Katrina Fails to Sink Island Real Estate Market

Dauphin Island, AL – There are property lines on the sea floor off Alabama's Dauphin Island. You can tell from the headless pilings sticking up out of surf. Last season, they supported beach homes.

John Bullard used to stay in some of those lost properties. From the shade of his beach umbrella, Bullard points to the houses currently lining the water. A decade ago, he says, those were probably three rows back.

Turn away from the postcard-perfect waters of the Gulf, and Dauphin Island looks like something out of Mad Max. There's not a plant in sight. The island's main road is still half-buried in sand. And for every occupied house, there's another sitting abandoned. Many of the structures' staircases are washed away, leaving them perched like time capsules on stilts while their owners apparently debate what to do.

According to local real estate agent Wayne Waddell, some of those property owners are cutting their losses. And others are still gambling with nature. Waddell says several investors have contacted him about buying underwater lots, although he hasn't actually sold any yet.

So far, Katrina's definitely cooled vacation home prices on the island. Waterfront properties lost 10-20% of their value last year. But Waddell thinks that depreciation is temporary. The real shift, he says, is in the other direction.

"Demographic changes are accelerated within days that would have taken years," he says. "People that might have been fighting to justify paying a tax on their property that they were either uncomfortable with or couldn't afford, well, still they weren't going to move Now they will."

From what Waddell's seen, the people who are buying now are coming from further and further away - Atlanta, New York, the upper Midwest. He's only made a few in-state sales in the past year.

Dauphin's buyers are investors and vacation home-seekers: people already priced out of other hot coastal real estate markets who find that rental income and second home tax breaks make up for the risks.

Remember those photos of the giant offshore oil platform that washed up on an Alabama beach during the storm? The same pictures are how Atlanta resident Scott Lusins learned that his vacation house, a few lots back, hadn't survived the storm. The Lusins family lost two houses when Katrina smashed through last year. This summer they're back, renting while they rebuild.

Lusins says he knew when he bought the property that the coast was entering a heavy hurricane period, "but I just said, if I'm going to do this, I can't sit here and worry about this. I've got insurance. Chances are my land's not going to wash away. Even though I saw some houses when we bought sitting in the water down there on that end, I just said, 'I'm not going to worry about it.'"

Dauphin Island's Katrina story is not one of old timers being driven from their homes, or holdouts camping on concrete slabs. Only 5-10% of the owners on the west end are year-round residents. And Scott Lusins' wife Linda admits the stakes are different for second-homes.

"It's not something that we cried I mean, we cried, but we didn't cry. We weren't devastated because people lost everything, you know? We just lost our vacation, which can be replaced."

In fact, replacing these homes after one hurricane or another has kept the Mobile construction industry busy for a decade now.

Construction worker Travis Alston figures he's helped rebuild more than a dozen homes on Dauphin Island this year, and he doesn't see business drying up any time soon. "It's crazy," Alston laughs. If the island were wiped out tomorrow, he says he'd expect owners to start rebuilding soon as they get the roads are fixed.

And now the island's getting some help from the federal government. The Army Corps of Engineers is set to construct a protective berm on the Gulf side next year. Island residents bear part of the project's cost, but they're quick to argue it benefits more than their own real estate.

David Connolly is one of the regulars filling barstools at the Pelican Pub. He's gathered with friends to play darts and discuss the day's fishing as the sun sinks into the Gulf. Currently the head of the Island's Property Owners Association, Connolly settled on Dauphin's west end ten years ago to enjoy a Jimmy Buffet-style retirement. After years of patching up from hurricanes, Katrina finally convinced him to move to a more-sheltered lot on the east side. But despite his caution, Connolly has no patience for those who question the island's right to rebuild, or the federal government's responsibility to help.

Connolly argues that, as a barrier island, Dauphin's fate is linked to that of the entire Mobile bay. Without the island, he says, Katrina's damage to south Alabama would have been much, much worse.

Besides, Connolly continues, government funds to rebuild the beaches are part of its occupants' due, as taxpayers. "I bet there's more in welfare checks and food stamps ever invested in Mobile and other places than goes here every few years," Connolly says, "so I mean, yeah, we need help now and then, but I don't think there's too many people down here on welfare."

Even without the government taking a bigger role, there are still enough other incentives to keep construction humming on the beach: tax credits for second homes, federal insurance to cover flood damage, and the simple gamble that houses will appreciate enough to sell before the next big one tears through.

It's a system in which land, usually a symbol of permanence, has become a temporary possession. And that, says realtor Wayne Waddell, tells you who the real losers in this game are.

"It's not the investor, it's not the people who own a home for rental income. They're okay. They may have lost a little money. But it's the end user. The person who lived in the community."

And to Waddell's way of looking at it, that's when the community loses too.

Megan Williams, WHQR News