Flood Damage Will Increase Demand

In a cruel twist of fate, Mother Nature may be responsible for kick starting the construction business in Nashville and also contributing to the increase in property values of homes in Nashville and the surrounding communities.

Much the same as Florida suffered natural disasters that wiped out a lot of the homes in certain areas in the late 1990s and early 2000's, the simple laws of supply and demand came into play. As the amount of available housing was removed due to the devastation associated with the hurricanes the demand for homes suddenly increased. The difference in Florida was that most people had to cover their homes with flood and wind insurance. In this respect there is a big difference because the majority of people and homes affected in Nashville were not required to carry flood insurance.

The Un-named flood and Katrina Comparisons

Probably the best comparison in recent years to a natural disaster in the US is the effects of the flooding in New Orleans caused by hurricane Katrina. Nashville's devastation is more localized than in New Orleans and as a result the experiences of the change in real estate demands won't be quite as comparable but lessons can definitely be learned.

The number of homes in Nashville that have been rendered temporarily uninhabitable will increase as the waters recede and the authorities become more aware of the full extent of the damage. As a result, the demand for rental homes will increase while homes under go renovation but so will the demand for residential homes. The homes that have been "totaled" have occupants that now will need to look for a home. These people will now add the demand for homes in areas that suffered no impact from the flooding.

As the demand is artificially increased, the end result will be that the supply of homes in desirable areas will be relatively reduced, and as a consequence the value of these homes will increase.

Investors and Property Values

Also, as in New Orleans, the short term loss of homes will appeal to investors who have the time and money to invest in rehabbing the damaged homes and will probably be able to purchase the homes at a price that will enable them to turn a good profit. As the homes then sell, and peoples flood memory recedes, the areas will then be seen to recover and property values increase as the public starts to buy the rehab homes.

Long Term Flood Effects in Nashville

The loss of jobs and businesses directly associated to the flood may be relatively easy to assess but the impact of the peripheral effects may be felt for years to come. Lost jobs means a loss of disposable income spent by the workers who lose their jobs and the satellite industries that rely on businesses that demand their products such as Opryland Hotel that looks like it will be closed for the next 3-4 months for renovations.

The flip side of the flooding is that the job creation in the construction business and the resulting influx of out of state workers needing accommodation and housing may add to the demand for homes in these unaffected areas, and add to the slow economic recovery that the US is experiencing.

I'm sure there will be lots of economic studies carried out to assess the impact of the 2010 flood and in may be years before the total damage can be realistically estimated but until then we will be able to monitor the short term effects by keeping an eye on the real estate values in Nashville and the surrounding areas.