The hurricane is driving up operating costs for bay area contractors, who are passing the price increases, as well as project delays, to customers.
By JUDY STARK, Times Staff Writer
Published September 24, 2005
[Times photo: Edmund Fountain]
Steve Baldree loads paving stones at Flagstone Pavers in Brooksville. The company has added a surcharge to its delivery prices because of similar costs added to the materials it buys. “We go through so much of it that it ain’t even funny,” Baldree says of the gas the company uses in moving heavy building materials.
Here's what Hurricane Katrina means to west-central Florida builders and home buyers: delays, short supplies and higher prices.
Mike Bartoletta, president of the Tampa Bay Builders Association, offers this example. When TECO sends workers to the hurricane areas to help repair damage, the utility notifies local builders that underground electrical services to new construction and meter installations will be delayed several days.
"We understand," Bartoletta said. "But if you can't pour a driveway because you don't have underground electric to the house . . . and you miss your date because you have to schedule your concrete two or three weeks in advance . . . throw in a little rain, throw in a delay, the cost of concrete goes up next week, and suddenly that driveway costs you not only time, but another $300, $400, $600."
The spikes in fuel costs hit builders and buyers too, and not only when they fill their cars at the pump. At Flagstone Pavers in Brooksville, owner Geoffrey P. Bond is paying a fuel surcharge on materials delivered to him, and is levying a fuel surcharge when he makes deliveries of finished pavers.
"We're getting surcharges of up to 30 percent on freight we negotiated a year and a half ago," Bond said. Overall his prices are 4 percent higher "as a direct result of fuel costs." Bond said one builder wanted him to commit to a firm price through 2006, even as the builder admitted he has a price escalator clause in his own contract with buyers.
Bartoletta said fuel surcharges raise the price of fill dirt from $6 or $7 a yard to $14 or $15.
Nationally, the home-building industry anticipates that the rebuilding of the Gulf Coast will take more than a decade and that delays, short supplies and higher prices are here to stay.
"No one has gone through an experience like this before," Jerry Howard, chief executive officer of the National Association of Home Builders, said this week. "All of us are in unmapped territory now."
The American Red Cross estimates that Katrina destroyed 275,000 homes and another 200,000 were damaged. By contrast, Hurricane Andrew, in 1992, destroyed or damaged 28,000 homes in several states and it took 11 years to complete that reconstruction.
"The home-building infrastructure in the area devastated by Katrina is just as damaged as any other infrastructure you can imagine," Howard said. "They are not in a position to help right now." Lexington Homes, based in New Port Richey, has created a Web site to offer construction jobs in the Tampa Bay area to workers displaced by Hurricane Katrina. The site is at www.k-jobs.org It also offers information about emergency housing and disaster relief.
Water, sewer and electrical systems have to be restored before home builders and remodeling contractors can get back to work, Howard said. It will be months before the land is drained and decontaminated. Repair will take precedence over rebuilding. Typically, after a major disaster such as a hurricane, replacing homes does not begin for months and takes place over a number of years.
One of the first steps, he said, is that building inspectors, some brought in from out of the area, will visit every home and mark it with a code to indicate its condition. Those range from "minimal damage, the occupants can move back in immediately," to "the most extreme: The structure is condemned, it's unsafe even to go in to recover personal effects," Howard said. That effort may take months, especially in built-up areas like New Orleans. It is complicated by the difficulty of doing the work in remote areas and of familiarizing out-of-town inspectors with local codes and building techniques.
Expect price spikes on a number of products, said Howard and the builders association's chief economist, David Seiders, who made their comments in a conference call with reporters this week:
Plywood, oriented strand board and framing lumber. The price of plywood increased 50 percent after Katrina, "and that's indicative of what we think will happen to a further extreme once rebuilding begins in earnest," Seiders said. The trade publication Random Lengths reported that its OSB composite price rose from $301 per 1,000 square feet on Aug. 26 to $444 on Sept. 16. Framing lumber has increased in price by 15 percent, "and we expect heavier demands to evolve down the line," Seiders said.
Cement. The Port of New Orleans was one of the major entry points for Mexican cement. It can be brought in by truck, but there were shortages even before the hurricane because of huge demand from China. The Portland Cement Association estimates that rebuilding New Orleans will require at least 4-million tons of cement in the next four or five years.
Builders want the federal government to remove tariffs on Mexican cement, Canadian softwood and Brazilian plywood.
Wallboard and insulation will be in "pretty short supply," he said.
So what effect will rising prices and increased demand have on the U.S. housing market? Seiders was not pessimistic. "The normal market forces we had been forecasting are the dominant forces," he said. The Gulf Coast represents only a small part of the housing industry. People in Tampa Bay don't stop buying houses because of the devastation in Louisiana.
"We expect some modest decline in overall starts and sales activity," he said, but that slowdown, expected in 2006, "is related to the interest-rate story to some degree," he said. "A price boom creates its own affordability issues and leads to its own correction. Prices slow down."
He anticipates that 2007 will be "either flat or a slight increase over 2006."
As for fuel surcharges, "They're popping up everywhere, adding to the cost of a lot of things," Seiders said. "It's not surprising to hear about costs being added on to almost everything for higher energy bills. That's one of the reasons for worrying about an economic slowdown. The impacts of higher energy costs move through a lot of channels. We'll see the general weakening effects of high energy costs for the rest of this year and 2006."
Howard said it was unlikely that builders would turn to concrete or steel framing rather than wood as they rebuild the Gulf Coast area. The vast majority of the labor supply is skilled in wood framing, and retraining would be massive and cumbersome.
Howard also said he doubted that a rebuilt New Orleans would look significantly different from the way it did before Katrina. Builders may use updated construction techniques and materials, he said, "but the citizens are fiercely proud of their city. They will not change their aesthetics one bit. They won't sacrifice their history or their architecture."
