Greg Spier

As the full extent of Hurricane Katrina’s devastation to the Gulf Coast is being discovered, it has become increasingly apparent that the property damage incurred by high winds and flooding could cause a ripple effect throughout the home building industry nationwide.

The effects of the disaster have impacted the lives of thousands who are left searching for loved ones, some semblance of normalcy and a grasp on the concept of home. Now, as the water recedes, portions of New Orleans are reopened and losses are calculated, one of the immense challenges that loom is a massive residential rebuilding effort, both the immediate and more long-term reconstruction of the area’s housing infrastructure.

According to the National Association of Realtors’ most recent monthly forecast, commercial and public property losses by Katrina will total about $100 billion, while the American Red Cross estimates that approximately 275,000 homes were destroyed in Louisiana, Mississippi and Alabama.

In contrast, the number of housing units destroyed by Hurricane Andrew in 1992 was estimated at just over 28,000. The combined effect of Hurricanes Jeane, Ivan, Frances and Charley in 2004 was almost as large, with nearly 27,500 units destroyed, according to the American Red Cross.

Though the full extent of the impact of the disaster upon the housing market and overall economy is unclear, area experts are bracing themselves for what they see as inevitable ripple effects.

“We know that there is going to be a trickle effect felt in the Northeast. It’s too soon to forecast the extent of it, but we all know it’s going to happen,” said Howard Chandler, executive officer of the Builders Association of Greater Boston.

What will happen and how soon is uncertain, although one of the major concerns is what many perceive as the immediate impact, a bit of which can already be felt in the market.

“I’m concerned at the moment because of the impact on construction costs. The first phase is the impact that is currently being felt upon material cost and transportation cost. That’s the first wave of concern,” said Greg Spier, 2005 president of the Home Builders Association of Massachusetts.

Because rebuilding has not commenced in the southern states, the current cost crunch is being felt due to the increase in gasoline prices and interrupted transportation in the Port of New Orleans.

“We all know the pain at the gas pumps, and lumberyards are feeling it, too. The yards are instituting a charge for deliveries, from the mill to the lumberyard and the lumberyard to job sites,” said Spier.

High prices of petroleum products also have the potential to affect other areas of the industry, particularly plastics and plastic compounds, which are likely to become scarcer as well as more costly.

Although these immediate effects are troublesome, the long-range implications of Katrina’s devastation also loom large in the building industry’s future.

“The second wave of concern, which I’m more worried about, will happen in the spring and summer when they start to look at rebuilding. I can’t predict the future, but I’m very concerned that the disastrous effects of this storm will continue, this time within the [building] industry,” said Speir.

With hundreds of thousands of homes needing to be rebuilt above and beyond normal market activity, supplies like plywood and other sheet goods are expected to be insufficient.

“Once the process starts it will call for a huge amount of supplies, which will most likely create a shortage, which will in turn drive up prices and then housing costs in the area,” said Nancy Bean, the executive officer of the North East Builders Association of Massachusetts.

A shortage may already be occurring in the areas most affected by Katrina’s path.

“I’ve heard stories coming out of the South about builders who had anticipated the storm and locked in prices on some materials by placing large orders. When they went to pick them up they were only given a partial delivery. The availability of materials is certainly in question and will continue to for some time,” said Chandler.

Not only is an anticipated shortage of materials likely because of the sheer amount needed for Southern construction efforts, but also because New Orleans was a major player in the import industry. In 2004, the city was the top destination for imports of cement and a number of other building materials. The New Orleans and Mobile, Ala., customs districts reported about 12 percent of national cement imports in 2004.

‘The Great Unknown’
Pressure on building material costs also is coming from a tax currently imposed on Canadian lumber and Mexican cement, as well as new duties on Brazilian plywood, according to National Association of Home Builders President David Wilson.

“The already enormously high tariffs on Canadian softwood lumber and cement produced in Mexico are going to create an almost impossible situation. Without immediate relief of those tariffs from the [U.S. Department of Commerce] it’s going to make an already hard situation even more difficult,” said Andrew Chaban, chairman of NAHB Multifamily Council board of trustees and chief executive officer of Lowell-based Princeton Properties, who recently returned from the NAHB fall board of directors meeting in Reno, Nev.

Exact figures of increased pricing will not come to light until more time has passed, but smaller-scale hurricanes have caused significant spikes in material costs. From July 1992 to September 1992, largely as a consequence of Hurricane Andrew, the average price for plywood increased from about $222 per 1,000 square feet to $321, and the price of Southern pine framing lumber rose from $264 per 1,000 board feet to $308, according to NAHB.

Although no one can accurately estimate the extent of Hurricane Katrina’s influence, it is almost certain that increased prices will have a negative impact upon the home building market in Massachusetts.

“It’s too early to figure out exactly what’s going to happen, but there is little doubt that is going to have an effect on housing and building,” said Brad Campbell, executive officer of the Home Builders Association of Western Massachusetts. “It will force people out of the new-home market. On the building side, the challenge is that our members may see fewer opportunities in the pipeline because not as many people will be building. It’s going to have a domino effect on the whole marketplace, on the whole economy.”

Not only will homebuilders be affected because of shifts in the industry – Katrina has also affected 9,000 NAHB builder members who have been displaced, or lost their homes or businesses.

While little question remains that this natural disaster will reshape markets on a national and local level, one of the largest questions is how long its effects will remain a major consideration.

“The real issue is going to be how long the impact will last. That will determine the fate of the market,” said Campbell.

Many are speaking not in terms of months, but years.

“In my lifetime, nothing on this level of devastation has occurred. The number of homes that have to be demolished, carried away and rebuilt means it’s going to be a long, long-term market prognosis,” said Chaban. “A leveling off will eventually occur, but it may be a very long time before we see that.”

In Massachusetts, the effects of Katrina come on top of what is an already a marketplace where demand outstrips supply and costs are a barrier to many would-be homeowners, and some fear that the possibility of higher costs and less new-home construction may prove to be just too much.

“We already have enough trouble in terms of housing. It’s kind of scary, if you think about what’s coming,” said Campbell. “Can we afford it? No. Will it happen? Yes. But the extent of it all is the great unknown.”