Rebuilding Riddle: Gut That House or Give It Up

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Volunteer construction workers with Habitat for Humanity cut wood for newly constructed homes August 23, 2006, in the Upper Ninth Ward of New Orleans, Louisiana.

Real estate agent Diane Ragan flips through some property listings online and finds some bargains not far from Old Metairie, a suburb west of New Orleans with million-dollar Mission Revival and English Tudor mansions. She points out a three-bedroom "cottage" with an asking price of $137,000 — down about a third from pre-storm prices. Even though the house took on nearly five feet of water after Katrina, she figures a young couple, professionals most likely, will grab it as a fixer-upper — or demolish it and build the home of their dreams.

Yes, it's true, only a year after Katrina, some people are crazy enough to be buying back into New Orleans. Whole swaths of the city may still be covered in caked mud and mold, but prices are up in areas like Uptown with its historic homes and Downtown with its contemporary lofts. KB Homes has model homes open in the suburbs.

The grimmest real estate market remains New Orleans East, where debris, rats and compromised water and sewer lines are making sales — and cleanup — difficult. But even in areas like middle-class Lakeview, where the sea of "For Sale" signs can be daunting (one in three houses, by some estimates), speculators are moving in to buy property — sometimes a whole block at a time — with the classically American conviction that this devastation is a buyer's market not to be missed. "It's the young crowd — 20-, 30- and 40-year-olds who are coming back and making things happen in New Orleans," says Ragan confidently. She should know; a 40-something, she's one of them.

On the eve of the Katrina anniversary, President Bush sat down to a dinner of crawfish etouffe and fried chicken at Mother's Next Door in downtown New Orleans to hear about the concerns of local and state officials. But out in the still-dark neighborhoods, homeowners had a far more pressing worry — a city deadline Tuesday to gut their houses. Those left open and in ruins face possible demolition. The deadline — part of the city's Good Neighbor Program — is meant to allay fears that some areas will end up with "jack-o-lantern" development, one or two rebuilt houses amid a block of devastation. But because Mayor Ray Nagin favors a "market-driven solution", residents aren't really sure which neighborhoods will come back. On Monday, competing development groups — representing the mayor, city council and, indirectly, the Louisiana Recovery Authority — finally signed an agreement to stop squabbling and put together a citywide development plan, which might offer some direction for future growth. The new deadline? Well, hopefully, before 2007.

Kurt Werling, for one, has had it with waiting. The 33-year-old construction company owner left his pregnant wife in Houston six weeks after Katrina and went home to Lakeview. He had his two-story house gutted, sanitized and treated for mold in October. His new lawn was in before Thanksgiving, but all around him were devastated houses. Neighbors said they were waiting for insurance money or a government handout, but mostly, he thinks, "it was just indecision." Intent on saving their subdivision, he and neighbor Al Petrie, 53, decided to form a limited liability company (LLC) to buy up nearby properties to redevelop. By showing that it could be done, says Werling, "we figured we would have the block rebuilt 18 months after the storm."

They've made progess, but it's been tough, what with no utilities, phones or any neighbors at first. Petrie, who handles investor relations for oil companies, called family and friends for money, then oil business associates in New York, San Francisco, Washington and Houston. They raised $2.5 million — the majority of it locally — to buy and raze 19 properties in a 10-square-block area near their homes. Petrie's new duplex is their prototype for the future: three stories, 2,400 square feet of living space, built up at least 9 feet 4 inches, accommodating a garage that can flood. Priced to sell at $495,000. "We're in it for the long haul," says Petrie. "People see somebody's got the confidence to invest." Construction on the 19 is supposed to start this week.

Over in the Lower Ninth Ward, one of the hardest-hit African-American neighborhoods, landlord Donald Thomas has much the same hope. A paper mask over his mouth, Thomas is using a crowbar to pull nails from the frame of the house he grew up in and now rents out. Unemployed since Katrina flooded the Hyatt and took his job as a banquet captain, he is spending his time renovating. The city is in dire need of rental housing like his, since Katrina destroyed some 43,000 units, including 5,000 public housing apartments. Standing in the doorway, the 62-year-old points to empty lots where houses once stood nearby. He hasn't seen the neighbors at all, but believes his renovation, lonely as it is, will hasten the process of rebuilding. "I'm doing everything I possibly can to make it viable for someone to come in and sit out here on the porch, so people pass and say 'Oh, that house looks so nice,'" he says. "I'm hoping my neighbors will say, 'Look, Mr. Thomas has his home back together.'"

Ragan, a multimillion-dollar producer for Keller Williams Realty pre-Katrina, expects redevelopment to be spotty at best. In Jefferson Parish, just west of the city, most of the houses, which took a couple feet of water, are already sold or renovated. Sales are up from last year, about 13% in July, by comparison with New Orleans itself, where sales are lagging behind last year — though only by 10%, surprisingly. In the middle-class bastions of Lakeview and New Orleans, houses "stripped to the studs" are going for land value only. "The older generation who had homes for 40 years, retired, saved and thought they would stay forever, have gone on," says Ragan. "There is so much work to do and they can't get out in the heat and do it. You have young medical residents, construction workers, even investors from around the state who are moving in."

Mayor Nagin, who has been criticized of late for remarks about the slow progress in rebuilding New York's "hole in the ground", predicts a boom is in the making with $60 billion in construction-related funds about to pour in from federal and state sources, including the Road Home program giving homeowners up to $150,000 to rebuild. Ragan says prices for homes are already up 5% to 10% in July. While Uptown is hot (31 properties sold in July), New Orleans East is not (14)."There are houses never even touched since Katrina out there," says Ragan. "People have not even taken out their personal belongings. There's debris and trash and rodents. People need to come home and take care of their property." She and her husband, an electronics engineer who now works as an electrician, have invested instead in the western suburbs, hoping to rent out to newcomers. "We need to make some money. If not, shame on us."

But Reed Kroloff, dean of the Tulane University school of architecture, urges caution to speculators, even locals. "It's foolhardy if they're buying up property in an area where the likelihood of them having a neighbor again is minimal," he argues. "New Orleans East has only 10% to 13% of its population because of power problems. Lakeview, the same. It will be very hard to regenerate their neighborhoods because so many people aren't coming back."

Planning snafus haven't helped. One plan after another — by the Urban Land Institute, the mayor's Bring New Orleans Back commission, even New Urbanist architect Andres Duany's efforts — has fallen by the wayside in what Kroloff calls "the longest-playing comedy of errors." No one, including Nagin, has been willing to say clearly which neighborhoods shouldn't be rebuilt, or can't be provided city services. "The mayor so far has not demonstrated a willingness to make anyone unhappy," says John McIlwain, a senior fellow who worked on the ULI plan. Kroloff, who headed the failed BNOB planning effort, credits Nagin with being "smart and articulate" but believes the mayor must clearly lay out the city's top needs on everything from housing to mass transit. "We need a shared vision," he says.

Kroloff is pushing for a plan to accelerate sales of derelict and abandoned properties — an effort Nagin started before Katrina, selling off older homes in the city's center to nonprofits. Now those derelict properties, many in Central City, are fueling the city's horrific murder rate as gangs use the abandoned housing. Kroloff's idea is to sell them for $1 if necessary, then cut people's taxes by 50% if they stay 10 years.

Another idea: Start a modular home industry — not to build "souped-up" trailer homes but quality custom-builts, a modern-day version of the old Sears catalog home. KB Homes is already using similar technology, and why couldn't New Orleans, he wonders, attract modular homebuilders to churn out a new generation of affordable housing for the nation? The AFL-CIO investment fund in Washington, notes Kroloff, is looking to pour $1 billion into New Orleans.

Al Petrie, who desperately wants to stay, now represents his neighbors in the new unified planning effort, bringing together consultants hired by the city and state. "New Orleans is a difficult city to leave. The people we lost did not have deep roots or had no financial means," he says. He does worry about the next storm, of course. "If there's another storm, I'll rethink, but I owe the city one more shot," Petrie says. In the meantime, he's one of those "speculators" investing in New Orleans, firm in his belief that property values will be back in three to five years.

-With reporting by Theo Emery/New Orleans and Amanda Ripley/Washington