New Orleans’ famous brass band-led jazz funerals were often followed by what was known as a “second line” of revelers who joined the procession to boogie to the music. Second-liners became a welcomed and celebrated part of the city’s music-centered culture.
Some might call the apartment developers who swooped into the Big Easy after Hurricane Katrina a kind of second- line, as they looked for investment opportunities in the rebuilding that was needed in the aftermath of a national tragedy. The companies, though, were not welcomed with open arms.
In December 2006, the western New Orleans suburb of Westwego passed a citywide moratorium on all multifamily development. In neighboring Jefferson Parish, one local lawmaker who opposes new apartment development has said he wants to tear down rather than renovate at least 1,500 of the multifamily units that were damaged in the hurricane.
“The conventional wisdom after the storm was that everybody would welcome new development, big apartment developments,” said Larry Schedler, a New Orleans apartment broker. “Nothing could be further from the truth. Even in moderate-income areas of town, people do not want multifamily.”
That’s one reason rents in New Orleans have soared at the fastest pace of any U.S. city, jumping close to 30 percent over the past year, and helping the city snag the No. 5 slot in our ranking of the top U.S. apartment markets.
Average rents in the metro area have soared from about $664 in August 2005, or 78 cents a square foot, to $844, or 99 cents per square foot, according to Schedler, who tracks apartment complexes with more than 100 units.
He counted 48,000 units in the metropolitan area before Katrina hit. Now that number is more like 38,000, Schedler said. “When the dust settles, it will probably be around 42,000.”
While supply has shrunk, demand is still strong, pushing the vacancy rate down to 3.7 percent. The greater New Orleans area had a population of about 1.4 million before Katrina hit, and has regained the lion’s share of those residents to reach a population of about 1.2 million. The city proper had regained about 68 percent of its pre-Katrina population as of August, according a report from the Greater New Orleans Community Data Center.
On top of that, insurance costs and operating expenses have soared, meaning landlords can no longer afford to rent for much less than $1 per square foot. The rising costs, on top of a shortage of buildable land and local opposition to multifamily development, are a few of the things that make New Orleans a market with high barriers to entry.
Meanwhile, a labor shortage has pushed up salaries even at the lower end of the spectrum, and there’s plenty of job growth occurring as the city recovers. For investors and developers who can find a way into the market, that’s just the right formula to prompt a celebratory, second line-style parade.