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, according
to economists for the National Association of Home Builders (NAHB). 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 more than 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 repairable damage was more than twice the number destroyed.
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, according to NAHB. The floodwaters carried contaminants
that cannot be removed easily, 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, according to the economists.
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 economists predict that 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, they say. New Orleans was the top destination for imports
of cement and a number of other building materials into the United States 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.
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 Miami-Dade County, 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