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Biggest economic risk for Houston: People will leave and never come back

There's no doubt that the Houston economy will take a hit from Hurricane Harvey. But a lot depends on how many city residents stick around after the water recedes.

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By
Chris Isidore

There's no doubt that the Houston economy will take a hit from Hurricane Harvey. But a lot depends on how many city residents stick around after the water recedes.

The reason: Population levels affect the number of jobs available and, ultimately, the level of economic activity.

Twelve years after Katrina, the population of New Orleans still hasn't recovered. It currently has about 90,000 fewer residents, down 18% from prestorm levels. The number of jobs in the New Orleans metropolitan area is also down nearly 10% in that same time period.

Related: What Hurricane Harvey will mean for gas prices

Most experts doubt that Houston will experience anything close to the population loss suffered by New Orleans.

"Houston is not New Orleans. It's a large, diverse, fast growing economy," said Mark Zandi, chief economist with Moody's Analytics.

While the city's unemployment is above the national average following the bust in oil prices in early 2016, it has been improving, falling to 5.3% in the most recent reading.

Much of the economic growth in the Houston region has been fueled by the influx of new residents to the area.

Ironically, many of the people who left New Orleans after Katrina ended up in Houston. About 42,000 New Orleans residents filed their taxes from Houston in 2006, the year after Katrina, according to an analysis of IRS data by Moody's Analytics. About 12,000 taxpayers moved back to New Orleans in the subsequent five years, which suggests that many are still in Houston and facing another devastating storm.

And it's not just a decline in population that can hurt the economy -- even a slowdown in Houston's remarkable growth will hurt the city's bottom line. The Houston metropolitan area has grown by about 850,000 people between 2010 and 2016. Anything less than that pace of growth going forward will be a drag on the local economy.

Related: Dealing with the damage - Tips for filing insurance claims after Harvey

Houston has endured three major floods since 2015, and if it comes to be thought of as a city with a big flooding risk, like New Orleans, it will be much harder for the city to attract new residents.

"What we're talking about is, what type of reputation, what type of image will Houston have going forward," said Jim Blackburn, the co-director of the severe storm center at Rice University in Houston.

How Houston will fare post Harvey also depends a lot on how much the insurance companies pay out. The challenge is that most of the damage that Harvey has inflicted could be attributed to flooding, which is typically not covered by a homeowner policies. And many affected homeowners may not have policies from the federal government's National Flood Insurance Program, which does cover such damage. For example, only 15% of homes in Harris County, which includes Houston, have flood insurance.

Federal aid for people without flood insurance who have lost their homes could help buffer any hit to the city, but it's too early to say whether that will be forthcoming. Without that aid, household wealth and spending in the region will suffer an even bigger blow.

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