losses, mortgage defaults and foreclosures, neighborhoods scarred by abandoned, ruined houses, cities and various government agencies dealing with thorny decisions about buying up the most flood-prone homes at great expense, expanding drainage systems, erecting sea walls and so on.
Almost lost in all the dollar estimates of property damage is the human loss, suffering and stress. I'm not sure I could muster the emotional and financial stamina required to get through a long and complex rebuilding/ replacement process.
Summary of the Blog This Past Week
The Real Reason Wages Have Stagnated: Our Economy is Optimized for Financialization 9/8/17
Is the High Cost of Housing Crushing Wages? 9/7/17
The Insanity of Pushing Inflation Higher When Wages Can't Rise 9/6/17
The Trouble with Asset Bubbles: If You Stop Pumping, They Pop 9/5/17
Bitcoin, Sour Grapes and the Institutional Herd 9/4/17
Best Thing That Happened To Me This Week
My friends/correspondents in Florida reported that they are as prepared for Hurricane Irma as is humanly possible.
Market Musings: Bitcoin's Rollercoaster
Perhaps the most interesting feature of bitcoin is how often it crashes due to some new threat or crisis, and how it inevitably recovers and marches to new highs.
The threats and crises are numerous and varied: hard forks, China closing exchanges, exchanges hacked, and so on.
Many expect each new crisis to be the spear in bitcoin's back that finally brings it back to Earth. China's banning exchanges was once anticipated as a fatal blow to bitcoin, given the preponderance of miners in China.
Yet to date, any sell-off / crash has been short-lived and the price doesn't just recover, it moves to new highs.
The take-away for me is that bitcoin's support is no longer concentrated in any one nation. Despite claims by conventional pundits that it's all a bubble, every dip gets bought by somebody.
Maybe bitcoin is in a bubble and maybe some day it will crash to near-zero and never recover, but there's no evidence to suggest such a fatal crash is either likely or close at hand.
Rather, the rapid rebounds suggest increasing interest as the global economy wobbles into recession.
From Left Field
North Korea is an Pentagon Vassal State -- here's a POV you don't see everyday...
The Risk of Nuclear War with North Korea by Evan Osnos -- long form account by an experienced reporter....
Return of the city-state (via Maoxian) -- nation-states heading to the ashbin of history?
Deadly Irma Nears Florida as Insurers Face `Nightmare' Scenario (via Joel M.)
The Premium Mediocre Life of Maya Millennial (via Maoxian) -- acid takedown of "premiere," "elite" and all the other marketing ploys designed to make us feel we're special...
The trouble with living in a swamp: Houston floods explained (via Joel M.) -- best description of the topography/ geography I've read so far...
More Than 100 Exceptional Works of Journalism -- a few look interesting...
The debt trap: how the student loan industry betrays young Americans (via Joel M.) Navient, spun off from Sallie Mae, has thrived as student loan debt spirals across the US. Its story reveals how, instead of fighting inequality, the education industry is reinforcing it. -- one of the most rapacious scams ever... "education" is the cover for the exploitation...
Very Superstitious: How Fact-Free Parenting Policies Rob Our Kids of Independence (via Maoxian) Savior State is out of control....
To Understand Rising Inequality, Consider the Janitors at Two Top Companies, Then and Now -- nostalgic look at an economy that no longer exists--permanent employment with guaranteed benefits and pensions...
The Worst US States for Speed Traps, Ranked (via Maoxian)
You Are the Product -- review of 3 books on Facebook, Google and Social Media... love this summary: if the product is free, you are the product.
Here's Why Silicon Valley Loves Big Government The tech industry assumes others will bear most of the costs.
"When I was young I thought that money was the most important thing in life; now that I am old I know that it is." Oscar Wilde
Thanks for reading--
charles |
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