As the floodwaters recede and Hurricane Harvey survivors assess the damage to their homes, the inevitable question arises: What will this do to the housing market in the Houston area?
With a flood of this magnitude, it’s hard to predict, experts say. History tells us that it can take a lot longer for housing stock to recover — but how long? And how will a possible widespread lack of flood insurance affect the market?
Todd Tomalak is a building products spending forecaster and expert with John Burns Real Estate Consulting. While he and his teammates are just beginning to assess and compare historical data to current data, he did have a few insights.
“Major storms have a very long effect on the housing stock – following Hurricane Katrina, it took eight years for the number of total housing units to recover back to pre-storm levels,” he said.
Secondly, the potential effects of such low numbers of households with flood insurance is also a question mark. “The numbers we have seen so far indicate that far fewer households had flood insurance compared to Katrina – this could mean an even slower ‘rebound’ in some categories because there are fewer insurance dollars to fund immediate repairs,” Tomalak said.
Harris County has 25,000 fewer flood-insured properties than it did in 2012 — a 9 percent drop in coverage, according to a recent Associated Press review of Federal Emergency Management Agency data.
The same report revealed that the decrease in insured homes was higher in suburbs and exurbs of Houston. In Pasadena, the drop was 20 percent; in Baytown, 22 percent.
In Beaumont and Port Arthur, which were also heavily impacted by flooding this week, the drop was 23 percent.
But what about home values? How will that change? After all, Texas homeowners are required to disclose flood damage when selling a house — how will that affect home values?
Most research of historical data agrees — there is generally anywhere from a 10 percent to 30 percent drop in values after a significant flooding event.
A May 2016 report entitled, “Impact of Flooding on Residential Property Values: A Review and Analysis of Previous Studies,” revealed that flood-prone areas are attractive for development for several reasons, including readily available water, power production, ambiance, and transportation — such as ports. “In short, people populate flood-prone areas for human convenience,” the report said.
Several studies of home values in other areas impacted by floods showed that flooding can reduce residential property values, the report’s authors said. Cited examples included a 30 percent decrease after a flood in Wilkes-Barre, Penn.
But in other floods, there was little impact on residential property values, the study said, adding that the 1979 floods that came with Tropical Storm Claudette in the Houston area had no direct impact on home values.
“It might intuitively be expected that the occurrence of a natural event such as a flood would devalue affected properties, and that any measures taken to protect areas from the event would have a positive impact on property values,” the study’s authors said, adding that research supports that expectation over the short term, but as time passes, the impact may be indiscernible.
The length of the decline, it was found, often also depends on how often the flooding happens, and how badly. “In several case studies, after an initial decline, selling prices for houses returned to and sometimes exceeded pre-flood levels in communities experiencing rare flooding,” the report said, adding that the length of the recovery periods varied.
“The initial drop in value and the length of the recovery periods were greatest for those properties flooded to greater depths.”
Some models used to calculate home values post flooding have found that homes on a 100-year flood plain were shown to have a significant negative influence on housing values — with houses in the flood plain being worth about $9,000 less than similar houses outside it. A significant portion of that price reduction is because of flood insurance requirements for homes in the 100-year flood plain, with the remaining 20 percent of the price reduction blamed on fears associated with flooding risks.
Other studies put reductions somewhere between 3 percent and 19 percent. And another Wayne State University study revealed that how quickly home prices rebound after a flood may also depend on the confidence residents have in local, state, and federal governments to respond to or prevent a subsequent flood threat, as well as their confidence in the ability of scientists to forecast the likelihood of another flood.
Another question mark for what post-Harvey home prices and housing stock could look like is an already critical skilled workforce shortage in construction trades. As of June, the Dallas-Fort Worth area alone needed 10,000 to 20,000 more skilled workers than it currently had. Estimates this winter had the shortage adding about two months of delay and $4,000 to the price tag of every newly constructed home.
In the U.S., around 225,000 construction jobs remained unfilled in June.
“Our senior vice president in Dallas told me Monday that the Dallas builders are already bemoaning the fact that they know they are going to lose a lot of workers to the Houston cleanup,” real estate consultant John Burns said.
Dallas Builders Association Executive Director Phil Crone agreed, saying that while the first concern is that everyone impacted comes through the storm “safe and sound so they have the ability to focus on rebuilding their lives,” finding the workers to address the state’s newest and most critical construction needs will be difficult.
“Without a doubt, the ongoing lack of labor is going to exacerbate the recovery efforts on the Texas coast and other areas affected by Harvey,” Crone said. “Many crews in the Dallas area have all of the work they can handle up here so the real world impact on our area’s labor situation remains to be seen.”