Wednesday, September 14, 2005

Spending on Katrina: Does Haste Make Waste?

As previously noted, federal spending will be flowing freely to help pay for the aftermath of Katrina. Much of this will be done by FEMA, with little effective oversight as to the particulars of that spending. Some congress members, including Steve King (R- Iowa) who represents the district in which I live, raised concerns about this, and actually voted no on the recent $51 billion additional appropriation.

My friend Nancy Streck, who also works for Rep. King, recently sent along an article in the Washington Times (posted on Tuesday) which gave us all a reason to wonder about what taxpayer funds will be spent on. It pointed out that $5 billion was earmarked to purchase trailer homes, many of which were not yet built, for the purpose of housing persons displaced by the hurricane. These would be placed in temporary trailer parks, which would later be bulldozed in after they were no longer needed.

This got me to thinking: where are the displaced persons now? They are not all in shelters. In fact, the shelter here in Omaha was quickly closed as people were moved to more permanent existing housing sites. There is vacancy in housing in every state. In fact, looking at Census data for 2003, I noted rates for nearby Texas showed vacancies of 11% of rental units and 2 percent of owner-occupied homes. This translates to millions of vacancies in Texas alone. Florida showed similar vacancy rates. Data for 2004 shows that the south, as a region, had vacancy rates of over 12 percent. (By comparison, California, which has endured some crazy run-ups in real estate, had rates that were much lower, in the 4 percent range for rental units and lower than 1 percent for owner-occupied homes. Thomas Sowell, a very thoughtful economist whom I enjoy reading, has written lots about why this tighter supply exists in that state. It has a lot to do with regulatory practices that keep developers from building new housing.)

Some of the vacancies of rental units has been caused by lower interest rates on mortages, which has allowed more folks to buy their own homes. I think many of us are familiar with situations where apartments are giving incentives for new renters to come in because of the exodus of new homeowners.

In light of all of this capacity, does it make sense to spend $5 billion on something that is, at best, a temporary fix, before we know what is really needed? True enough, there will be a need to house workers who will be involved in reconstruction efforts. However, that need could best be met through the private sector, who will find a way to house workers when the price is right. (Former California Governor Pete Wilson had lots to say about this kind of private sector responsiveness in the aftermath of the California earthquake in a recent WSJ piece.) Though it is possible that housing vacancy in states such as Mississipi and Louisiana may have been in coastal areas, I would imagine that there is still some capacity there, too. Using that first, rather than a hastily constructed village of trailer homes, seems to be prudent for lots of reasons, including fiscal and social concerns. (E.g., do we want to create long-term evacuee camps of sorts? Is that really best for their wellbeing? I have serious doubts.)

In fact, I think if GHWB (Bush 41) were President, he would say "Not Gonna Do It, Wouldn't Be Prudent." Perhaps even Dana Carvey would say this, if we asked his opinion.

Best regards.
EAM

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