Let the Rich Be Flooded: The Unequal Impact of Hurricane Harvey on Household Debt

Abstract

Hurricane Harvey submerged over 25% of Houston in August 2017. Using a treatment intensity difference-in-difference design on consumer credit data, we find that average treatment effects of flooding mask substantial heterogeneity by initial financial well-being and homeownership status. Negative financial outcomes are concentrated among homeowners who entered the hurricane in a weaker financial position. For example, within financially constrained, owner-occupied areas, the average bankruptcy rate was 0.7 percentage points (or 28%) higher in heavily flooded areas after Harvey than in similar areas that did not flood. Being in a floodplain and, hence, having a higher likelihood of flood insurance, largely mitigates these negative effects. Using individual FEMA registrant and SBA loan data, we present evidence that our results may be explained, in part, by severe inequalities in access to federal disaster assistance and loans.

Keywords: inequality, financial constraint, bankruptcy, student debt, natural disaster, FEMA, SBA, wealth effects

JEL Classification: Q54, H84, D0, D1, R2