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Economic Impact of Hurricane Katrina

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The impact of Katrina on the housing market in New Orleans: overall economic consequences and racial discrimination following the disaster

|Maastricht University | | | | |School of Business & Economics | | | | |Place & date: |Liege | | | | |Name, initials: |Bontemps, GM | |For assessor only | | |ID number: |I6045122 | |1.

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[email protected] maastrichtuniversity. nl Table of Contents Introduction1 Katrina’s overall economic impact1 The latent racial discrimination in New Orleans2 consequences of racial policies4 Conclusion5 References6 Introduction In August 2005, Hurricane Katrina resulted in one of the major natural disasters in the history of the United States. It wais both the costliest and one of the five deadliest hurricanes recorded in America.

Experts estimate the overall cost of damages from Katrina to be at $105 billion and at total of 1,833 confirmed deaths, which does not include victims who died in medical facilities or during the evacuation process.

The hurricane destroyed an estimated 90,000 square miles of housing in the Deep South. Its consequences were particularly severe in New Orleans, where a dramatic failure of the levees let water flood 80% of the city. These surge protection failures are considered as the worst civil engineering disaster in the history of the United States.

The floods severely damaged the overall infrastructure of New Orleans and eventually led to housing problems. The post-disaster political decisions have been highly criticized and are considered as one of the main reasons why victims are still suffering from Hurricane Katrina’s consequences years after the disaster. This paper aims at discussing the challenges encountered by low-income Black households of New Orleans to find post-disaster housing, due to the latent racial discrimination in American society. First, it will give a deeper insight into Katrina’s overall economic consequences.

Then, it will analyze how skin color influenced the pre-disaster access to financial resources and how the situation for the local African-Americans’ post-disaster situation worsened after the disaster because of their class social status. Finally, the post-disaster policy resulting in ethnic shifts in New Orleans will be discussed. Katrina’s overall economic impact Katrina was the costliest hurricane in the history of the United States. However, the $105 billion federal reimbursement received by Louisiana reflects only the cost of damaged structures.

The actual economic impact sustained by the Gulf Coast is higher than that, and is likely to permanently affect the cCity of New Orleans, which was hardly hit by the natural disaster and by the resultant breeches in the levees. Gordon, Moore II, Park and Richardson (2010) point out that the seven-month inoperability of the harbor of New Orleans caused in itself an estimated additional cost of $62. 1 billion. Gordon et al. (2010) further focus their study of Katrina’s economic impact on the crude oil and natural gas production disruption.

115 oil platforms went missing, sank, or went adrift after the storm, while others were shut down for more than a week. The damaged platforms inevitably led to an incalculable ecological cost. Furthermore, the results of the study made by Gordon et al. (2010) show that the oil refining business interruption added 5 to 8 billion US dollars to the overall cost of the damages caused by Hurricane Katrina, and to a smaller extent, by Hurricane Rita. Petterson, Stanley, Glazier and Philipp (2006) suggest that the direct economic impact induced by the storms was even greater.

In fact, the estimated costs of the cumulative shutdowns of oil production does not include the losses resulting from increased importationimports and from the, lostdecrease of refinery production and of the associated revenue streams throughout the distribution system. Petterson et al. (2006) further points out the significant socioeconomic effects caused by Hurricane Katrina. Louisiana lost an estimated 220,000 jobs, and New Orleans sustained nearly total unemployment following the storm. In addition, thousands of businesses also suffered, as a result of the storm.

By March 2006, approximately one year after, around 2,200 businesses out of the 22,000 existing in New Orleans before the disaster had reopened. Assuming that none of the estimations overlap, the addition of the cumulative job and business losses and on top of the former estimations amounts to nearly $200 billion in state losses. The latent racial discrimination in Nnew Oorleans Hurricane Katrina pounded the Gulf Coast with no distinction between social classes and races. Moreover, current conventional wisdom suggests that the United States is not a racial society anymore.

Therefore, one could expect social bonds to build up among the victims of natural disasters, leading to an equal human response to Katrina’s destructive strength. However, several studies show otherwise. The access to financial resources is a crucial element for the post-disaster recovering process. Bates (2006) explains how African-Americans encountered, compared to the White population, additional obstacles in improving their post-disaster conditions while the housing market of New Orleans was recovering.

In fact, the pre-disaster equilibrium showed a strong relationship between social class and skin color: Black families were concentrated in specific planning districts and tended to have a lower income. African-Americans’ poor access to financial resources resulted in unpreparedness for the disaster. Some studies claim that Black populations were inclined to live in unsafe housing. Low-income neighborhoods tended to be found in undesirable physical locations, and poor families could not invest in structure improvements to protect their houses from natural disasters.

Therefore, the least disaster-prepared houses were located in districts that were pounded by Katrina’s full strength. The poorest families could not afford emergency survival kits, and it was reported that information was poorly communicated to the low-income neighborhoods. Bates further argues that “Class status is an important determinant of disaster recovery, and intersects with race. ” (p. 15). While the governmental post-disaster emergency plans first focus on the evacuation process and the installation of large, public shelters, the rebuilding process is managed by private companies.

, which means thatAs a consequence a greater access to financial resources results in a faster, more satisfactory housing reconstruction. However, most Black New Orleanians are renters, as social discrimination leads to difficult access to financing or affordable housing programs. Renters have to rely entirely on the owners’ will to rebuild their houses because as their status gives them no control over such decisions. The massive destruction of housing caused by Katrina resulted in a sharp increase of the housing market prices overnight.

In fact, McDowell, Thom, Pastine, Frank, and Bernanke (2012) present a simple model that can be used to explain the price changes. Figure 1 displays the changes in supply and demand curves that occurred after the storm. While the destruction of a large number of houses forced many people to desperately look for new housing units to rent or to buy (increased demand), it caused at the same time a massive shortage of supply. Figure 1 This graph clearly shows the sharp rise in price that was caused by Katrina.

Furthermore, the housing shortage led several emergency plans such as FEMA and HUD to install public shelters, temporary shelters and temporary housing. It was reported that African-Americans also faced additional problems while being relocated. Due to the size of the area damaged by the storm, the shelters had to be located in different places. While the Whites easily accessed temporary housing close to their city, the Blacks were evacuated to shelters located far from their original neighborhoods. Eight years after the disaster that hit New Orleans, some “white” districts are now are more populated than before.

However, thousands of African-Americans are still living in temporary housing, unable to return to their former living place because of latent social discrimination. Consequences of racial policies In addition to the racial discrimination present in New Orleans, the poor, Black communities were impacted by a governmental policy that denied their right to housing. Gardner, Irwin and Peterson (2009) argue that influential business and political constituencies wanted to build a bigger and better New Orleans prior to the disaster.

Although relatively poor Black residents composed the major part of the population, these political decisions aiming at building a “new” New Orleans did not welcome back the poor African-Americans. Katrina left a significant shortage of affordable housing for poor communities in its wake. In his study, Quigley (2006) outlines several facts about New Orleans and Katrina’s effects on private and public housing. More than 200,000 homes were severely damaged throughout Louisiana, 150,000 of them in New Orleans itself.

Prior to the disaster, the average household income in the devastated city was barely above $20,000 a year, which ranked it second amongst the United States’ fifty largest cities in its concentration of poverty. In fact, many residents already had difficulty buying their houses. A waiting list of over 17,000 families hoping to live in public housing already existed before Katrina. Quigley further points out that the hurricane converted New Orleans from one of the most affordable cities in the United States to one of the most expensive cities overnight.

In addition, the use of this natural disaster as a political excuse to “clean up” New Orleans by removing or reducing low-income, Black neighborhoods worsened the situation. Gardner et al. (2009), Finger (2011) and Quigley (2006) denounce the policies that aimed at reducing the proportion of Black residents in New Orleans and dramatically impacted the repopulation of black communities. These three studies reveal how the absence of plans to repair or replace the damaged affordable housing, as well as the demolition of still-viable public housing, resulted in a significant change in the racial composition of New Orleans.

Out of the 150,000 housing units damaged by the storm, around 80% were officially considered as affordable before Katrina. Moreover, despite the repeated protests of residents, the “Big Four” developments, Lafitte, B. W. Cooper, C. J. Peete and St. Bernard, containing 5,100 apartments mainly occupied by low-income African-American families were demolished. These assaults on housing affordability changed the face of the city. The percentage of Blacks living in New Orleans dropped from 67% to less than 60%, while the proportion of white residents grew from 5% to 10% during the same decade.

The above- mentioned studies presume that the political decisions that hindered the repopulation of New Orleans by the poorest black families were a manifestation of racial discrimination. However, McDowell et al. (2012) argue that many decisions go along with positive or negative externalities. There is no study that aimed to measure the overall welfare in New Orleans after the catastrophe. In fact, the decisions made by the government may have increased the social welfare in the city.

Even though a certain social group suffered from the governmental measures taken, the lower level of poverty resulting from these decisions probably had a positive effect on social life. Conclusion Hurricane Katrina was one of the biggest natural disasters in the history of the United States. Katrina severely damaged structures throughout the Gulf Coast and destroyed thousands of lives. New Orleans, Louisiana, sustained significant damages due to dramatic breeches in its levees, causing 80% of the city to be flooded.

Even though the Government of the United States provided $105 billion in aid to Louisiana, the real damage costs were higher. The hurricane caused disruptions in oil and natural gas production, as well as in many other businesses, along with a massive job loss. Moreover, the missing or destroyed oil platforms resulted in an additional ecological cost. The social problems arising from the catastrophe worsened the latent racial discrimination in the United States. When Katrina struck New Orleans, it caused a major housing crisis.

Several studies show that class status significantly influenced the recovery process, as a strong relationship between race and social class already existed before the disaster. In fact, African-Americans tended to have a low income, and were highly dependent on subsidized housing, public housing, or were living in undesirable physical locations or in unsafe housing. Poor, Black victims also faced additional obstacles during their relocation. The white population had better access to shelters located close to New Orleans, while Black families were relocated to emergency shelters situated far away from their original neighborhood.

Studies show that the obstacles encountered by poor, Black households were no coincidence. Policies aiming at “cleaning up” New Orleans by removing or reducing the poor Black majority had already been discussed before the disaster. The lack of financial support to the poor victims to rebuild their housing units, and the demolition of viable public housing resulted in a shift in the ethnicity of the city. However, the many difficulties encountered by the Black population may have been the negative externalities resulting from political decisions aiming at improving the social welfare in New Orleans.

References – Bates, L. K. (2006). Post-Katrina housing: problems, policies, and prospects for African-Americans in New Orleans. Black Scholar, 36(4), 13-31. Retrieved from http://web. ebscohost. com/ehost/pdfviewer/pdfviewer? sid=4ca80791-3431-489b-ba51-5d48d31f6e8a%40sessionmgr4&vid=1&hid=19 – Finger, D. (2011). Public housing in New Orleans post Katrina: the struggle for housing as a Human Right. Review of Black Political Economy, 38(4), 327-337. DOI:

Cite this Economic Impact of Hurricane Katrina

Economic Impact of Hurricane Katrina. (2016, Aug 30). Retrieved from https://graduateway.com/economic-impact-of-hurricane-katrina/

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