Cities and towns closest to the Deepwater Horizon oil rig are starting to feel the effects of the oil spill. In Alabama, Baldwin County’s tourism accounts for just over $2 billion, says Donald R. Epley, director of the Center for Real Estate Studies at the University of Southern Alabama, in Mobile. “What we are seeing is the first round of impact, which is lower tourism and loss of income for fisherman and shrimp fisherman,” he says.
“There are approximately 55,000 jobs directly related to the tourist industry from Pensacola to Panama City, so the impact on our tourism and to our residents is going to be exponential if they don’t stop the oil,” says Mary Anne Windes, president of Emerald Coast Association of Realtors, in Fort Walton Beach, Fla.
Moratorium Compounds Woes
In New Iberia, La., Charles Sanders says that the moratorium on drilling is compounding the spill’s effects. “About 50% to 60% of the people in this area have an oil-related job,” says the owner of S&S Renovators.
“It’s not just the people employed on the rigs, but the supply boats, supply companies, and engineering firms — all the people who make a living selling things to the oil industry,” agrees Jonathan Wallick, president of Wallick Construction & Restoration, in New Orleans.
Epley says that the second round of impact will be on real estate values, but that is difficult to measure because loss is defined during the sale of a property. Windes points out that if coastal property rentals continue to plummet, the loss of revenue will factor into some owners’ ability to make mortgage payments, their motivation to sell, and the amount a buyer is willing to pay for a property with a decreased cash-flow stream.
The Pensacola area real estate market was just beginning to recover, she says. Now many buyers have indicated they are going to wait, and she has heard reports of buyers backing out of contracts because of the oil spill. “If the spill is cleaned up pretty quickly, then the owners can absorb the loss this year without much of a decrease in value. The main factor will be the length of time the perception remains that we have oil on the beach,” Windes says.
Extent of Impact
Economist Rick Harper with the University of West Florida, in Pensacola, says that if the downturn is confined to the 2010 summer tourist season in the area’s two counties, the impact will be significant, but not devastating. “If we take a 10% to 30% hit in the 2010 season on 10% of the economy, that’s 1% to 3% of the total economy. That is equivalent to a serious recession,” he says. If BP successfully caps the spill soon, 2011 could have a healthy tourist season. However, if oil continues to wash ashore for months, there will be a lasting effect on property values. “The population growth rates will slow substantially as people move out and people fail to move in,” he says. “What drives housing demand is new household formation.”
The strong hurricane season predicted by three major forecasting organizations could mean more damage to the areas already affected by the oil spill. However, Sanders finds that hurricanes stimulate construction spending, noting that 2003, the year after hurricane Lili, was his best year in business.
More on the issue:
Home buyer qualms about houses in the oil spill zone.
A neat comparison put together by Energy Savvy of the impact of the Deepwater Horizon oil spill compared to the impact of the energy wasted by inefficient homes
—Nina Patel, senior editor, REMODELING.