Study projects hurricane's effects on building industry

According to an NAHB news release, the economists considered previous hurricanes and the visible devastation of Katrina to calculate their projections.

Looking at the past

In 1992, the number of housing units destroyed (made uninhabitable and beyond economically justified repair) by Hurricane Andrew was estimated at more than 28,000. In 2004, the combined effects of hurricanes Jeanne, Ivan, Frances and Charley were almost as large, with nearly 27,500 housing units destroyed, according to American Red Cross estimates. In 2004, winds or the immediate force of the storm surge caused much of the destruction, and the number of homes with major but reparable damage was more than twice the number of homes destroyed.

On the Gulf Coast

Hurricane Katrina caused widespread immediate damage in Louisiana, Mississippi and Alabama, but the flooding in New Orleans, Mobile, Ala., and elsewhere is likely to translate into much larger numbers of homes destroyed. While floods did not generally tear off roofs or walls or cause structures to collapse, many homes will be permanently uninhabitable. The floodwaters carried contaminants that cannot be easily removed, and even if the water were clean, prolonged submersion would cause the structures to be damaged beyond repair. This is likely to be the fate of the more than 200,000 homes in the city of New Orleans.

Supply and demand

Hurricane Katrina’s effects will be seen in materials supply and demand, because the areas affected by the storm have a significant number of wood product facilities that might have been damaged or destroyed. On the other hand, trees that have been blown down will need to be harvested quickly, and that might help to lower prices for wood products.

Imports of building materials will be disrupted by damage to port facilities. New Orleans was the top destination for imports of cement and several other building materials in 2004.

Pricing

From July through Septemer 1992, largely as a result of Hurricane Andrew, the average price of plywood increased from about $222 per 1,000 square feet to $321, and the price of Southern pine framing lumber increased from $264 per 1,000 board feet to $308. The 2004 hurricanes did not trigger a similar increase, and prices actually fell during the relevant period after soaring during the preceding year.

The combination of greater – and partly speculative – demand and disrupted supply produced a spike in lumber and panel prices in the final days of August before Hurricane Katrina. With production already running at full capacity for wood panels, further price increases for those products, as well as for roofing materials, are likely.

Moving ahead

Although the loss of tens of thousands of homes implies greater demand for, and construction of, new homes, past experience has shown that there is no massive surge in home building in the affected areas. Replacing units destroyed by the storm will not begin for many months, and will take place slowly, likely over several years.