Hurricane-damage repairs could cost billions

A study released Feb. 15 by the Mortgage Bankers Association puts the price tag in the $8 billion to $10 billion range.

Property level damage reports on more than 117,000 inspected properties in the city of New Orleans were examined, and researchers applied repair cost estimates based on structure types, locations, degrees of damage and current builder quotes to determine estimated repair costs, according to an MBA news release.

The study was written by Jay Brinkman, MBA vice president of research and economics, and Wade Ragas, president of Real Property Associates and retired head of the Real Estate Market Center at the University of New Orleans.

The major findings of the study:

• Of the estimated 143,000 single-family 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 billion and $10 billion. The pre-Katrina market value 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 Federal Emergency Management Agency-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 value 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 more than $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,” MBA’s Brinkmann said in the release. “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.”

While the study’s damage estimates are based on the best information now available, Brinkmann noted that as more data becomes available, damage estimates and flood insurance coverage can be determined more accurately.

MBA represents the real estate finance industry, with a membership of more than 3,000 companies.[[In-content Ad]]