Monday, September 05, 2005

Thoughts on the post-Katrina future of New Orleans and Houston

I've received some very flattering emails requesting my thoughts on the future of New Orleans and Houston after Katrina. After sifting through a lot of articles and news over the last week, I'm not sure the long-term future is likely to be all that dramatically different from the past:
  • New Orleans core industries - the Mississippi/Gulf port, oil/gas infrastructure, and tourism - can't really migrate and so will eventually come back: the port and oil/gas to full strength, but tourism remains to be seen. I think discretionary industries will mostly leave, including whatever oil and gas companies that aren't tied to local infrastructure and haven't already migrated to Houston (not much).
  • I think New Orleans will get a small core around downtown and the French Quarter up and running for Mardi Gras' 150th anniversary. It may not be a full-size Mardi Gras, but it will be something and it will be the national "New Orleans is back" story.
  • Houston will get a temporary economic boost from the FEMA money, office relocations, and port diversions, plus offshore platform and pipeline repair. The NY Times just came out with story on this: Houston Finds Business Boon After Katrina
  • Nationally we are likely to have an economic slowdown and possibly even a recession. The energy price shock will really hit overly-indebted Americans, who will cut back consumer spending and flatten - or even burst - the housing bubble (although not in Houston, which doesn't have a housing bubble locally). Prepare for a tepid Christmas sales-season. This consumption pullback will have ripple effects all over the world, especially China, which is already facing manufacturing over-capacity and bad-loan banking problems. If hundreds of millions of unemployed and underemployed rural and urban slum-dwelling Chinese get restless, it could get really messy over there. (How ironic would it be if Katrina ultimately gets credit for the downfall of the communist party in China? Ever heard of chaos theory? You know, "a butterfly flaps its wings and ultimately causes a hurricane somewhere"? Well, how about a hurricane on the other side of the world changing the government of the world's most populated country? Now if we could only trace Katrina back to that butterfly, we could identify the butterfly that overthrew China...)
  • Conventions: I don't think Houston will get much of a boost since we converted the convention centers to refugee shelters (which was absolutely the right thing to do). I'm not sure we would have picked up much anyway. I'll be frank: New Orleans, like Vegas, draws conventions that want a real party atmosphere, and that really isn't Houston. That said, I don't know how strongly New Orleans tourism and convention business will bounce back even after they get the city back in shape. The violent crime image will scare many away, and the convention center is now permanently associated with crime and death (having a convention at the New Orleans convention center would seem to me like buying a house whose previous family was killed - just creepy).
  • I think a substantial number of the refugees will relocate here to Houston (as does Barbara Bush). I think it could be as many as 100,000 (doubling our normal 100K/year metro population growth). News interviews indicate that a lot of people have no interest in going back. Assuming the job market can absorb them (hard to say), it should be a small economic boost as we build apartments and homes to house them.
  • Ultimately, I think New Orleans will come back, but as a much smaller city. I would bet up to half of their population may not return. Baton Rouge will grow substantially (already has), and in the future Louisiana may have two relatively equal key cities (BR and NO) rather than just NO - kind of like Dallas and Houston in Texas.
  • I've heard some comparisons to how the 1900 hurricane switched economic power from Galveston to Houston. The difference here is that New Orleans was already an economically stagnant city that has long since given up southern leadership to Texas, Atlanta, and Florida. I don't really see much of a power shift that hasn't already happened.
  • Locally and nationally, I think Houston's amazing generosity will work wonders for our image. My wife went to the Second Baptist church today on Voss near Woodway to train for food-service volunteering at the shelters, and ran into incredible traffic jams of volunteers. This was their second training session, and evidently the first had thousands of volunteers! That is truly amazing. And far more important than our national image is our own local identity and self-image. Houstonians see each other helping out in extraordinary ways, and it makes us proud of our community. I think Houston already had a pretty tight, unified community, but this event will reinforce it to a whole new level.

One specific reader has a question regarding my earlier post on Kotkin's recommendations for New Orleans:

"Given the potential for destruction next time (you can only build the levees so high), hard to imagine any business moving in there that doesn't have to be--i.e., tourism, oil and shipping. Your thoughts?..."

He raises a good point. It's easy to say "diversify your industries", but much harder to do in practice. San Antonio might be one model, which is moving from tourism and military towards health care and manufacturing (the Toyota truck plant is a big win). Savannah is another example: an old southern city that is rapidly growing via its port (recent WSJ profile) and by luring all the major distribution centers that can go with it (the WSJ article mentions that Houston is copying Savannah's strategy, with the new Baytown Wal-Mart distribution center an example of a big win). I don't know much about Charleston, but it may also hold lessons for New Orleans.

I don't think the risk of destruction is much of an impediment: plenty of companies brave earthquakes in CA, hurricanes in Florida, and terrorism in New York and DC. New Orleans has a lot of great character (and was even threatening to become a major movie-making center). If it can hold onto its unique character while minimizing or eliminating the big negatives (poverty, corruption, crime), it could really go somewhere. There are a lot of abuses of Richard Florida's creative class stuff, but New Orleans actually has the potential to make some of it work: build up a few universities, make some movies, embrace some of their natural beauty - maybe end up with an "African American Austin"? The potential is there, but it'll take a long, focused recovery and renewal effort to get there.


At 12:13 PM, September 06, 2005, Anonymous Anonymous said...

I wonder how much the scenes of looting will hurt NOLA's efforts at rebuilding?

I've heard that Detroit and Newark have not recovered from the 1967 riots...although LA survived the Watts riots and the 1992 Rodney King riots. Perhaps LA survived because and DET and EWR did not because those cities were already in decline?

I suspect that much of NOLA's commerce will shift to Houston, although being able to barge down the MS river is a big selling point for NOLA.

Some refining and petrochemical infrastructure cannot be moved, though how much will be rebuilt in NOLA (the toxic soup bowl) is debatable.

I also have been volunteering... last night, my church literally had took many cooks in the kitchen though we didn't spoil the Red Beans and Rice.

Keep up the good work. If we can demonstrate competant State and Local government, I think we'll pick up a lot of new residents across the economic continuum. Kudos to Dr. Ed Young, Mayor White, and the hundreds of municipal employees, cops and volunteers making this happen.

At 10:18 AM, September 07, 2005, Anonymous Anonymous said...

One consequence of Katrina that's now being felt in Houston is an increase in construction costs. I'm hearing that lumber prices are already up 15%, sheetrock supplies will be exhausted in two weeks time, and that anyone who is planning construction over the next year or two had better re-run the cost estimates to include a sharp increase in both material prices and labor costs.

I'm wondering if we might see a temporary escalation in the cost of new housing in Houston, when you combine the above factors with the influx of evacuees who have the means to purchase a home who decide to move here permanently.

At 11:06 AM, September 07, 2005, Blogger Tory Gattis said...

I think any housing cost rise will be very temporary. New construction supplies will rush in from all over the US and the world, and clearly there is plenty of labor looking for construction jobs.

At 1:30 PM, September 07, 2005, Anonymous Anonymous said...

Well, I hope that's the case. But what we're (at my place of employment) being told to brace for is that the rush of building supplies and labor over the next year or two will be to Louisiana, Mississippi, and Alabama, and that we (in Houston) need to adjust our construction estimates upwards to account for a shortage of those items locally.


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