Monday, August 28, 2017

Editorial: The Incredible Cost of Harvey

From my friend, Dr. Kevin Simmons in the Dallas Morning News:

The entire commentary is well worth reading, but here are some highlights.

Hazard Hub collects exposure data on all structures in the U.S. By mapping the flooded areas and estimating the value of properties impacted by the flood, they find $145 billion in property value at direct risk within the 500-year flood plain. Rainfall from this storm is so severe, that a reference point of 500 years may not accurately capture the full nature of the disaster. To put this in perspective, in 2005, Katrina is estimated to have cost about $100 billion with $40 billion covered by private insurance and $16 billion covered by the National Flood Insurance Program.

Most mortgages contain provisions that homes located in vulnerable areas carry flood insurance. But this storm is so large that it extends into parts of south Texas not normally considered at imminent risk of flood. Families who did not believe they faced potential for flood will return to homes that are no longer worth the amount of their mortgages, plus they have lost their possessions as well. This piece of the disaster will financially ruin many families and test our ability as a nation to help them recover.

Unlike most hurricanes, Harvey will also reduce for an extended period, business activity in one of the largest regional economies in the nation. Houston is the fourth largest city in the U.S. and home to strategic assets such as the Houston ship channel and numerous oil refineries. The Federal Reserve calculates an annual gross domestic product for the Houston metro area of $471 billion. It's not yet apparent how significant an effect this storm will have on business operations, but they will be affected, stalling the regional economy.

Hurricanes Katrina and Rita forced temporary closures of rigs in the Gulf of Mexico and Gulf Coast oil refineries, driving up prices on oil related products, and Harvey is likely to do the same. Closures during Katrina and then Rita pushed the price of gasoline nationally, from an average of $2.29 during the first week of August to more than $3.00 the week after Katrina struck. Rita followed a month later, keeping the average price of gasoline hovering, according to Energy Information Administration data, around $3.00. The average gasoline pump price did not return to pre-Katrina levels until the second week of November. A large concentration of refineries in a location vulnerable to violent storms creates a choke point, which heightens the risk and the impact when the storm arrives.

The Wall Street Journal has more on Harvey's economic cost.

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