What Happens to Local Economies After Massive Hurricanes Hit?

With Harvey and now Irma, this question has become even more relevant.

After Katrina and Sandy, New Orleans and New England sustained heavy damage and spent billions of dollars and several years rebuilding (and still is to some extent).

Now, Texas is dealing with the aftermath of Harvey while the east coast faces possible landfall hurricane Irma. It seems the devastation brought from major hurricanes isn't a rare phenomenon anymore. The impact of these storms goes well beyond the immediate damage and aftermath. The economic effects are wide-ranging and can reverberate in an affected area for years and years afterward.

The first wave of cost and economic impact begins with the immediate aftermath of landfall. Depending on the degree and length of the storm, the damage can range from minimal to devastating. Flood waters can cause a lot of damage, especially if they sit in the area for several days at a time. In certain parts of New Orleans, you still can see the line where the water level sat in the aftermath of Katrina.

In response to the devastation, government on all levels work to raise money to cover the cost of rebuilding. After Katrina, Louisiana received around $142 billion in federal funds to help rebuild. After Sandy, New York and New Jersey received $56 billion for recovery efforts. In response to Harvey, President Trump has proposed a $9.7 billion allocation to Texas. Before Katrina, federal aid made up only about 17 percent of hurricane damage. Additionally, the money spent by the federal government has national effects.

To have a vibrant and growing economy, you need a lot of people with some disposable income. These people must be willing to spend their money at local businesses with some regularity. This is the backbone of an economy. If no one is buying anything, things tend to slow down and degrade over time.

While rebuilding cities and public areas definitely takes time and money, private property also suffers damage. This includes homes, apartments and businesses. Often, the allocated funds don't cover these damages. If you own a house in an affected area and have insurance, you could still be waiting for months to get your check. Without insurance, the owner is eating the entire cost. Only about 20 percent of those affected by Harvey actually had flood insurance. In New Orleans, about half of households had purchased flood insurance before the storm. Without insurance coverage, these are massive expenses that could tie down income for a long, long time. That has a significant effect on the local economy. If a lot of people have much less disposable income, the economy could slow growth or even degrade.

Another economic factor is relocation. After Katrina, many lower income households relocated to other parts of the state or even to Houston, Texas. Without a home to return to, it made more sense for many people to restart somewhere new. Obviously, relocation will decrease the population in an affected area. This in turn has an economic effect. Often, cities need to grow their population to also grow their economy. With less people to spend money in a city, the local economy could suffer all the more.

The effects of the storm don't end on the city level. Especially if that city is a major metropolitan area of that state — like Houston is for Texas — the statewide economy can be similarly affected. Tourists will be less likely to visit. Businesses will set up shop somewhere else. This situation only gets worse with more damage and destruction. If people are more readily able to return to work shortly after a storm, the economy will likely not suffer quite as much. After Sandy, the New York and New Jersey areas were able to rebound fairly quickly in comparison to New Orleans after Katrina.

In the immediate rebuilding, the economy will likely experience small boost from the act of rebuilding itself. More people will be working in the area than normal. Also, the faster a city can regain some semblance of normalcy and functionality, the easier it can avoid a possible economic downturn. The economic effects of different hurricanes on different regions lead to varying results. However, for the most part, there is a path to recovery — even if it might take several years.

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