Katrina Has Major Multifamily Impact

Katrina directly affected New Orleans; Biloxi, MS; and Mobile, AL. As we have seen, New Orleans experienced the most conspicuous damage, with most of its population displaced.

Recent census bureau estimates pegged the Crescent City population before the hurricane at about 460,000 people, living in approximately 180,000 housing units. Slightly more than half of New Orleans households rented their homes. According to Census 2000 figures, there were about 33,000 units of occupied multifamily rental apartments; about a sixth of the occupied housing stock.

After the hurricane, many evacuees fled or were evacuated to metropolitan areas fairly near New Orleans, such as Baton Rouge, Houston, Dallas/Fort Worth, San Antonio, Austin and Atlanta. Rental vacancy rates in these areas prior to the storm were generally well above the national average of 10.2%. In Houston, for example, the rate for all apartments was estimated in 2004 to be 15.6% and in Dallas/Fort Worth, 12.8%. We estimate that in these metro areas alone there were about 350,000 vacant units potentially available for evacuees to rent; of these, an estimated 150,000 were in multifamily buildings.

Looking at state-level data for the six states closest to New Orleans, vacant units for rent numbered 860,000, of which an estimated 360,000 are in multifamily properties (See chart). These figures suggest that the multifamily market in neighboring southern states alone could absorb all the households displaced by the storm.

Of course, Katrina survivors have moved throughout the country, with evacuees reported in all 50 states. Although specific figures on where evacuees have relocated are not yet available, many evacuees will likely move into apartments. This should lower vacancy rates and eventually put upward pressure on rents.

But several factors may delay rent increases. First of all, there has been a delay in moving evacuees out of hotels and motels--which FEMA originally intended to be only the most temporary of housing--into apartments. Second, apartment owners may not want to raise rents right away because evacuees have limited resources. They also do not want to be accused of price gouging.

Hurricane Katrina affected not only housing demand but also housing supply. According to a recent report by the American Institute of Architects, upwards of 300,000 homes were destroyed in Hurricane Katrina. It is hard to calculate exactly how many of these homes were in multifamily properties. Whatever the losses, with the relatively high vacancy rates in the surrounding areas, the loss to the housing stock should not hinder evacuees in the short term from finding housing. In the long term, decision makers will have to decide the mix of housing they wish to build to replace the lost housing stock. In New Orleans, planners may opt to encourage residential building primarily in the areas above sea level to reduce risk to flooding. If this occurs, multifamily building would become more common, and necessary, in order to retain the same level of housing stock. On the other hand, multifamily developers may be understandably reluctant to build large structures on sinking ground.

Hurricane Katrina had an impact on people across the nation. Those in the multifamily industry are no exception. Apartment owners in nearby cities, from Atlanta to San Antonio, strived to make units available to evacuees by offering assistance such as waived security deposits, flexible leases and in some cases even free rent. Lobbying groups, we included, have pressed the federal government to temporarily waive requirements to facilitate the placement of evacuees into housing. As the various parties refine their strategies, multifamily owners may see only a slight increase in occupancy. Over the longer term, occupancy rates in the region may be higher for the foreseeable future.

The multifamily construction industry also has a stake in the rebuilding of New Orleans and other damaged areas. Economics 101 kicks in here, and most analysts predict that the price of building materials will rise as the quantity demanded increases, as will the cost of energy. In the short term, with already high vacancy rates in the area, multifamily building indicators such as permits, starts and completions may continue the patterns they had followed prior to Katrina. In the long term, construction is expected to surge once stakeholders in New Orleans and other damaged areas decide how they wish to reconstruct those areas. In this regard, the insurance industry as well as zoning laws may play a pivotal role.

A review of the various housing stakeholders in Hurricane Katrina—construction, real estate, insurance, government, and, of course, evacuees—indicates the short-term response will not be as prominent as the long-term one. Thus, it will continue to be important to monitor how evacuees move on with their lives, and what role multifamily housing will play in their lives.

Richard Levy is the Research Analyst for the Washington, DC-based National Multi Housing Council. Views expressed here are the author's solely.