Harvey creates an economic mess as Texas toll still being tallied

August 2017 | San Antonio Express News

 

The rain has not relented, and the ultimate, enormous damage from Hurricane Harvey — and its impact on to the Texas economy — won’t be known for months after the water drains away.

 

The storm came ashore near Rockport on Friday night as a Category 4 hurricane before wreaking havoc across hundreds of miles of the Texas Gulf Coast. It continues to dump rain across Houston, and Gov. Greg Abbott called out the entire Texas National Guard on Monday to help with rescue efforts there as much of the metropolitan area turned into a lake.

 

The human and economic toll is still unfolding.

 

What’s clear is that the economic impact is large — spiraling out across Texas and the U.S., as the nation’s fourth-largest city remains at an economic standstill and much of the nation’s refining capacity goes offline. The impacts are small and personal, too, as people tally up their losses from flooded and wrecked homes, cars and other property.

 

At Texas A&M University’s Real Estate Center, economist Jim Gaines is already getting calls and emails from people who want to know how the flooding affects their home’s value.

 

“I don’t know what to tell them,” Gaines said.

 

Neither does he know yet how to estimate the overall damage to property or the effects on the state’s $1.6 trillion economy — the second-largest in the U.S. after California.

 

“I have no earthly idea,” Gaines said. “It’s going to be significant in terms of dollars and in terms of the impact on people. It’s in the billions. The question is, is it hundreds of billions?”

 

It will likely affect the South Texas economy for months. Mark Zandi, chief economist at Moody’s Analytics, predicted that the region’s economic output will be cut by about 1 percent, or $7 billion to $8 billion. It will recover, he said,
helped by money from insurance payments and government aid to rebuild.

 

Business activity is halted in Houston for at least several more days, and much of Harris County’s housing stock is flooded. Everything from business deals to home sales has been halted and will be suspended while people go into
damage-assessment and repair mode, Gaines said. From Port Aransas to Houston, communities will face a serious housing shortage as many homes and apartments will be uninhabitable until rebuilt or repaired.
“I have no idea if I’m talking tens of thousands or what that are no longer marketable,” Gaines said.

 

“The immediate thing is that all the real estate transactions in the pipeline or nearly in the pipeline are off the table,” Gaines said. “You can’t get a property inspector out to look at it because they’re going to be swamped. You can’t get an insurance adjustor out. They’re going to be swamped. It will take weeks, maybe a month or two, to get any semblance of organized response. It’s going to be people doing the best they can, but they’re going to be overwhelmed.”

 

Although business losses are centered on the coast and the Houston area, “the rest of Texas isn’t off the hook, specifically San Antonio,” warned Victor Lai, owner of a San Antonio business brokerage, Murphy Business.

 

Small companies have trouble recovering from repair costs and lost revenue while closed for repairs, and clients may move to other companies before a damaged firm can reopen, Lai said.

 

“Nearly 40 percent of small businesses don’t survive natural disasters of this magnitude,” he said.

 

“San Antonio’s economy is closely tied to Houston’s, and while Houston’s business climate was riding an upswing ahead of the storm, that may now be put on hold as funds are shifted toward cleanup, slowing down business buying and selling,” Lai added. “However, opportunities do present themselves for wellfunded businesses to buy up struggling ones to increase their market share, or to open up shops in areas where they had no presence previously.”

 

The economic impact of Hurricane Harvey won’t be enough of a shock to cause a regional recession, said Keith Phillips, Federal Reserve Bank of Dallas senior economist in the San Antonio branch office.

 

“There will be a lot of personal impact on people’s lives. There will be a lot of rebuilding activity. Houston is an important part of the state, but it’s a big state,” Phillips said Monday as he and other Dallas Fed economists worked to prepare a report on Harvey for the media and to brief Dallas Fed CEO and President Robert Kaplan.

 

“With all the houses that have been wiped out, if they are rebuilt, it will look like there’s a bounce back, but that doesn’t account for the loss of capital,” Phillips said.

 

“There will be a slowdown. People can’t go to work, so that output will be lost,” Phillips said. “People who don’t have insurance will have to rely on savings, or federal or state help. We don’t know what that’s going to be like. There’s a lot of uncertainty right now. We are looking at the broader (gross domestic product) in Houston, the maximum output per day. Some losses will be temporary. Some will be permanent. If people are not shopping, they may make up for it later to replace lost things.”

 

According to the National Flood Insurance Program, only 15 percent of Harris County houses have flood insurance. In Nueces County, which includes Corpus Christi, 20 percent of the houses have flood insurance.

 

For the first month, retail jobs likely will go down in Texas, especially in the storm-damaged areas, and construction jobs will rise. “Construction will dominate,” Phillips said.

 

The energy industry, which is centered in Houston, will also have to go into recovery mode, Gaines said.

 

Roughly 2.2 million barrels per day of Texas refining capacity remained down, according to S&P Global Platts. The ports in Houston and Corpus Christi were closed.

 

“The question is, how fast does it come back and does it come back completely? It probably will,” Gaines said. “I’m guessing in a matter of months they’ll be back up and running in whatever capacity they want to. They’ve got the money and the know-how. It’s too important. There’s too many dollars involved.”

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