THE 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, but the number of homes destroyed by this catastrophe is larger than the losses from any previous U.S. natural disaster. The Federal Emergency Management Agency (FEMA) has completed approximately 54,800 damage inspections, but there are still many more to go. By looking at past experiences, together with the visible devastation, we have 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 homes destroyed by Hurricane Andrew in 1992 was estimated at more than 28,000. The combined effort 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.

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Hurricane Katrina caused widespread damage in Louisiana, Mississippi and Alabama, but the flooding in New Orleans, Mobile and elsewhere has translated into much larger numbers of homes destroyed because the prolonged submersion has caused structures to be damaged beyond repair. A large share of the more than 200,000 homes in the city of New Orleans will have to be demolished, as well as homes in the other areas of hurricane damage.

The immediate need will be to clean up and repair damage to structures that are still salvageable. The repair process will take up much of the construction labor near the affected area and several key materials that would otherwise have been used to build new homes. According to the National Association of Home Builders (NAHB), 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 being cancelled or delayed during the initial recovery period.

Although the loss of tens of thousands of homes implies increased demand for, and construction of, new homes, history has shown that there is no massive surge in home building in affected areas. Replacing units destroyed by the storm has begun, but will take place slowly over a number of years.

According to the NAHB, 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 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.

Source: The National Association of Home Builders

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