How Natural Disasters Affect Real Estate by Edward S. Smith, Jr.

Natural Disasters, like hurricanes disrupt people’s lives; their homes may be lost or uninhabitable, their business or job lost. The immediate repercussion of such storms creates needs for shelter, food, water, sanitation. After the storms are the buildings repairable, where will the displaced people move to, will they still have jobs?

What happens to the local real estate market after natural disasters occur has become predictable.

Hurricane Katrina, in 2005 destroyed New Orleans, Louisiana. The major flooding forced an evacuation of the city; 750,000 households were displaced. Rental unit’s activity and pricing immediately increased, as many households needed temporary housing, as did the influx of construction workers needed to do the repairs.

Many people have to, or want to, move to dry, safer surrounding areas. The aftermath of the storm, left thousands of destroyed and damaged homes, and a temporary halt to new construction, created an inventory shortage causing market values of homes in surrounding areas to increase by 17%.

However, the value of damaged homes seriously declined with the reduced prices becoming a target of aggressive buyers and investors. The New Orleans Metropolitan Association of Realtors reported the year after the disaster home sales were up 60% over the prior year.

In 2012 “Superstorm” Hurricane Sandy attacked eight States, in New Jersey the shore was swept away; in Queens New York, the homes in Breezy Point were leveled. New York City was flooded and lost power; in lower Manhattan one third of the office space was not fit for occupancy. Employers struggled to keep employees working; businesses needed short term rental space and rental costs escalated. Some businesses made permanent moves to more weather secure locations.

After hurricane Sandy, the same pattern as the Katrina disaster emerged, rental needs and prices exploded. With homes destroyed, damaged ones off the market, and new construction delayed, home prices increased.

The 2017 Hurricane season has been one of the worst ever, with five major storms, making landfall and wreaking havoc in the Gulf States and the Caribbean Islands.

In Houston Texas, Hurricane Harvey dumped over 51 inches of rain causing major flooding. It is now estimated that 40,000 homes were completely destroyed, 196,000 single family homes and 105,000 apartment units were damaged. Landlords of damaged apartment buildings had to evict tenants as the buildings would not be safe until they were repaired. CoStar estimates 27% of all leasable space, including apartments was flooded, 600 million square feet, including 72 million square feet of office space.

The impact on real estate followed the same pattern as the other storms; an immediate increase in housing requirements for apartments and condos. REIS issued an analysis of the market after the storm, anticipating the pricing of these residential rental units would increase 10% – 15%. Demand for temporary office space increased with the rental rates expected to increase 5% -10%. Overall 5% of all commercial buildings were damaged. The retail sector had extensive damage where many of the small businesses are not expected to survive.

The largest category affected was housing. The Houston real estate market was considered “hot” before the hurricane and it still is. Home sales and residential rental activity in the areas not affected by flooding increased, as did the pricing. In flooded areas there is also activity, with cash investors seeking to buy the damaged homes at discounted prices.

The Caribbean Islands were recently devastated by two hurricanes. Unlike the storms that hit parts of the mainland, which had unaffected surrounding areas, the entire area of the islands were damaged. Hurricane Irma, a huge Category 5 storm struck the Caribbean and Florida. In the Florida Keys 90% of the homes were damaged and 25% destroyed. Most of the Caribbean Islands suffered tremendous damage, with power outages compounding issues of survival. The infrastructure on many of the islands needs to be cleared and replaced; transportation problems and gas shortages contributed to emergency water and food distribution issues.

Puerto Rico, hit by both Hurricanes Irma and Maria, was decimated. Weeks later still no power for most of the island. The power grid on the island was virtually destroyed and many feel it does not make sense to rebuild an above ground electric system. Governor Ricardo Rossello had been in conversation with Tesla’s CEO Elon Musk to use Tesla solar technology to re-build Puerto Rico’s electric grid. But the contract to rebuild the Islands electrical system was awarded to Whitefish Energy.

None-the-less Tesla’s CEO Elon Musk is following through on a pledge to contribute to rebuilding the power grid devastated by Hurricane Maria; they are installing solar and power storage at Hospital del Nino. Musk has also donated $250,000 to relief efforts in Puerto Rico.

The real estate in the Caribbean Islands is largely driven by recreation and tourism, which has been temporally halted. They do not fit the pattern of the storms hitting the mainland because the people have nowhere else to go. They will require major rebuilding of roads, power supplies, commercial buildings, homes and schools to regain normalcy; the challenges are huge. The real estate industry on these islands is virtually suspended until reconstruction can be accomplished.

Ed Smith, CREI, ITI, CIC, GREEN, MICP, CNS, CIREC is a Commercial and Investment Real Estate Continuing Education Instructor, Corporate and Private Trainer, Speaker, Author, Broker and Consultant; he may be contacted at or at

Edward S. Smith, Jr., Real Estate Broker
Licensed in New York and Connecticut
Smith Commercial Real Estate
Berkshire Road, Sandy Hook, CT