Two years in the wake of Hurricane Katrina, New Orleans finds itself in a "chicken and egg" situation of sorts: Positive job growth and a lack of available housing present production home builders with a unique opportunity to prosper during the downturn, yet a persistent three-year population decline looms ominously over the prospect of a balanced supply-and-demand equation.
Thanks to a combination of government grants and private sector investment, New Orleans is one of the few markets whose new-housing supply is expected to increase in the near term. However, the currently depleted housing stock is deterring repopulation, according to Hanley Wood Market Intelligence (HWMI). And to add insult to injury, prohibitive insurance costs and a seemingly endless barrage of political red tape have stunted the residential rebuilding effort.
In an effort that could potentially exceed Brad Pitt's investment in the Lower 9th Ward, Barnes & Noble founder and chairman Leonard Riggio announced on Feb. 26 the commitment of $20 million to build low-income housing through his family foundation's newly created nonprofit development arm, Project Home Again. The pilot project: the construction of 20 single-family homes in Planning District 6, a Gentilly neighborhood in Orleans Parish.
"By redeveloping a single neighborhood that is only roughly 21 percent reoccupied, we hope this pilot serves as a model for recovery and other redevelopment in New Orleans," Riggio said at the time of the announcement. "We chose Gentilly because it is a great neighborhood where people of different ethnic, economic, and cultural backgrounds choose to live together."
Eligible applicants for Project Home Again must have lived in Gentilly for a minimum of two years prior to Hurricane Katrina, own a home or former home site that was rendered uninhabitable by the storm, and have a family of between two and eight members.
In exchange for surrendering their flooded property to the foundation for redevelopment to benefit other displaced residents, participating families will be given a five-year forgivable mortgage–with no monthly payments. Additionally, Project Home Again will absorb any capital gains taxes that may result from the property swap. At the end of the five-year period, the family would own the home outright. Should the homeowner wish to sell the home prior to the end of the mortgage term, the homeowner would be responsible for paying off the balance.
Eye on Employment
Energy-related activity historically makes up a fairly significant chunk of the New Orleans economy, accounting for roughly 10 percent. However, increases in rig construction costs combined with less expensive workforce opportunities elsewhere are luring local oil companies to more cost-effective locations, such as Texas, contributing to an outflow of jobs from the area. Since late 2006, Louisiana's active rotary rigs have seen a decline of approximately 25 percent, with an estimated two-thirds confined to 2H2007. Given this trend, HWMI expects a further decline in local energy-related jobs in the near term.
On the bright side, the construction sector posted a 2.7 percent increase for the 12-month period ended Dec. 31–an addition of 1,100 new jobs to the market–while the service sector grew by 4.9 percent, with an increase of 10,000 jobs. Although total employment remains 17 percent below pre-Katrina levels, an increased presence on the home building front could turn things around for the region. HWMI points to the sluggish rebuilding of the metropolitan area's residential infrastructure, which has in turn impeded repopulation.
Turning the Tide
The name of the game for growth opportunities appears to be "multifamily" in the New Orleans market. While 2007 saw a year-over-year decrease of 22 percent in single-family permits–a total of 4,000 pulled for the year–multifamily permits increased by 393 percent to 3,028 for the same period. Despite the apparent stabilization of single-family construction in 2007, HWMI anticipates a new wave of housing supply to hit the market in the near future, as Road Home funds continue to be disbursed.
In addition to providing eligible homeowners with compensation up to $150,000 as well as incentive grants and loans to small-scale rental property owners, the Road Home program offers design and construction resources and training to building professionals. For more information, visit www.road2la.org.
Learn more about markets featured in this article: New Orleans, LA.