Congress passed the American Go Zone Act to attract private real estate investment in New Orleans. Why hasn’t it worked?
September 9th, 2008The American Go Zone Act provides real estate investors with tremendous tax incentives intended to finance rebuilding of rental property damaged by Hurricane Katrina. Where are all the house flippers, real estate agents, mortgage brokers, landlords, and hard-money investors? They’re caught up in the same mortgage crisis that has shut down the housing industry nationwide.
The 2005 storm surge destroyed thousands of homes along the Mississippi Gulf Coast and real estate agents responded with the same business model that they used to artificially inflate prices in the Florida condo market, and we all know how that’s working out. Investment properties that don’t cash flow end up in foreclosure. Those same Developers and Realtors just moved their operations up the coast and have been trying to peddle the Mississippi Go Zone properties as if the tax savings would somehow negate their oversupply of over priced homes. Workforce housing is what’s needed, the same housing affordability problem that surfaced in Florida just before the mortgage meltdown. The casino and tourism industries generate lots of entry-level jobs that don’t pay much and those workers need a place to live. In order for the Mississippi coast to reemerge as a tourist destination, her workforce must be accommodated. Could New Orleans be the bedroom community for Mississippi’s Gulf Coast worker shortage?
Tens of thousands of New Orleans homes were left uninhabitable when those levees broke, many of them historic gems. Now that Hurricane Gustav has put the improved levees to the test, and the government demonstrated that New Orleans could be evacuated, it’s time to come home to New Orleans. The neighborhood structure is intact and most of the homes can still be salvaged. It is an entirely different housing situation in New Orleans. Pre-Katrina, New Orleans was a city with a large rental population with small investors owning income producing real estate that was passed down for generations, unfortunately many were uninsured and now can’t rebuild. Structurally sound shells can be purchased for land value, their exteriors restored to their original architectural charm, and retrofitted on the inside with all new systems and interior finishes for a fraction of their replacement cost.
The Brookings Institution estimated in August 2008 that New Orleans is now confronted with 65,000 vacant or blighted properties; properties can be gutted, rehabbed, and rented profitably and efficiently. It’s a good business decision, a good environmental choice (what’s more environmentally friendly than a gut-rehab?), and it’s the right thing to do. The New Orleans real estate market is ready to explode. Homeowners have invested billions of dollars of insurance or Road Home money into their homes and FEMA has invested billions more into public infrastructure. The American Go Zone is poised to be the hottest real estate market in the country. Finding renters isn’t the problem. They’re displaced all over the country and they’re ready to come home. They want to come home to the jobs that they left behind, the tourism, restaurant, and hospitality jobs in the French Quarter. The pay’s not much but when there’s affordable, energy efficient rental property on the streetcar line, it doesn’t take much.
The tax incentives are nice, but real estate investments need to cash flow and that’s been tough to do on the Mississippi Gulf Coast. It’s a good time to invest in New Orleans?