Houston staggers from Harvey's gut punch but will fight on
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Hurricane Harvey has delivered a body blow to Houston, but the damage will ultimately pale in comparison to the near-knockout blow that Hurricane Katrina dealt to New Orleans.

Although separated by less than 400 miles, Houston and New Orleans are worlds apart. New Orleans was struggling with stagnant population growth and a longstanding economic decline even before Katrina, while the storm unleashed a diaspora from which the area still has not fully recovered.

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Houston is a very different place economically, setting it up for a very different outcome. Its bustling job market and business-friendly environment have made the area a magnet for individuals and businesses. In fact, Harris County has added far more residents over the past decade than any other county in the nation.

 

Even the recent collapse in oil prices could not derail Houston’s diverse and strong economy, an outcome that would have been unthinkable a generation ago.

Now, though, Hurricane Harvey has Houston reeling. The damage and lost output associated with the storm likely will make it the second-costliest natural disaster in recent U.S. history. The situation is worsened by a lack of flood insurance in Southeast Texas. With fewer than one-in-six Harris County homeowners covered, residential reconstruction will be hampered.

The resulting economic implications are profound. Many residents will lose their homes, and without funds to rebuild, some will be forced to relocate out of the area. The housing market may hear faint echoes of the Great Recession, when homeowners simply walked away from mortgages that were (figuratively) underwater.

But even if population growth slows, the Houston area can withstand it. In fact, overbuilding is one reason why Harvey’s damage has been so severe. Flood mitigation has taken a back seat as more homes, shopping centers and roads pop up to accommodate ever-more residents.

Although reversing the area’s overdevelopment may be impossible, a slower pace of population gain could prevent more of the area’s natural defenses from being compromised, representing a modest silver lining.

More broadly, economic aid and income assistance, which were extremely slow to arrive in Katrina’s aftermath, are essential to preserving vitality in Southeast Texas. Communities need to be made whole as quickly as possible to prevent an exodus of individuals and families, and infrastructure repairs must be prioritized to avoid longer-term economic disruption.

Fortunately, the beating endured by government officials in the aftermath of Katrina will motivate federal and state officials to get this right.

Longer term, public sector investment in flood prevention is essential. The president’s fiscal 2018 budget proposal eliminated funding for the National Flood Hazard Mapping program, leaving places like Houston exposed.

Continued neglect as catastrophic floods turn into annual events would push more firms and residents to seek dryer pastures, jeopardizing Southeast Texas.

In the immediate aftermath, finite public funds must target Houston’s areas of specialization. Export-oriented industries, which sell goods or services to the rest of the nation and world, generate income and profits that lay the foundation for the regional economy.

Employers that create many jobs, pay high wages, generate spillover into other local industries and are active community leaders should be prioritized for assistance

By comparison, finding such firms in hollowed-out New Orleans was a major challenge. Tourism was arguably the area’s most important magnet for outside dollars, but it faced near-insurmountable obstacles.

First, the scale of damage and perceived danger in Katrina’s aftermath made it difficult to convince visitors to spend their vacation dollars in the Crescent City. Additionally, hospitality jobs are among the lowest-paying of any industry.

With consumer spending suppressed by the flight of residents to other areas, any efforts to attract visitors were more than offset by demographic impediments, a recipe for continued struggles.

Houston is in a far better position. As the energy capital of the U.S. and perhaps the world, it boasts a ready-made export industry that easily fulfills the criteria above. Regional anchors, like ExxonMobil and Chevron, will return to generating vast amounts of income locally as oil rigs come back online.

In fact, given Houston’s strategic advantages and existing assets, such firms have little choice but to reinvest in the metro area. As a matter of self-preservation, these firms may even spearhead flood prevention efforts.

While energy is the lifeblood of Houston’s economy, related industries like logistics and plastics manufacturing have risen in prominence and should be up and running in short order as well. However, they likely will be slowed somewhat by damage to transportation infrastructure and factories in the area. Plus, as home to the world’s largest medical complex, health care will remain an important piece of the economic puzzle.

Construction also promises to be an-ever growing part of Houston’s story as the recovery unfolds. Builders already comprise a far larger share of jobs in Houston than they do in any other large metro area. Combine a major rebuilding effort with planned residential and commercial projects, and demand for builders will be massive.

But the construction worker shortages facing much of the country could prove especially burdensome for greater Houston, particularly if federal policy meaningfully reduces immigration.

Put all of these factors together, and Houston simply has too much working in its favor to do anything other than get off the mat. In the aftermath of Katrina, New Orleans was forever changed. Although Houston will bear Harvey’s scars for many years, it is poised to resurface stronger than ever.

Adam Kamins is a senior economist at Moody’s Analytics. He manages the firm’s U.S. subnational forecasting process and covers a variety of topics related to regional economics, including the economic impact of natural disasters.


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