Tyler Cowen gives his opinion on rebuilding New Orleans in Slate this week. I think he's missed some points, and made a few.
He argues that New Orleans needs to be rebuilt on the cheap - as shantytowns. I think this is reasonable, but he doesn't mention that for the most part the destroyed areas of New Orleans were already shantytowns when compared to other parts of the country. Prior to Katrina, damaged and abandoned buildings from Hurricane Betsy in 1965 still dotted the city. I used to live in Lakeview - one of the hardest hit areas. I can still remember the college girl riding in a pickup truck down our street on the way to Endymion, noting that it was so strange that every other house was a shack. Yet we lived on a desirable street and sold our tiny home (which she did not classify as a shack) for about $200K in 2000.
He argues that the process is currently biased towards writing new and impractical rules for rebuilding. Yet New Orleans has a long history of focusing on rules instead of action. And the enforcement of rules is haphazard at best. Yes there are better ways of doing things - and I like Tyler's suggestions - but doing things in this "wrong" way is part of the problem with New Orleans.
The biggest problem with his analysis (and that of others) is cluelessness about what was lost in Katrina. In pre-Katrina New Orleans, the value of a home is in the lot, not in the structure - I approximated that our house was at most 1/3 of the value of the bundled good we sold when we moved out of town. But, the value of the land was dictated by its scarcity, and also its proximity to the human capital that was New Orleans. With the human capital absent, the value of the land is not sustainable. And there's the rub: the decline in the value of lots was not an insured risk.
So there is an enormous, and unrecognized, coordination problem here that is going unsolved: the people needs houses to live in, the houses cannot be built without recouping losses on real estate, but real estate values will stay down until the people come back.
Get the picture America: New Orleans is like the dolled-up house from a reality TV show. It's worth a whole lot while the show is going on, but it depreciates rapidly when the residents pack up and move out. And by the time the show is on TV the house can never be what it was.
Comments