The Determinants of Residential Property Damage Caused by Hurricane Andrew
Journal article by Paul Fronstin, Alphonse G. Holtmann; Southern Economic Journal, Vol. 61, 1994
Journal Article Excerpt
The determinants of residential property damage caused by Hurricane Andrew. by Paul Fronstin , Alphonse G. Holtmann I. Introduction On the morning of August 24, 1992, Hurricane Andrew demolished the southeastern part of Florida. Hurricane Andrew was the costliest natural disaster in U.S. history: fifteen deaths were directly attributable to the storm, 175,000 individuals were left homeless, 25,000 homes were completely destroyed, and another 100,000 were damaged. Over 7,800 business were affected, comprising 14 percent of Dade County's economy. Costs have been estimated at $20 billion in damages, $10 billion in cleanup, $15.5 billion in insurance claims, and $1.04 billion in agriculture loss. In comparison, preliminary estimates of costs from the recent California earthquake have reached $20 billion in damages and $5 billion in insurance claims. While both natural disasters cause widespread damage, the nature of the damage is different and affects private and public decision making differently.(1) The strength of a hurricane can be measured by its wind speed. In the strongest part of the storm sustained wind speeds were estimated to be above 133 miles per hour (mph).(2) Wind gusts reached over 175 mph in other areas, yet some of the most damaged areas were not in the strongest part of the storm. For example, a well known subdivision of homes named Country Walk only experienced sustained winds of 97 mph or less, with gusts reaching 127 mph, but all the homes were completely destroyed. Surprisingly, other subdivisions close to Country Walk were not as severely damaged: a subdivision just eight blocks south of Country Walk, and closer to the eye of the hurricane, had very few homes destroyed or severely damaged. A common pattern of destruction seems to emerge from analysis of the storm: older homes incurred less damage than newer homes. Investigations by expert hurricane scientists and engineers came to the conclusion that wind speed was not the only factor that caused severe destruction. They believe that low quality construction, faulty designs, and flimsy materials--common problems in newer dwellings--all played a role in the severity of the damage. These problems can partly be attributed to an eroding building code. Although Dade County Commissioners adopted the South Florida Building Code in 1957, a code considered to be the strongest code in the nation, Table I shows that during the past 35 years the Dade County Board of Rules and Appeals allowed building standards to become less stringent. For example, in 1961, just four years after adopting the building code, the Dade County Board of Rules and Appeals approved the use of power driven staples for roof construction. Houses could be built more quickly because roofers did not have to use hand driven nails. Additional changes in the building code occurred during the 1970s and 1980s. In 1984, the building code was changed in order to allow the use of waferboard (pressed wood) on roofs instead of plywood. In this paper, we offer two explanations for the nature of the hurricane damage. First, our empirical analysis shows that the erosion of the building code resulted in more damage to newer homes than to older homes. Second, we hypothesize that consumers have substituted home-owners insurance for structurally sound homes that are built to withstand hurricanes because of the rising cost of building a home relative to the cost of home-owners insurance. This is the common problem of moral hazard. Data limitations confine our ability to test this hypothesis. Our empirical specification utilizes a two-limit Tobit model to explain the effects of wind speed, quality of housing, and recent changes in building codes in southeast Florida on the probability of incurring substantial housing damage from Hurricane Andrew. II. The Model In the wake of Hurricane Andrew, the community of southeast Florida, and others perhaps, began to ask whether the appalling physical damage was avoidable. Did builders use inferior materials for newly constructed houses and condominiums? Did government officials and inspectors neglect their duty in requiring and enforcing building codes? Did consumers support changes in the construction industry? Finally, are we all becoming more slipshod in what we do?There appears to be at least some evidence that the answer to all of the above questions is yes. But, if the answer is yes, why is this so? There is some evidence that older, presumably better built houses, received less damage from Hurricane Andrew than did newer houses, adding support to the notion that housing quality is not what it used to be--at least in terms of combating a hurricane. It ... |
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