Disaster Expectations, Home Maintenance, and the Effects of Hurricanes on Local Labor Markets

Abstract

We develop a model of a small region with durable housing, endogenous home maintenance, and disaster expectations, in which hurricane strike damage is a function of maintenance decisions. The model implies that declining areas (relative to growing areas) have a less well-maintained housing stock, with several associated predictions on the effects of hurricanes. First, in declining areas, initial hurricane damage to the housing stock is greater, causing substantial job losses, out-migration, and supply-driven wage increases. Second, recovery in declining areas is less complete because for some locations in the area, the asset value of destroyed homes is less than the replacement cost. Areas with a history of hurricane strikes undertake higher levels of maintenance, making them more resilient to the effects of hurricanes. Empirical evidence supports each of these predictions, and results are notably robust to the exclusion of Hurricane Katrina in 2005.