We are now 10 years on from Hurricane Ivan.

The Haas Center for Business Research and Economic Development at the University of West Florida estimated at the time that more than $5 billion in buildings and other infrastructure were destroyed by Ivan. But as we rebuild, the flow of spending to buy plywood, carpet, air conditioners and cars takes our economic activity to boomtown levels. The paradox is that hurricanes destroy our wealth and make us worse off while stimulating spending that partially offsets the destruction.

This was true with Ivan.  It is clear that the dollar volume of taxable retail sales rose substantially above trend for a period of as much as 12-18 months following Ivan. These sales increases were larger for big ticket items such as home fix-up and automotive sales.

This chart shows differences from trend taxable retail sales for two Florida counties:  Charlotte, which was hit by Hurricane Charley in August 2004, and Escambia, where Ivan hit in September.

The very short duration downward spike in employment following Ivan can be seen in the chart below.

Florida was hit hard by hurricanes in 2004 and also saw a downward spike.  However, employment was soon restored by hurricane recovery activity and by the ongoing Florida housing boom. As a result of the spending on repairs, we attracted a large temporary labor force, some of which then moved on towards New Orleans 11 months after Ivan in order to work on Katrina-related cleanup.  However, overall employment continued to grow strongly until Pensacola and Florida began to feel the effects of the collapse of the housing boom.

We also saw a relatively early and strong run-up in prices in the housing market before the subsequent crash. While some of the price run-up may have been Ivan-related, most was due to national policies of low interest rates set by the Federal Reserve along with risky loans made by firms such as Countrywide that were enabled by associated federal guarantees of high-risk loans by Fannie Mae and Freddie Mac. Further tempted by historically high in-bound migration rates to Florida and associated population and housing stock growth; investors built too many houses across Florida, but particularly in Central and South Florida. We were then hit harder than most other states by the collapse of the housing bubble.

Ivan was small potatoes compared to the storm that hit the overall housing market.

Single-family housing starts were already close to their December 2005 pre-recession peak by the time Ivan hit and still have not recovered.

The lasting impact of the 2004/05 hurricane seasons is perhaps most important in the property insurance markets. Now we see higher premiums, as well as special assessments intended to spread risk across the state, as well as strong price increases as Biggert–Waters changes to flood insurance get implemented.

This chart gives an idea of the severity of damage associated with the 2004 and 2005 hurricane season for the hardest hit Florida counties.

A study entitled “Catastrophe Economics:  The National Flood Insurance Program” was published in the Journal of Economic Perspectives in 2010. It surveyed the history of the flood insurance program and of the geographical distribution of insurance premiums and policy payouts. Floridians held 38 percent of the flood policies and averaged almost  $1 billion per year in premiums. However, the premiums we have paid in are 3.6 times the amount of benefits paid out on Florida policies. We are a large net contributor to the national program. Due primarily to the claims associated with Katrina, there have been $4 dollars paid out in benefits per $1 paid in premiums for policies in Louisiana.

The insolvency of the flood insurance program is not due to payouts of policy coverage of Florida hurricanes, but the fixes implemented by Congress (the Biggert Waters Act of 2012) are resulting in substantially higher flood insurance premiums for homes in Florida.

Some of these provisions were modified by the Homeowner Flood Insurance Affordability Act of 2014. The Florida housing market and our attractiveness as a place to live and do business is still at risk due to rising premiums that exceed the actuarial value of the covered risk. This is one of the most important lingering negative legacies of Ivan and Katrina.

Photo credit: Hurricane Ivan damage at Pensacola Naval Air Station from Wikimedia.

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