The Hidden Costs of Hurricanes

September 22, 2017, 3:00 PM UTC

Despite the myriad hardships visited upon cities when hurricanes strike, economists can usually find a silver lining in the post-storm data: Though natural disasters can bring local and regional businesses to a temporary standstill, the ensuing recovery efforts often bring a spending jolt that offsets—sometimes more than offsets—the economic wreckage.

Such should be the case for Houston, Miami, and other cities recently impacted by hurricanes Harvey and Irma, which together may end up costing between $150 billion and $200 billion in damage and lost productivity, according to estimates from Moody’s Analytics. Experts generally agree cities’ recovery from both storms should be relatively swift. “Eighty percent of the economy will be back in six months, 90% in a year, 100% three years from now,” Mark Zandi, Moody’s chief economist, says of Houston. A similar comeback is also likely in cities hit by Maria, which ravaged Puerto Rico and the surrounding area.

First comes the influx of insurance and relief cash, which fuels massive new purchases of goods and materials that lift GDP and boost business. Companies like Lowe’s (LOW) and Home Depot (HD) stand to profit as communities rebuild, alongside players as disparate as Walmart (WMT), Procter & Gamble (PG), and the Big Three auto­makers, whose sales rise as people replace storm-damaged goods. Workers may see gains as well, particularly in sectors like construction, where spiking demand drives up wages.

A woman and her father try to recover items from their flooded home in Texas.EMILY KASK — AFP/Getty Images
EMILY KASK — AFP/Getty Images

Rebuilding, Slowly

But the recovery bump doesn’t manifest itself evenly. Post-disaster, people with the means to pay a premium for labor and materials tend to bounce back faster than those who do not—worsening entrenched inequalities. Meanwhile, workers who flee ahead of a storm are often slow to return, and some don’t return at all, contributing to labor shortages (which could be exacerbated by tightening immigration restrictions this time around).

Related: Millionaire Welcomes 70 Irma-Displaced Foster Kids to His $30 Million Home

Cities ignore these problems at their peril, experts warn, particularly as climatologists predict more frequent and more powerful hurricane events.

What can the U.S. do to become more resilient? The obvious solutions are buying out residents in flood-prone areas, discouraging building there with new zoning laws, and requiring more residents to buy flood insurance.

Forecast: Cloudy

But those fixes alone are likely inadequate for the storms to come. More governments and companies will need to reimagine both existing infrastructure and construction. Think roadways designed to better transport floodwater, building codes requiring new developments to better manage storm runoff, and initiatives that engage major companies as partners in better flood management as they rebuild.

The stakes are high, particularly in a hub like Houston. Industries such as energy, petrochemicals, and shipping may be bound to coastal areas by geography, but companies in other sectors critical to its economy—health care, tech, and finance—can leave.

“If you think about it from the perspective of a Fortune 500 company, it’s ‘Yeah, I’m happy to help clean up and be a part of Houston this time,’ ” says Andrew Salkin of 100 Resilient Cities. “But if there’s another flood, another storm that drops 30 or 40 or 50 inches of rain, I don’t know how many more times I’m going to be able to take the hit.”

A version of this article appears in the Oct. 1, 2017 issue of Fortune with the headline “A Category 5 Business Problem.”