The New New Orleans


By Peter Coy The devastation is vast and appalling. As the floodwaters of Hurricane Katrina are slowly pumped away, what's left behind in many places is a wasteland of polluted, rat-infested wreckage.

Now comes the rebuilding -- of not only New Orleans but the entire stricken Gulf region. It will be one of the biggest redevelopment projects in American history. Lawmakers are estimating that federal spending could total $150 billion to $200 billion over several years.

PAINFULLY CLEAR. Risk Management Solutions of Newark, Calif., estimates that insurance companies may pay out from $40 to $60 billion in claims, the most ever. Businesses and homeowners will spend many billions more in uncompensated reconstruction expenses. Economists predict that rebuilding could add one- or two-tenths of a percentage point to the national growth rate all through 2006 and beyond. Already, some companies are poised to be winners.

A project of such unprecedented magnitude demands fresh thinking. That's the purpose of this BusinessWeek Online special report -- to bring to light the best ideas for reconstructing New Orleans and other damaged towns, cities, and industrial facilities in a way that is technologically advanced, cost-effective, equitable to all, in tune with the realities of the market, and in harmony with the coastal environment.

New Orleans, of course, is the most complicated problem. In all likelihood it will never be restored to a copy of its pre-Katrina self. And that's a good thing: Much of the city's housing stock, especially in the impoverished Ninth Ward, was severely substandard. As is painfully clear now, most of the city was so low-lying that it was bound to be flooded eventually. Rebuilding New Orleans exactly the way it was would be a waste of money -- as well as cruel to the exposed populace.

ADVERSITY'S WINDFALL? What will the new New Orleans look like? The French Quarter, the Garden District, and other tourist attractions are on high ground and were largely spared from flooding, so they will be little changed. And in the aftermath of the hurricane, tourism is likely to be even more important to New Orleans' future, predicts Pres Kabacoff, president and CEO of HRI Properties, a New Orleans developer.

The central business district was also spared and will remain. The city's biggest owner of top-quality office buildings, Hertz Investment Group, which the New Orleans Times-Picayune noted last month has bought $155 million worth of commercial real estate there in the past three years, is vowing to stay and rebuild. Owners of first-rate buildings might actually come out ahead because damaged, lower-quality office space may be torn down, creating a tighter market, says Bruce Rutherford, head of the Houston-based Katrina response team for Jones Lang LaSalle, a major owner and manager of commercial real estate (see BW Online, 9/8/05, "Benefiting from the Rebuilding").

Also to be preserved, certainly, are the port facilities, which are critical to shipping on the Mississippi. Restoring them to full operation is a top priority for farmers as well as importers and exporters throughout the nation's heartland.

CRESCENT CITY. These areas of the city, all on high ground, could be protected with levees capable of withstanding a Category 5 hurricane -- and pumps that, for a change, are positioned above the high-water mark so they don't conk out when the waters rise.

What's far more questionable is the fate of the 80% of New Orleans that was flooded. Buildings there are caked in toxic mud, which will be difficult to remove. Many are also developing mold, which is even harder to get rid of. A large share of the residential housing stock was of poor quality to begin with, so it would be inefficient to spend much money restoring it. The bottom line: A large part of New Orleans will be bulldozed.

Many urban planners say it doesn't make sense to rebuild anew on the same ground, given the massive contamination problems and the dangers of more flooding. They say New Orleans should go back to being what it was in the 19th century, a "crescent city," occupying only the high ground along the sinuous Mississippi. They argue that the money spent to rebuild destroyed sections of the city would be more effectively spent on generous compensation to property owners, on relocation assistance, and on job training.

MASSIVE SUBSIDIES? "New Orleans has too many people in relation to the size of its economy," says Harvard University economist Edward Glaeser. "The intent should be to help poor people, not poor places."

But such a full-scale retreat would be politically difficult. Even now, some holdouts are refusing to vacate their homes temporarily, even with West Nile virus spreading and a breakout of cholera threatening. So New Orleans may be largely rebuilt after all, using a massive infusion of outside money. If so, community leaders and developers are saying that the city should use the opportunity to upgrade the housing stock. That will take state-of-the-art building materials and techniques.

Many of the poor families who once lived in dilapidated houses in the now-flooded areas wouldn't be able to afford new, built-to-code housing that would sell at market rates. So the federal government -- and to a lesser extent state and local governments -- would have to subsidize the new units.

ANXIETY IN THE PIPELINE. Kabacoff, of New Orleans' HRI, which helped develop the city's hip Warehouse District as well as projects in Fort Worth, Houston, and Omaha, is already calling for public-private redevelopment partnerships, focusing on integrating a city that has been sharply divided between poor blacks and wealthier whites. He cites one project that used federal and state subsidies to convert a low-income housing project into a development that mixed middle-class and poor families.

The rebuilding will be swifter and easier outside New Orleans, in places like Gulfport and Biloxi, Miss., which have the good fortune to be built above sea level. Phone service and power have been restored in all but the most stricken areas.

The profit motive has oil companies working furiously to bring back production from offshore oil platforms and oil refineries in the region, which are still operating at only 40% to 50% of pre-Katrina output. The biggest unanswered question is the condition of the pipelines that carry oil from the offshore wells to land. Fierce underwater storm surges from Hurricane Ivan damaged them last year, and engineers fear that Katrina may have done worse.

NATURE'S VANISHING BUFFERS. Hurricane Katrina was not purely a natural disaster. Its harm was magnified enormously by popular but doomed attempts to defy natural forces. Channeling the Mississippi River between high levees prevents the seasonal flooding that used to restore the riverbanks once a year with loads of silt. Now the river runs more swiftly on its course, dumping its silt instead into the deep Gulf waters off the continental shelf.

Gradually, inevitably, the land alongside the river is subsiding. New Orleans sinks about three inches a decade. Farther south, the mangrove swamps of the Mississippi Delta are sinking beneath the waves, exposing New Orleans to the full brunt of hurricanes.

It's easy to feel defeatist about the fate of New Orleans in the wake of Katrina. Engineers fear that some day the Mississippi will break through its levees hundreds of miles upstream and find a shortcut to the Gulf along the Atchafalaya River, as described by John McPhee in a majestic book, The Control of Nature. That would leave both New Orleans and Baton Rouge dry but destitute, cut off from their source of sustenance. Economically, it would be an even greater disaster than Katrina.

CHICAGO PRECEDENT. Faced with such threats, some people advocate admitting defeat and letting nature take over. It's wrong, they say, to defy nature. But people have been defying nature ever since they climbed into a cave to get out of the rain. While New Orleans isn't the ideal place for a city, it can be preserved -- or at least some crucial part of it. The Dutch have shown that massive fortifications really can hold back high water.

The question isn't whether New Orleans can be made to survive -- technologically, it can -- but whether the gumbo city has the gumption to make it. In Chicago, the Great Fire of 1871 led to a much-needed redevelopment that helped vault the city permanently ahead of St. Louis. In the best of all worlds, New Orleans will use this disaster to find itself a new reason for being, and rebuild itself as a sustainable, thriving city of the 21st century.

Coy is Economics editor for BusinessWeek in New York.


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