Wall Street Journal (Op-Ed): May 31, 2008

A Market Solution to Hurricane Risk

by Jake Halpern

Tomorrow, tens of thousands of people who lost their homes in Hurricane Katrina and are still living in federally owned trailers will be forced to find a new place to live. After nearly three years, the federal government's temporary housing is coming to an end.

These folks are not going to have an easy time of it, because affordable housing in the Gulf Coast region is scarce. The problem has persisted despite billions in government aid – and the efforts of large private developers – because of a shortage of skilled laborers and sky-high insurance rates.

Yet now there is hope, in the person of John Sawyer. Not only does this 64-year-old Bostonian believe he can build houses people can afford to buy and insure; he says they will withstand the next big storm. And, by the way, he intends to makes a tidy profit.

Mr. Sawyer, who has built golf course communities and retirement homes in New England, has teamed up with Harold McKenna – founder of Boston Mortgage – to form Environmental Building Systems. Their goal: to build 1,500 "Everhouses" (designed by architect Steve Mackenzie) each year to fit the unique needs of the Gulf Coast.

The dwellings will arrive in the form of kits that can be assembled in as little as 14 days. With walls of reinforced concrete, there isn't much wood, and so mold won't pose a major problem if the houses are ever flooded. They can "take a bath" as the locals say. Everhouses also cost $68 a square foot, less than half the going rate for affordable housing in New Orleans.

The upshot of the house's durability and cost is that it's easy to insure. Just ask Shorty Sneed, a local insurance broker who lined up a deal with Travelers that will cover all Everhouses.

"I have been in this business for 35 years, and we see a lot of big hat but no cattle," says Mr. Sneed. "But these guys impressed me because they had done their homework." He says the Everhouse, built "with steel and concrete like a New York skyscraper," is "far superior" to anything else on the market. According to Mr. Sneed, the annual cost of insuring a $150,000 Everhouse would be $1,355. The going rate for insuring a conventional house of equivalent value would be $3,425.

To put together the Everhouses, Messrs. Sawyer and McKenna are recruiting local residents currently living in FEMA trailers and training them in construction. (Mr. Sawyer struck a deal with the United Brotherhood of Carpenters, which will be sending 20 trainers down to Mississippi.) The hope is that the new construction workers will buy the houses they help build. Mr. Sawyer will pay them union wages for as long as they work for him. Afterwards, the newly trained workers will have a skill that is in demand.

"The plan is very unusual," says Kay Kell, Pascagoula's city manager. "John Sawyer is the first developer who . . . looked at this as a complete process. He wasn't trying to come down here and sell houses quickly – he was here to solve a problem."

Virtually no one else has been able to do so, it should be noted, even with existing tax incentives and other programs. The Mississippi Development Authority (MDA) is preparing its latest attempt to tackle the problem by allocating $350 million in federal money to developers to build "affordable homes."

But according to MDA officials, these developers will import many of their workers. Inevitably, this will drive up the cost of construction. And it seems unlikely that any of them will be building the cement fortress that has elated insurance broker Sneed. In short, insurance rates will be high. MDA officials suggest that their subsidies will make these homes cheaper to buy and this will enable homeowners to fork out more for insurance.

One consortium of well-respected, nonprofit developers, which includes Enterprise Corporation of the Delta and Enterprise Community Partners, has already run into problems. In the wake of Katrina, they used both local and imported labor to build modular homes along the Mississippi coast. The cost to buyers ranged between $83 and $115 per square foot.

The houses were made of wood (not concrete), which is probably one reason they cost between $3,000 and $5,000 a year to insure. Recently, this same outfit applied for an MDA loan to develop a 1,100 acre property in Biloxi, Miss. But several officials involved in the project told me that the deal may fall apart, largely because of the cost of labor and insurance.

The genius of the Sawyer-McKenna plan is simplicity: design a better house. Their venture also provides employment and job training, and stands to save taxpayers the cost of subsidizing the purchase of new homes that are more costly to insure and less likely to last. Since they won't depend on a federal handout, their program can continue indefinitely.

Messrs. Sawyer and McKenna want to launch into full production by the end of the fall. Of course, it remains to be seen just how well their plan will work. But officials in Mississippi might want to take a close look at this approach before they give away their entire $350 million piggybank.

Mr. Halpern is the author of "Braving Home: Dispatches from the Underwater Town, the Lava-Side Inn, and Other Extreme Locales" (Houghton Mifflin, 2003).