Housing Slowdown to Blunt Katrina Recovery Impact
Some building materials prices will be heading up in coming months as the result of reconstruction efforts in hurricane-battered areas of the Gulf Region, and the demand for labor will also pose problems, but the extended timeframe for completion of the recovery and some softening of residential activity in other parts of the country will help to blunt the impact, according to an outlook report released by the American Institute of Architects last month.
“In the coming months, we expect to see a jump in prices for building materials such as concrete and gypsum products,” said Kermit Baker, chief economist for AIA. “Due to the destruction of some regional timberlands by Hurricane Katrina, there will also likely be a rise in lumber and plywood prices.”
From the labor perspective, he said, “the increased demand for skilled trades in the Gulf Region is coinciding with an expected national slowdown in residential construction. That translates to a strong potential for a relocation of labor to the hurricane-impacted regions.”
Most of the rebuilding will be completed by 2008, according to the study, which was conducted by Economy.com. However, the magnitude of that undertaking will rely upon such factors as the amount of money ultimately earmarked by the federal government for rebuilding; payments by insurance companies for losses; the amount of charitable contributions; and how many households and businesses return to the region.
New Orleans is likely to take the longest, the report says, and by 2008 the city will probably only have replaced about 100,000 of the estimated 250,000 housing units lost to its stock in the aftermath of Hurricane Katrina.
Employment in Louisiana declined by 10% immediately after Katrina and is projected to drop by 3%-4% during the second half of this year and not recover until 2007. Construction employment, on the other hand, will surge 16.9% between last year and next year, the study found.
Nearby Baton Rouge has profited most noticeably from population losses in New Orleans, and history suggests that 40% of migrants from Louisiana will settle in Texas.
The study found that Mississippi is in significantly better shape. An estimated 25,000 housing units were lost in Gulfport-Biloxi and Pascagoula, about 15% of their housing stock, and 22,000 of those units should be replaced over the next three years. Pre-Katrina employment levels in Mississippi are expected to be reached by the middle of next year.
The 2% of the housing stock that was destroyed in Mobile, Ala. can be accommodated by existing housing vacancies, the report said.
Demand for skilled labor over the next 18 months is expected to increase by about 20,000 in Louisiana and 2,000 in Mississippi.
Among the key findings discussed in the report:
- Increased demand for labor is coinciding with a national slowdown in residential construction, allowing for skilled trade workers to commit to projects in the affected regions.
- Rising prices for petroleum-based construction products — roofing products, PVC piping and asphalt paving — will compound the effects of dramatic increases in transportation costs.
- A short-term spike in construction materials costs is not likely to translate into long-term increases.
- Between now and the end of 2006, prices for building materials are expected to increase in the 3%-4% range, with the exception of gypsum products and cement, both of which are currently in short supply and have experienced volatile prices in recent quarters. Both are expected to rise about 7% by the end of next year, and then moderate by 2008 to annual increases of 2%-3%.
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