Post-Katrina New Orleans proves pricey
Some say new economic realities will reshape the city permanently
Friday, August 25, 2006
By Rebecca Mowbray
Like many repatriated New Orleanians, Lolita Barber has noticed that it's gotten a lot more expensive to live in the New Orleans area than it was before Hurricane Katrina.
While she and her family are fixing their flooded home in eastern New Orleans, they're living in an apartment in Metairie, so they're paying rent while carrying a mortgage note. She's driving her Chevy Blazer twice as much as she used to, at a time when gas is $3 a gallon, and using more mobile phone minutes as she confers with contractors and talks with displaced friends. In addition, the homeowners insurance bill for her house nearly doubled, from $1,071 last year to about $2,000 this year.
"All that stuff, it adds up," said Barber, an operating room medical secretary at the still-shuttered VA Medical Center in New Orleans who has taken a leave of absence from her job to work on their home and a rental property. "I think it's going to affect a lot of people. They were looking at prices before Katrina."
While expenses associated with temporary living situations, such as extra driving or mobile phone use, will fade away as people move home, economists and others studying the recovery say that housing costs and other living expenses will remain elevated for the foreseeable future. That's a big change for New Orleans, which was always one of the least expensive major cities in the country and now has fair market rents on par with Baltimore, Md.; Portsmouth, N.H.; Burlington, Vt.; and Newport, R.I.
"Because so much of the housing stock is going to be replaced, it's likely to become a more expensive city," said Kurt Usowski, associate deputy assistant secretary for economic affairs at the U.S. Department of Housing and Urban Development.
Though much has been made of the signing bonuses at Burger King and high labor rates for contractors, most of those wage gains have been at the lower end of the area's pay scale. Many other New Orleanians who are fortunate enough to still have jobs are unlikely to see raises as their employers struggle to regain their footing. Unless they're earning overtime, they're probably going to feel more squeezed economically as they deal with the new higher cost of living in New Orleans.
"Not everyone's seeing their wages go up, but we're experiencing higher costs of living," said Janet Speyrer, an economist at the University of New Orleans and director of the Division of Business and Economic Research. "The reality is that many people aren't doing well."
"It's an absolute roadblock in terms of the recovery," City Council President Oliver Thomas said.
While New Orleans is not one of the cities that the federal government uses to calculate the consumer price index, other data support Barber's observations about inflation in the New Orleans area.
Storm victims who need to rent an apartment will find themselves paying 39 percent more than last year, according to the U.S. Department of Housing and Urban Development's estimate of fair market rents. Flood victims who decide to purchase another home in the metropolitan area will pay about 26 percent more than they would have last year for a nonflooded property, according to Real Property Associates, a consulting firm headed by Wade Ragas, former director of the Real Estate Market Data Center at the University of New Orleans. Home prices in many other areas of the country have been stagnant or falling.
Insurance for that new house will cost a bundle: Companies have requested statewide average increases of 12 percent on homeowners insurance, according to the Louisiana Department of Insurance, but that figure masks the reality in the New Orleans area, because many companies have been giving breaks to people in the northern part of the state while socking it to customers south of I-10.
Entergy New Orleans customers have seen their bills increase by 20 percent since July 2005, from $97.74 to $117.94 per 1,000 kilowatt-hours of electricity. A proposed rate increase could push Entergy New Orleans' bills 50 percent higher.
By comparison, customers of Entergy Louisiana saw their bills decrease by 11 percent from July a year ago, and Cleco customers saw their bills increase 5 percent.
And the many displaced New Orleanians who find themselves spending more time on the road are paying $2.91 for a gallon of regular unleaded gasoline in the New Orleans metropolitan area, according to the auto club AAA, up from $2.49 last August -- an increase of 17 percent.
Food prices are harder to nail down, but random grocery store lists given to Information Resources Inc., a market research firm, suggests that prices have gone up in the New Orleans-Mobile, Ala., region more than they have across the country. Hot dogs, for example, cost $2.89 in the region in July, 20.1 percent more than in July 2005, while the price of hot dogs increased only 0.9 percent across the country.
So far, most restaurants have been trying to hold down their menu prices, according to the Louisiana Restaurant Association, because they recognize that without tourists, they are entirely dependent on locals, who are probably more price-conscious than ever.
But the restaurant association says its members report that food, labor and rent costs haven risen 20 percent to 30 percent since they reopened after Katrina, and they don't expect those costs to go down. Restaurants doubt they'll be able to keep a lid on menu price increases for very long.
"It's a very tight situation for restaurants. They can't absorb all of those costs," said Tom Weatherly, communications director at the restaurant association. "We probably will see some price increases on menus in the next year or two. People can only hold the line on costs for so long."
Some earnings not up
While everyone faces higher costs, not everyone is earning more money after Hurricane Katrina.
Service sector jobs, such as working in a restaurant or hotel, are paying as much as 30 percent more for wages to attract workers because they have immediate needs for help, according the restaurant association and the Greater New Orleans Hotel and Lodging Association. Similarly, labor rates for construction workers have jumped as firms compete for laborers to handle the workload of fixing people's homes.
But how far up the food chain do the wage increases go? This spring, the local chapter of the Human Resources Management Association tackled the question with a survey of 48 positions at 45 large employers in the New Orleans-Baton Rouge area.
If an employer risks losing a worker to a construction job, the employer usually will raise wages to try to retain them. Accounting clerks, for example, haven't seen many wage gains because they're paid reasonably well and they often have benefits so they're unlikely to seek construction jobs. But security guards have seen wage gains on the order of 50 percent, because there's huge demand for sentries to guard properties and many guards easily could make money in construction.
"What we saw were significant wage gains at the lower end," said Dorothy G. Carter, senior consultant with Harper Resources LLC, a human resource benefits and consulting company formerly based in Lakeview that did the study for the association. "A lot of the low-skilled, lower-wage jobs have more alternatives in the economy right now. These are the folks who can leave to go hold up a sign at a construction site to direct the traffic."
Those in jobs with benefits or on a career path were less likely to see wage increases. People who are trying to build a resume, or who have health insurance and a 401(k) plan, aren't likely to leave for a few extra dollars an hour doing construction work, so employers don't have to pay them more.
Moreover, with the shrinking of the economy, there's less of a need for managers and people at the higher end of the wage scale. In fact, those workers actually might feel like they're taking a pay cut, because they're doing more work to cover for those who have left or been let go, unless they're earning overtime.
"More of the professionals, more of the management folks, are all that's left, so they're doing more. If you really broke it down, they might feel like they're being paid less," Carter said.
"Some people have called it a blue-collar boom," Speyrer said. "At a little bit higher wages, there are not as many jobs available."
'Going to hit really hard'
Mayor Ray Nagin says he's optimistic that the cost of living will come back to what people can afford.
He notes that HUD is aggressively moving forward with restoring public housing units, and the city is tackling the housing shortage by awarding 2,500 blighted properties with tax problems to developers to get them back into service. And the city continues to negotiate with Entergy about how to improve electrical service and manage costs for rate payers.
"The reality of this environment is that there's a shortage of supply of available resources, and when that happens the price goes up. But I think that's going to be temporary, and we'll see the pressure subside over time," Nagin said.
Others disagree. As homes are built or repaired, the housing crunch certainly will ease. But the problem is that new homes are more expensive homes.
A major reason why housing was affordable in New Orleans before the storm was because it was poorly maintained. But as landlords rehabilitate storm-damaged properties, there's no way they'll rent them at the same old rates. Not only will the houses be nicer, but landlords will be paying higher materials and labor costs to fix them, and they'll be paying more money in insurance going forward.
"You can't build a depreciated unit," said Keith Wardrip, research analyst at the National Low Income Housing Coalition. "They're not going to invest heavily in a property and then charge the same rent."
Speyrer thinks the reality of the higher cost of housing hasn't sunk in yet for most people, because many are getting rental assistance from the Federal Emergency Management Agency and aren't budgeting for how to cover those same rents on their own salaries.
"It's going to hit really hard when people living in FEMA trailers find themselves having to pay rents that could be double what they were before," Speyrer said.
Randy Noel, the National Association of Home Builders' representative in Louisiana, says it costs about 30 percent more to build a home in the New Orleans metropolitan area now than it did before the storm because of the cost of complying with new building codes and the new FEMA flood maps, and increases in the costs of materials and labor.
He doesn't see how the math will work to keep homeownership within reach. Before the storm, the median income in the area was $32,000, and the median price of a home in the metro area was $180,000. If building costs rise 30 percent, the new median price of a home becomes $234,000. People might need to earn $50,000 to $60,000 to purchase a home at the median price.
"Unless the wages increase dramatically, I don't know how they're going to afford a house," said Noel, owner of Reve Inc., a residential home builder in LaPlace. "We could easily find our teachers and our police officers living as far north as Amite to get a home. I don't know what that does to traffic. It's going to be a question of how far you can commute."
Because one-third of New Orleans residents didn't own a car before the storm and people may be forced to live far away to continue working in the city, not to mention that gasoline prices could remain elevated, the Brookings Institution says it's critical for New Orleans to reinvest in the Regional Transit Authority and new efforts such as the LA Swift bus service pilot program between New Orleans and Baton Rouge. A mass transit system could become more important now and should be viewed as essential infrastructure, Brookings said.
Even with the Road Home program making up the difference between insurance and the pre-storm value of homes, Noel says it may not be enough. Rebuilding a destroyed $200,000 home will cost $260,000 because of the inflation of building costs. If the homeowner wants to borrow the $60,000 difference to rebuild, he'll find that interest rates have risen since the storm. Insurance has gone up, too, and might add $300 to $400 a month to the mortgage. Unlike interest, insurance costs are not tax-deductible.
"Now it's a matter of, 'I can't afford it,' " Noel said. "Habitat for Humanity can't build that many houses."
Barber's neighbor in eastern New Orleans, Margie Thompson Carter, is living in a trailer in front of a her flooded home on Corinne Street while she and her husband rebuild. She said she faces higher costs because she's in a sparsely populated neighborhood.
Barber, a former admissions representative at a long-term acute care facility in Methodist Hospital, lost her health insurance along with her job after the storm and now pays for prescription medicine herself. The salon where she used to pay $25 to $30 to get her hair styled is gone, so now she's paying $70. She used to shop at the Wal-Mart and Sam's Club along I-10, but now that they are closed she's forced to shop at the corner grocery store, where she now pays $3 for orange juice that used to cost her 99 cents. "We don't have anything in our area right now. It's very expensive," Carter said.
In some cases, higher wages -- whether through wage increases or overtime -- may be helping workers afford the higher cost of living in New Orleans. Judy Watts, president and chief executive of the nonprofit Agenda for Children, which helps people find day care in the New Orleans area, said the cost of day care is about 25 percent higher than it was before the storm. But so far, working parents have agonized more about the availability of child care than about the price of it -- perhaps because they're earning more, Watts said.
People also are taking new steps to save money. Carter, the human resource consultant, bought a Pontiac Vibe in July now that she's commuting from New Roads to her shell of a home in Lakeview; the new car gets 40 miles per gallon. "My Yukon will sit in the driveway until we need to tow a boat," Carter said.
Barber said the key to handling the higher cost is learning to shop carefully. As soon as she realized that her house probably had flooded, she bought a laptop with an Internet connection while still in her evacuation hotel in Jackson, Miss., so she could begin looking for apartments immediately. That quick thinking probably saved hundreds of dollars, because Barber and her husband, a longshoreman, nabbed one before prices went up.
She and her family have been doing much of the rebuilding work themselves to stretch their insurance checks. They found ceramic tile for the kitchen floor that cost only $150. She bought some "oops paint" at Home Depot -- paint that wasn't mixed properly to someone else's color specifications -- for $5, and heard that Sears is selling off-color paint for $1.
"There's a lot of things that people can do to save money," Barber said. "People have got to learn to spend their money wisely."
Speyrer said that Carter's and Barber's responses are typical. Just as people switched to more fuel-efficient cars in the 1970s as gas prices spiked, and New Orleanians learned to do more with less when they faced stagnant wages after the oil bust, people will make lifestyle sacrifices to try to afford their old lives in New Orleans.
But even with an elevated cost of living, Speyrer thinks New Orleans could emerge as a more equitable, middle-class society than it was before Katrina because of the wage growth at the lower end of the economic spectrum.
The extremes could narrow. Most of the city's wealthy probably aren't getting richer; few of the city's upper crust have found ways to profit from Katrina, Speyrer said, and most of the city's professionals felt lucky if they could maintain some semblance of their pre-storm level of existence. Meanwhile, those at the bottom end of the economic ladder who have been able to return have better prospects of achieving real wage growth than they ever have before, especially if there's more than one wage-earner in the household.
Those who have seen wages go up probably won't see them go down, a phenomenon known as "sticky wages." Even if the labor shortage eases, it's not easy to tell someone who had been earning $12 that they're now only worth $8. More likely, in that situation employers would hold the line on any wage increases until the market caught up in hopes that attrition and turnover would reduce the number of people earning the higher wage. When they fill new positions, they'll do so at lower rates.
"All of a sudden, you get people who are aren't at the poverty line. They could actually be building toward a middle class," Speyrer said.
The city's largely rental-based housing stock reflected the fact that New Orleans was a low-wage, service economy before the storm. A new type of economy will have to emerge producing higher-paying jobs in order for people to be able to afford the more expensive housing.
As the city rebuilds, Councilman Thomas said, it needs to train people for higher-wage positions so they can support themselves in a more expensive New Orleans. Schools, for example, should create vocational programs geared toward the construction trades.
"The model that we had before doesn't work," Thomas said. "If we're not going to strategically tackle work force development, we're going to be in a worse situation than we were before the storm."
. . . . . . .
Rebecca Mowbray can be reached at email@example.com or (504) 826-3417.