Markets & Finance

A Soundtrack of Hammers -- and Questions


The need for housing throughout the Gulf region in the wake of Katrina is still stark. Although an estimated 189,000 people (out of a pre-hurricane population of 462,000) have returned to New Orleans, many are living in less-than-ideal situations.

The same is true for the hardest hit areas along the Mississippi Gulf Coast, where some residents consider themselves lucky to be living in government-provided trailers. The need for housing is all the more dire now that the Federal Emergency Management Agency has stopped paying for temporary housing for most displaced persons.

HELP FOR HOMEOWNERS. We believe that some variation of a rebuilding strategy under discussion in the area will represent a strong start for redevelopment. State and local officials in Louisiana have put forth plans that would wholly or partially buy out many homeowners whose property was destroyed.

Such plans could pay homeowners as much as $150,000 (less insurance reimbursements). That would place cash in the hands of those homeowners, help them to eliminate their mortgage payments, and perhaps clear land in New Orleans for new construction.

"It's a good start and seems to be realistic," said Mr. Fraser. Such a massive buyout, which could total billions of dollars, would originate in Washington and be funneled through Louisiana. The specifics of the plan would need approval by the Housing & Urban Development Dept. (HUD). The fact that Mississippi officials are considering a similar plan adds credence to the possibility of these buyouts.

FINDING DEVELOPERS. The razing of homes has begun in New Orleans, but only a handful have been destroyed so far. We see little appetite for widespread removal of homes in the city, in part because of political objections and in part because many residents are still hoping to return, no matter the condition of their property.

While the city unveiled its strategy for rebuilding earlier this year -- complete with plans for a new mass transit system -- we suspect that many of these issues might not be fully clarified until after the mayoral elections.

The Gulf Opportunity Zone Act of 2005 might also attract developers to the region. It will provide tax incentives for the construction of affordable housing. But the success of affordable housing, which tends to cater to low-income families and the elderly, depends strongly on the soundness of the local infrastructure. Without that, owners and developers will find it hard to attract tenants.

Few public schools, for instance, are open in New Orleans, and the public school population in all of Orleans Parish has plummeted by 86% since Katrina, to only about 9,300 students. Hospital facilities are similarly sparse, with only about 4,000 beds, or half the number before the storms. In fact, HUD has already expressed its concern with this dearth of community resources.

LEVEE WORRIES. Of course, the future survival of buildings in New Orleans will depend on the structures that keep the low-lying city from being inundated. By all accounts, the Army Corps of Engineers is working quickly to repair the damaged levees around New Orleans, and we believe reconstruction is likely to be finished before the hurricane season begins on June 1.

But already some experts have complained that the Army Corps is hurrying the $1.6 billion job and using substandard materials that could fail in the event of another Category 3 hurricane. The Bush Administration has requested an additional $3.1 billion for further levee strengthening. Yet according to a recent Washington Post article, federal engineers on the project have said that systematic testing for weak soil beneath the levees -- believed by some to have contributed to their failure -- will not be completed until 2007.

And that leaves the central question: Will the levees be strong enough to both protect the city and inspire developers and homeowners to begin major rebuilding in New Orleans? With the 2006 hurricane season a few months away, the city -- and the nation -- anxiously await the answer.


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