In the year following Hurricane Katrina, something unexpected happened to New Orleans house prices. They rocketed 27% over a period of months. According to USA Today "displaced residents bid up median prices".
This blogger thinks it unlikely that we will see such a dramatic price escalation in Brisbane. The floods are not as serious nor as persistent as those that afflicted New Orleans. The clean up will be more swift too. Another major difference is that this event is associated with a 20-30 year major La Nina. It is a climate system that is well understood and not indicative of a frequent danger. New Orleans, on the other hand, had been dodging hurricanes for years and there remains a very real prospect of another any given year.
So we can expect less damage and less displacement.
Nonetheless, in the short term, we might still expect flood inspired sales and movement. And in that sense there may be a pick-up in housing turnover and perhaps price shifts accordingly.
Following the Brisbane floods of 1974/5, the median price in the city did jump 19% (according to this Macquarie Univerity paper). This was well ahead of Sydney at 8%, Melbourne at 12.5%. But not far ahead of Adelaide at 18%, and behind Hobart at 26% (Perth figures are similar but appear unreliable).
This blogger is hesitant to conclude anything from these figures beyond the fact that the nation was caught up in a housing boom.
Following it's sudden 05/06 house price surge, however, New Orleans has faced sequential years of declining prices. Needless to say, this deflation mirrored broader falls in US housing. A condition playing out on a longer time frame here in Australia as well, with a particular concentration in and around Brisbane.
But there has been one factor in New Orleans that has effected greater falls at the top-end of the market that may play out in Brisbane as well. That is the cost of insurance.
Yesterday Business Spectator has a decent take on the likely economic fallout from the floods. But the one paragraph stuck this blogger as unrealistic was the insurance fallout:
To date the floods are located in more sparsely populated regions minimising the economic impact. Approximately 800,000 people live in the broad region affected by the flooding.
Robert Whelan, chief executive office of the Insurance Council of Australia estimates that while this is a major weather event, due to low population densities in the region, it is a moderate insurance event. Preliminary estimates suggest insurers will receive about 4,300 claims and pay out about $150 million. By comparison, the industry received about 161,000 claims and paid out about $1 billion dollars after a 20 minute Perth hail storm early last year.
The operative quote being "to date". According to the ABC, 3,000 homes were inundated in Ipswich alone yesterday and "already thousands of homes in some Brisbane suburbs have waters past the second-storey after Wednesday's peak". AP reported that in Brisbane, "a total of 14,600 homes and 2,800 businesses are expected to be flooded and at least 50 suburbs affected."
Thankfully, reports this morning suggest the flood is below 1974 peaks but the preliminary insurance estimate is still very optimistic. Insurance costs in flood-effected districts are going to rise.
The question is, will the inflation be so onerous as to accelerate price falls in top-end realty, as in the case of New Orleans?
Many of the flood effected areas of Brisbane are prime realty so it meets that criterion but the conditions of the flood explored above suggest that even though premiums will rise, the irregularity of the incidents should contain the inflation.
Again, some reassurance is to be found in the 1974 experience, in which there is no evidence of Brisbane median prices departing from national averages in the years after the flood.
This blogger will admit, though, this is speculation. The best it can offer at this stage is the observation that insurance premiums are worth watching. Any rise cannot help an already struggling market.