NAHB Releases Study On Impact Of Katrina
Economists for the National Association
of Home Builders (NAHB) today released the following report on how the destruction
spawned by Hurricane Katrina could affect the price and supply of building materials.
IMPACT OF HURRICANE KATRINA ON BUILDING MATERIALS AND PRICES
The full extent of the impact of Hurricane Katrina on the overall economy
and on the housing market is still unclear, and the immediate focus is properly
on human life and health, but the number of homes destroyed by this catastrophe
is almost certain to dwarf the losses from any previous U.S. natural disaster.
Past experience, together with the visible devastation, provides some basis
for projecting the effects on construction activity, the supply and cost of
building materials and construction labor, and other implications for the housing
market.
The number of housing units destroyed (made uninhabitable and beyond economically-justified
repair) by Hurricane Andrew in 1992 was estimated at over 28,000. The combined
effect of Hurricanes Jeanne, Ivan, Frances, and Charley in 2004 was almost as
large, with nearly 27,500 housing units destroyed, according to estimates compiled
by the American Red Cross. In those cases, most of the destruction was caused
by winds or the immediate force of the storm surge.
The number of homes with major but reparable damage was more than twice the
number destroyed.
The 1906 San Francisco earthquake/fire reportedly destroyed 28,000 “buildings.”
Katrina also caused widespread immediate damage in Louisiana, Mississippi,
and Alabama, but the flooding in New Orleans, Mobile, and elsewhere is likely
to translate into much larger numbers of homes destroyed. Although the floods
generally did not tear off roofs or walls or cause structures to collapse, many
homes will be permanently uninhabitable.
The flood waters carried contaminants that cannot easily be removed, and even
if the water were clean, prolonged submersion would cause structures to be damaged
beyond repair. This is likely to be the fate of a large share of the more than
200,000 homes in the city of New Orleans. Of necessity, rebuilding will have
to wait. The immediate need will be to clean up and repair damage to structures
that are still viable.
The repair process will absorb much of the construction labor near the affected
area and several key materials that would otherwise have been used to build
new homes. The materials that will be most affected include roofing and wood
panels (plywood and OSB). Demand for other materials, such as concrete, is likely
to decline initially, as planned projects are cancelled or delayed during the
initial recovery period. The storm will have impacts on the supply of materials
as well as demand. The areas affected by the storm have a significant number
of wood product facilities that may have been damaged or destroyed.
On the other hand, trees that have been blown down will need to be harvested
on an accelerated basis, perhaps helping to lower wood product prices in the
medium term. Additionally, imports of building materials will be disrupted by
the damage to port facilities.
New Orleans was the top destination for imports of cement and a number of
other building materials into the U.S. in 2004. Cement imports, in particular,
involve the use of specialized terminal facilities. The New Orleans and Mobile
customs districts reported about 12 percent of national cement imports in 2004.
Congestion caused by diversion of shipping to other ports will also probably
disrupt some supplies of materials, as will land transportation problems caused
by damage to roads, rail, and reload centers.
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.
The hurricanes in 2004 did not trigger a similar increase, and prices actually
fell during the relevant period, after soaring during the preceding year. The
combination of greater (partly speculative) demand and disrupted supply produced
a spike in lumber and panel prices in the final days of August 2005. With production
already running at full capacity for wood panels, further increases for those
products, as well as for roofing, are likely. Although the loss of tens of thousands
of homes implies increased demand for, and construction of, new homes, past
experience has shown that there is no massive surge in home building in affected
areas. Replacing units destroyed by the storm will not begin for many months
and will take place slowly, over a number of years.
In Dade County (now called Miami-Dade), the number of residential permits
was 9,026 or 7.8 percent of the state total in 1993, the year following Hurricane
Andrew. That share of the state was slightly lower than the county’s 7.9 percent
share in 1991. By 1995, there was an increase to 14,718 or 12.0 percent of the
state, but that number still wasn’t much greater than what might have been expected
if there hadn’t been a hurricane. The experience in other areas, such as Alameda
County, Calif. following the 1991 fires and Charleston, S.C., after Hurricane
Hugo in 1989, was similar.
Homes were rebuilt or replaced very slowly.
Posted 6 September 2005
