The Economic Impact of Houston's Floods
The sudden arrival and strengthening of Hurricane Harvey caught nearly everyone by surprise along the United States’ Gulf Coast and ended up becoming what is sure to be one of the costliest natural disasters in recent decades. As is the case with hurricanes and other such tropical storms, is was water that resulted in most of the destruction caused by this storm, only this time it was rain, not the storm surges that usually accompany these storms. While the human cost of this storm was significant, it is the economic cost that will have the greatest long-term impact on the region hit by the storm and on the United States as a whole. This is due to the fact that Houston is such an important economic center. In fact, the last time that a natural disaster hit an economic center as vital as Houston was 1995’s Great Hanshin earthquake which caused extensive human and economic damage to the Greater Osaka metropolitan area, the world’s seventh-largest urban center in terms of economic output. Now, Houston (the world’s 13th largest urban area in terms of economic output) faces a major challenge to rebuild after this storm and to return to its position as one of the key centers of economic growth in the North America.
Dynamic Houston: Among the world’s leading economic centers, Houston is often overlooked, being overshadowed by its counterparts in places such as New York, Los Angeles and Chicago. However, Houston has been one of the fastest growing cities in terms of population and economic output among the world’s developed economies, and as a result, its economic output today is more than twice as large of that of better-known cities such as Detroit, Toronto, Frankfurt or Brussels. Most of this growth is the result of the fact that Houston is not only the center of the United States’ oil and gas industry, but is now the center of the services industries that provide a multitude of services for oil and gas operations around the world. Furthermore, Houston is the leading economic center in the state of Texas, a state which has outperformed nearly all other states and provinces in developed economies worldwide. In fact, among the largest metropolitan areas in the United States, the two with the fastest-growing economies are Houston and Dallas, while other Texan urban centers such as Austin and San Antonio are also growing at a pace well above the US average.
The Recovery: While the full extent of the damage caused by the flooding from the record levels of rain dropped on the Houston area by Hurricane Harvey is yet to be known, it is clear that the recovery operation is going to be massive. Already, these floods have caused major disruptions for the oil and gas industry that is based in the Houston area, sending fuel prices soaring across the United States. Fortunately, many oil and gas operations that were suspended during the flooding are already coming back on line, so as far as the oil and gas industry is concerned, the worst appears to be over. The more significant long-term issue will surround the huge costs that will be incurred by the necessary repairs to homes and businesses that were inundated by the flooding. With more than one million people being displaced by the flooding, the clean-up and repair operations will require vast human and monetary resources. In fact, Texas Governor Greg Abbott estimated that the damage caused by this storm will cost at least $180 billion to repair, an amount equivalent to the annual economic output of New Zealand or Greece, or almost as much as the combined costs incurred by the two-most expensive hurricanes in US history, Katrina in 2005 and Sandy in 2012.
More Disasters in Store: In fact, Hurricane Harvey was not the only storm to cause significant damage to major urban centers in recent months, with massive flooding killing thousands of people in South Asia and with deadly landslides killing hundreds of people in cities in Asia and Africa. In fact, the combination of a warming global climate and a growing world population is making storms such as Hurricane Harvey both deadlier and costlier. Furthermore, many of the world’s fastest-growing economic centers are found in warmer and wetter areas of the world that are vulnerable to powerful tropical storms, or along fault lines that can cause major earthquakes. Due to this trend, it is inevitable that more and more of the 21st century’s leading economic centers will suffer from major natural disasters. While the increasingly diversified nature of the global economy should mitigate the global impact of these disasters, local and regional economies will find themselves facing an increasing risk from such disruptions. As such, businesses and investors will have to take a much closer look at the threat of natural disasters when making key decisions with regards to the location of their operations, while governments will have to prepare for more severe natural disasters in the years to come.