By Mark Sprague and Cassandra Majors
Hurricane Harvey devastated Houston and the Texas coast, and we’re only beginning to imagine the full economic impact for the region in the years of recovery ahead. 2017’s hurricane season is only the 17th deadliest since the death tolls were first tracked in the year 1900, but it’s already on track to become the worst in terms of damage (highest estimate is now $200 billion). How will Houston recover, and what are the likely short and long-term effects on the region’s economy?
- Out of 660,000 apartment units in Houston, 100,000 units were flooded. A lack of rental housing availability may push renters out of the area or drive up prices for those who stay.
- ABC News reports: “According to the latest numbers by DPS, 273,276 homes were damaged during the storm. Another 15,528 were destroyed.” The full extent of the damage will likely be even higher, however.
- CoStar reports that “as much as 600 million square feet of commercial real estate space in the Houston metropolitan area, or 38% of Houston’s total gross leasable area, may have been impacted by the recent floods.” It’s too soon to tell if this will affect companies’ decisions to open locations in Houston and the coastal region, but it very well may.
- Nearly 25% of U.S. oil capacity was affected due to 20 coastal refineries closing. CNN reports on the impact to the energy industry: “Five oil refineries remain shuttered as of Monday, according to S&P Global Platts, an energy research firm. Ten more are partially shut down as they attempt to recover from historic flooding. All told, about 2.4 million barrels of daily refining capacity in Texas is offline because of Harvey, Platts estimates. That is about 13% of the country’s total ability to turn oil into gasoline, jet fuel and other products.” CNBC reported that there are 3 to 4 million fewer barrels of oil per day than before the hurricane.
- Gas prices spiked at first after the flooding and some areas around Texas saw panic-induced gas shortages, but now prices seem to have leveled out nationwide and consumers are less nervous about supply.
Real Estate Investment and Economic Impact
Reuters reports that investors in the Houston area are champing at the bit to buy up damaged inventory, fix it up, and sell at a profit. The article also points out that none of the previous hurricanes or flooding in Houston has stopped its growth, so there’s every reason to believe Houston will recover from Harvey and continue to boom. However, the author predicts that home prices and rents will rise with the decrease in inventory from damaged homes.
Community Impact interviewed Lawrence Dean, director of Metrostudy Houston, to learn more about what could happen to Houston businesses. Highlights from the interview:
- Small businesses are in worse trouble than large ones, due to limited resources and lack of flood insurance, and many may not be able to return.
- Home values for non-flooded areas have remained steady for now, but newly-built homes are expected to increase in price because of limited building materials.
- Though Houston has been overbuilt for apartments, occupancy rates of apartment complexes have now skyrocketed quickly as displaced residents pour into them.
That last point is an important one. Many were expecting a large influx from Houston to other Texas Metros already, but so far it’s been very limited. Because Houston was overbuilt by 62,000 housing units, those units helped resolve housing needs for many residents that might otherwise have moved. Moving to another city is also a big lifestyle change, so it may be a few years before we see the impact of any outward migration due to Harvey. However, if more catastrophic floods occur in close proximity, that could be a tipping point for some Houston residents.
What Happens Next
It’s important to remember that these are mostly predictions, and it’s too soon to confirm them. As time passes, we’ll be able to see the big picture of how Harvey will impact the Houston area. In the meantime, the Greater Houston Partnership shared some predictions for the next year:
- Repair/remodeling construction will explode over the next 12 months.
- Labor and material costs could surge 18% to 25% in this time.
- Apartment/housing vacancies will plummet in many Texas metros, though much of Houston’s housing needs will be addressed in the Houston metro itself. We may see a small amount of migration to other Texas metros over the next 12 to 36 months.
- Home prices may fall significantly in hard-hit areas and flood-prone areas. Non-flood prone values will likely improve.
- New home values will surge.
- Other Texas metros will see a slight increase of values.
- Flood and property insurance rates will escalate, potentially causing homeowners to reconsider home location.
- Expect one month of significant job losses, followed by 1 to 6 months’ recovery of job creation.
The Houston area has been one of the fastest-growing metros in the country for many years, and Harris County is still the second-fastest growing county in the nation. The storms and floods Houston has weathered in recent years hasn’t affected its ability to attract new residents and businesses, and there’s no reason to believe that resilient Houstonians won’t make it through this one and continue to thrive. Though Hurricane Harvey may have dealt a serious blow to Houston and Texas coastal cities, we all know you can’t keep a Texan down for long.
Mark Sprague serves as State Director of Information Capital at Independence Title. He has over 35 years of experience in executive level management, sales, negotiating, finance, land development, operations, production, administration, and marketing.
Cassandra Majors has been a market analyst and data guru in the Austin real estate industry for over a decade.