Construction costs already were climbing for residential and commercial development, and Katrina’s wrath is expected to push those costs even higher.
Lumber, concrete and labor will be in shorter supply or greater demand in the months ahead, people in the industry say.
"We would expect to see the hurricane exacerbate an already difficult pricing environment. The impact is not necessarily being felt today, but it will be felt," said Pat Downey, co-founder and vice president of Phoenix-based Hardison/Downey construction.
A national survey of public entities shows construction costs have been on the upswing this year. The survey was released by PinnacleOne, a Tempe-based firm that manages public construction projects.
Public and private construction projects have been equally affected by higher costs, said John Dunkerley, the firm’s director of cost management services.
"In Phoenix, we had a 15 percent to 16 percent escalation in construction costs last year, compared to the year previous to that, which was probably in the region of 3 percent to 5 percent," he said. "This year I’d say we’re still talking 10 percent and upwards, and that’s before we had the hurricane."
Dan Cauble, Standard American Homes’ director of purchasing, said Katrina will be the latest in a long line of hurricanes that will affect building supply prices and availability.
"That always seems to happen with a hurricane, no matter where it is," he said.
The National Association of Home Builders reports that Katrina damaged and destroyed several wood product facilities. However, trees that have been blown down will need to be harvested on an accelerated basis, which may lower wood product prices in the mid-term.
Because of damage to Gulf Coast shipping ports, imports of building materials will be disrupted, the National Association of Home Builders said.
New Orleans was the top destination for imports of cement and other building materials into the United States in 2004.
"The impacts on the Phoenix area will be more limited than it will on the areas in the immediate region (where Katrina hit)," said Michael Carliner, an economist with the home builders group. "It’s going to increase the costs of construction. Now to the extent that people have contracts on homes already and they have a fixed price, the builder may end up having to eat that price."
A lot of concrete is produced in and imported through the hurricane-ravaged region, but that concrete isn’t coming to the Valley, he said.
"I think the effects on wood products, which are traded more on a national market, would be much more national than the effects on concrete," Carliner said. "But there are shortages on concrete and this is going to make them worse."
Alan Torvie, senior director of construction for Opus West, said spiking oil prices already have been affecting building supply costs. Opus West is a major commercial developer with numerous office projects across the Valley.
"Our concern is that suppliers, anticipating shortages, may impact pricing, certainly on building materials, concrete, drywall, wood products, those kinds of things," he said. "Certainly the hurricane will have a big impact on the cost of materials. We just don’t know what it is and there’s no real way to track it."
Craig Willett, founder and CEO of UTAZ, is more concerned about how the hurricane could affect the supply of skilled construction workers. UTAZ is a Mesa-based, officecondominium development company.
"To build a whole city all over again is going to create a whole number of jobs all at once," he said. "We have an influx of a supply of labor that comes from residents of adjacent states. And now those willing to go to a different state to work have another choice."
Even if skilled workers — carpenters, electricians — remain in the Valley, they now have leverage to negotiate, Willett said.
"The idea is that, ‘We’re so busy, it’s got to be worth our time’," he said. "(Skilled craftsmen) are going to have a choice and I think it’s going to put pressure on this market."
Torvie doesn’t expect to see a labor drain because "the market right now and for the foreseeable future is so busy that subcontractors here have more work than they can handle."
"Although, there certainly may be some that may be attracted depending on the pricing and the availability of wages being paid down there," he said.
While the availability of lumber, steel and concrete is of concern, the price of fuel ranks a close second, according to Jeremy Koczenasz, purchasing manager for Randall Martin Home, a Scottsdalebased home builder.
"With a lot of materials having to be shipped in, the cost of doing business will increase," he said.
Over the next 12 months, construction costs likely will increase 10 percent to 15 percent, which for commercial real estate, will put upward pressure on rental rates, said Pat Feeney, senior vice president of CB Richard Ellis, one of the Valley’s largest commercial real estate services firms.
"The market is definitely turning into a landlord market versus a tenant market," he said.
On the retail front, spokeswomen for Home Depot and Lowe’s home improvement store chains say their supplies won’t be affected by Katrina.
But Feeney said that higher costs and the potential for future shortages will likely slow progress on many larger construction projects.
"Last year we saw rationing of concrete on one particular building. I would think that those . . . types of happenings will continue throughout the next year unless the housing market were to cool down," he said. "If that were to happen, that would take a lot of pressure off of that."
Torvie said his company plans to be "proactive" in anticipating higher construction costs.
"We’re at a point where many of our projects are locked in to pricing, the subcontractors have bid the work and their pricing, and their supply chain is fairly locked in," he said. "We do have some future projects on the boards that we’re going to have to review our pricing on, probably on a monthly basis, and try to anticipate cost increases."
And Willett — like most in the commercial and largescale residential construction industry — said anticipating shortages and higher costs is nothing new.
"The problem before is that they were saying ‘It’s all going to Iraq or to China.’ This is extra pressure that the market would have been better off without," he said.