Super Bounce for New Orleans Real Estate Post-Super Bowl?
Will this windfall spark an immediate New Orleans property boom? Not likely. But it does seem reasonable to speculate that the short-term psychological boost of a Super Bowl victory could act as an economic tipping point, promoting a virtuous circle that drives real estate prices up over the long term.
And here's the thing: Katrina stomped on property values to such an extent that even if prices do rise, New Orleans will still be a bargain compared to many major U.S. cities.
There has been a lot of research into the short-term impact of big sporting events -- from the Olympics to the World Cup to the Super Bowl -- on the economies of the cities that host them. Sports boosters tend to produce grossly exaggerated impact estimates in an effort to persuade cities to cough up the hundreds of millions in stadium renovations and other costs associated with hosting a major sports event.
Because pro football is by far the most popular and lucrative U.S. sport, the Super Bowl is particularly prone to this sort of inflation. The NFL claims that the Super Bowl generates between $300 million and $400 million in increased economic activity for the city that hosts it. At the very least, a successful team can open up rental opportunities for big games.
Independent economists, however, have consistently found that the real benefits are much lower. In a nutshell, cities tend to spend vast sums tarting up their stadiums with little to show for it, because major sports events tend to scare off as many locals and visitors as they attract. Moreover much of the money spent on a Super Bowl goes to national TV networks and hotel chains, not the local community.
And even direct local spending by sports fans needs to be examined critically. Much of that money would have been spent on other recreational activities and therefore can't be counted as a net gain, a phenomenon that economists call substitution.
One major study found, based on a detailed regression analysis, that the Super Bowl generates at most one quarter of the short-term economic benefits that the NFL promises. "It would appear that padding is an essential element of the game both on and off the field," the authors concluded tartly.
Of course, Miami hosted the actual game, so the Super Bowl was a free good for both New Orleans and Indianapolis. But another, happier line of economic research argues that sports franchises generate long-term benefits that short-term impact studies don't capture. The logic here is that the presence of a sports franchise is an urban amenity for which residents will pay in the form of higher rents or lower wages. A 2003 study by Gerald Farlino and Edward Coulson found that the presence of an NFL team raises urban rents by 8% on average.
And in 2008, economists Michael Davis and Christian End found that a successful NFL team can boost the per capita income of local residents by up to $100 a year. The authors theorize that happy sports fans tend to be more productive, which increases their earnings. And that, in turn, can help boost housing values.
There are an awful lot of happy Saints fans in New Orleans today. But this is a city where animal spirits have traditionally been channeled into celebration, not work. Mardi Gras is coming right up, followed by Jazz Fest in April. After that it gets mighty hot in New Orleans, an incentive for the locals to stay home and sip Hurricanes inside their newly renovated, air-conditioned houses.
In short, we can only speculate about the likelihood of a Saints property bounce. We do know that with the notable exception of Hurricane Katrina, New Orleans has always been a fun place to live and visit, even during the four decades when the Saints sucked. Well, now the Saints are champions. Brokers, start your engines!