Wednesday, October 08, 2008

US credit crisis threatens New Orleans' recovery

from the Associated Press via Google


NEW ORLEANS — A prolonged recession and a tight credit market would cripple New Orleans' still-fragile recovery from Hurricane Katrina, delaying or eliminating road work, new construction and repairs to homes and businesses that have stood empty since 2005.

The city's infrastructure plans should stay on track, but a real estate expert calls it a "terrifying" scenario: A lack of sufficient credit would smother companies trying to start up or expand, and with them the new jobs needed to grow the area's economy. It would choke the flow of cash that developers need to build new homes and first-time homeowners need to buy them. And it would make it tough for the city to sell bonds to finance rebuilding projects on its appointed timeline.

Parking lots and buildings slated for reincarnation as gleaming high-rises might never move beyond blueprints. Small businesses, a lifeblood to the economy and neighborhood anchors, may never reopen or expand.

The road to recovery from Katrina would get even longer.

The financial meltdown "comes at a difficult time" for the city, said Janet Speyrer, an economist at the University of New Orleans.

The city's population, about 454,000 when Katrina struck in August 2005, has rebounded but seems to have leveled off around 325,000. Job growth hasn't lived up to forecasts, with major corporate investment largely staying on the sidelines and the cost of living — driven in part by skyrocketing insurance costs — remaining high.

"Even before the credit crunch, there were questions about whether we were going to get back to where we were even before Katrina," Speyrer said.

It isn't the flow of federal aid that most concerns economists. The Federal Emergency Management Agency so far has set aside $2.3 billion for rebuilding infrastructure; of that, $894 million has filtered down to the local level through state administrators, and economists believe projects with dedicated funds should be OK.

It's the commercial sector — privately funded hotels, condos and new-business development — that would be waylaid by a contraction of credit.

In the housing sector, there's no shortage of homes, and thousands more bought by the state after Katrina are expected to start coming onto the market in the coming months with price points in the $150,000 to $200,000 range. The region did not see nearly the number of foreclosures as other parts of the country, and economists believe the trickle of new building nationally could draw contractors to the city.

Still, it's a challenge for prospective first-time homeowners and those who got behind on bills or whose credit otherwise took a beating after the storm to get loans.

The next few weeks could give authorities the first glimpse of how the credit markets are affecting new housing proposals, particularly those hoping for tax credits as part of their financing to build lower-income housing.

Brenda Evans, program administrator with the Louisiana Housing Finance Agency, said officials must find a way to encourage and create adequate, affordable housing. More affordable housing is seen as critical to shoring up the city's middle class and keeping working-class families here.

The city was plagued by poverty, dominated by renters and overbuilt before Katrina; blighted, derelict properties were a problem, made worse by Katrina and a decades-long slide in population. Officials see homeownership as a key to stabilizing and strengthening neighborhoods, and they're promising $50 million in federal grants to offset mortgage costs and get affordable homes constructed. The plan will help about 1,000 households directly and, ideally, attract private development dollars.

For some, it could be the key to keeping them in the city.

Nia Davis, a 33-year-old graduate student at UNO who does freelances research for nonprofits, is renting in the partially rebuilt Gentilly neighborhood and desperately wants a home of her own. She says she doesn't have the stable income that banks want to see, and says the type of subsidies the state is touting are her only clear route to homeownership.

Returning to New Orleans from Texas in 2006 was a "nonlogical decision," she said, driven by her heart, not her head. She wants to stay but isn't sure she will if she can't buy a house.

"If I own a home, I want to own a home in New Orleans," she said, "and that's more about passion and commitment, because I know I'm going to pay more for everything else."

Link to full article. May expire in future.

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