September 11, 2017

Almost lost in all the dollar estimates of property damage is the human loss, suffering and stress.

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 soberly reflecting on the many hurdles that face everyone involved in restoring / repairing tens of thousands of homes, more or less all at the same time.

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 have been damaged by Hurricane Irma, but the number will undoubtedly be a big one.

Here are some semi-random thoughts on the challenges of repairing/rebuilding so many dwellings in as short a period of time as possible:

1. The average cost of homes in Houston is reportedly around $300,000. Many coastal areas in Florida are similarly valued. 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 in the affected areas of Houston 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 keep the home?

If a homeowner has $50,000 equity and a $200,000 mortgage, and he has to borrow $100,000 to make the home livable and replace all the ruined contents, does it make financial sense to have $300,000 in mortgages on a house that's worth $250,000? How much is the emotional connection to the home and neighborhood worth?

How many homeowners simply can't afford to borrow the sums needed?

If the homeowners affected by Hurricane Katrina are any guide, between a quarter and a third of those without flood insurance might "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 abandoned homes without a clear projection of the financial pay-off to investing substantial sums in defaulted properties.

2. What happens to property values in neighborhoods in which numerous homes are unrepaired or abandoned? If history is any guide, property values decline sharply until the point that the neighborhood has been 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 much 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 various ages and designs beset by varying degrees of damage.

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 livability.

6. It can be very difficult to tell the difference between a fly-by-night "contractor" who smells opportunities for fraud and a legitimate builder who moves in seeking legitimate work. All sorts of verifications of legitimacy can be faked: contractors' licenses, referrals, etc.

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