How Harvey could affect the Greater Houston area's economy

Cypress Creek reached record levels at several locations, including this bridge on Stuebner Airline Road, in late August.

Cypress Creek reached record levels at several locations, including this bridge on Stuebner Airline Road, in late August.

Lawrence Dean is the regional director of Metrostudy Houston, a real estate and housing market research group that provides comprehensive data for builders, developers, manufacturers, retailers, government entities and financial institutions, among other groups. He also serves on the Greater Houston Partnership’s economic advisory panel. Following Hurricane Harvey hitting the Gulf Coast in late August, Dean said it is too early to confirm specific projections about the Greater Houston area’s economy, but he offered insight as to what the economic outlook could be in the coming months. This interview has been lightly edited for length.

What were the immediate consequences of Harvey for businesses in the affected area?


Businesses of all sizes had pretty significant interruption. Even if they didn’t receive damage to their own physical facilities, enough of their employees did that it caused operational challenges when [they were] forced to work with a skeleton crew because so many were out dealing with their families.

What sectors of Houston’s economy were hit the hardest?


What we’ve been able to glean so far is that no one sector was the hardest hit, but one classification in business size—our small business entities. Even if a sizable portion of [large businesses’] employees had to take time off for an extended period of time after the flood, they still had people and resources to keep moving forward. If you’re a small business, you may not have any employees besides yourself and your family. If you’re forced to shut down because of lack of staff—or even worse, because of damage to your facility—you can’t generate revenue. The smallest businesses are the ones that may not have flood insurance, so not only do they have their revenue halted for a period of time, but then on top of that, they have to put out a big capital expenditure to fix their facility if they didn’t have flood insurance.

How will Harvey impact the residential real estate market?


We have been in a prolonged condition of oversupply of rentals of apartment units. For the last two to three years, [developers] ended up building many more apartment complexes than there was demand for. Literally overnight that has flipped. Depending on which number you look at, 80,000-100,000 homes in the region were damaged, so now those folks need a place to live. Occupancy rates across the board of apartment complexes improved almost immediately.

For the resale single-family market, we’re beginning to see slight price increases for homes that were in the areas that did not flood. We’re not yet seeing it as dramatically as one might expect. I think to some degree it’s probably a little bit of common decency going on that people are not going to immediately try to capitalize on the situation, but we are seeing a little bit of that.

In the new home space, we’ve not seen prices decrease, but we’re not seeing prices increase for much of the same reason. Builders don’t want to have the negative connotation that they might be taking advantage of the situation. Not as many brand-new home areas flooded as did existing resale neighborhoods. There were pockets of new home damage, so going forward, the biggest impact to home building [is] going to be increased competition for materials—drywall, plumbing, drains, roofing, insulation—as these homes are being renovated simultaneously.

How do you anticipate Harvey affecting Houston’s growth rate?


We don’t anticipate a lot of people moving out of the area, but we do anticipate some level of moving around to different neighborhoods within Houston. It’s too early to know what that’s going to look like.

After Hurricane Katrina hit New Orleans, a lot of those folks moved to Baton Rouge [roughly 80 miles away]. If Austin was only 75 miles from Houston, I bet a lot of people would move to Austin after Harvey, but we don’t have another further inland big city that’s right down the road from us like New Orleans had Baton Rouge.

How do you anticipate the recovery process looking post-Harvey?


Much of the damage that was done to people’s homes, those repairs will be expedited for folks that have flood insurance, and it will be [a] more painful and longer process for those who didn’t have flood insurance. Rebuilding efforts are definitely underway across the region in terms of apartments, retail, hotels—you name it. The property types that had the most damage were definitely single-family housing and multi-family apartment complexes, so that’s where rebuilding is going to take the longest, most likely.

What are the best- and worst-case scenarios for Houston’s economic future?


Long-term, the best-case scenario is that the Houston region rebuilds to some degree in a sustainable way that mitigates further loss and risk from any future flooding events. Also really focusing on drainage solutions that are bigger scale than what has been on the table in recent years. If that continues to happen, population is likely to continue to grow at a similar rate [to] the last 20 years—20-25 percent.

The worst-case scenario is that [the economy] kind of stalls out, that there is some level of risk perceived to opening a business in Houston. I don’t know that we would lose population, but that it would just flat line.

Houston overall received enough good publicity and good press coming out of this tragic event that the nationwide narrative about Houston is still pretty positive.

How will the nation’s economy be affected as Houston continues to recover?


In the short-term, sadly it will be kind of a boost to the national economy because national companies like Home Depot, Lowes and construction will benefit slightly from additional spending. In a way it’s kind of like a war—in the midst of this terrible, tragic thing, the national economy benefits from it. Beyond that, I anticipate it won’t really have that much of an impact.
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