Roadblocks to Rebuilding

The massive Hurricane Katrina rebuilding effort -- expected to be among the biggest and costliest ever -- will be even more expensive thanks to the nation’s housing boom.

The rebuilding will create new demands for building materials and construction workers, already in short supply because of strong home-building activity around the country.

That could result in even higher costs for those goods and workers, which in turn could further boost prices for new homes in California and elsewhere.

The recovery effort “will make it more difficult for anybody operating in construction elsewhere,” said Greg Gieber, a financial analyst with A.G. Edwards & Sons in St. Louis. He foresees shortages that will reduce the pace at which new homes are completed across the country.

Expectations of building material shortages caused by post-Katrina reconstruction already are rippling around the nation.

Concerns about the dearth of cement could prompt the Bush administration to yield in a long-running trade dispute. On Wednesday, the Commerce Department preliminarily agreed to ease tariffs on cement imported by Mexico’s top producer, Cemex. A final decision is expected in December.

Katrina also sparked a jump in prices of lumber on futures markets; those prices had been declining before the storm. Since Aug. 25, prices have climbed 12%.

Of course, things could change in the several months before construction can begin in storm-battered areas. Time will be needed to drain flooded areas, clean up wreckage and sort out insurance claims. Also, repairing the public infrastructure -- things such as levees, highways and port facilities -- is likely to take precedence.

It could take at least six months before significant new construction begins, said Ed Sullivan, chief economist for the Portland Cement Assn., a trade group for U.S. cement producers.

“It doesn’t happen overnight,” Sullivan said.

Total reconstruction costs could run as high as $100 billion, based on the latest estimates, making the Katrina rebuilding effort the costliest in U.S. history.

Many of the 200,000 homes in New Orleans -- along with hundreds of homes elsewhere -- are expected to require total rebuilding because they are likely to be tagged as uninhabitable by federal relief authorities. Other homes might be deemed salvageable but still need repairs.

Either way, it may take a long time before the job is done. Construction delays are common after storms. Many South Florida homes damaged in last year’s hurricanes still lack roofs.

But the delays could be even worse in the battered Gulf Coast. Unlike Florida -- one of the nation’s strongest housing markets -- the areas afflicted by Katrina get little new-home construction in a normal year. None of the major publicly traded home-building firms has operations in Louisiana and Mississippi; most of the home builders are smaller, locally based outfits.

It might take longer for these smaller players to ramp up, and they lack the access to materials and labor enjoyed by the bigger firms.

Damage to Louisiana’s port facilities will compound the delays and shortages. New Orleans was the top destination last year for imports of cement and several other building materials. Cement imports, in particular, involve the use of specialized terminal facilities, which were damaged by Katrina, Sullivan of the cement trade group said.

Further delivery bottlenecks are likely because of congestion at alternative ports and damage to roads and other shipping routes.

“It doesn’t take much of a mismatch in supply and demand to cause shortages,” Sullivan said.

As recently as July, 32 states reported shortages of concrete, of which cement is a component.

Higher energy prices also will boost construction costs. Surging diesel prices will hit contractors, who typically use diesel for off-road equipment, trucks and other delivery vehicles, said Ken Simonson, an economist with the Associated General Contractors of America. Certain building products, such as roofing materials, plastic pipe and insulation, are made with petroleum or natural gas.

And contractors might have to pay more for lumber.

Within weeks after Hurricane Andrew hit Florida in 1992, plywood prices in the region jumped 70% while the price of framing lumber rose 35%. It’s not clear whether a similar trend will occur this time.

“For the immediate future, the big thing is the perception that there’s going to be a lumber shortage,” said Gary Zauner, editor of C.C. Crow Publications, which tracks the lumber industry.

However, lumber prices could fall again in the coming weeks, thanks to ample supplies of imported wood, Zauner said.

Another big concern is the availability and cost of labor. Skilled workers are already one of the industry’s biggest costs. The relentless pace of new-home building -- nearly 2 million starts each year since 2000 -- along with a surge in remodeling has drained labor pools around the country.

“Right now, if you ask our members what the No. 1 problem they’re facing, it’s a labor shortage,” said Jerry Howard, chief executive of the National Assn. of Home Builders, an industry trade group. Ensuring that there will be enough skilled labor is expected to be a “difficult challenge,” Howard said.

After Hurricane Andrew, contractors in the region raised their rates 25% to 30% to cover higher wages for subcontractors and laborers.

Howard said builders would consider asking the federal government to temporarily ease visa requirements for foreign construction workers. A shortage of workers also could open the way for price gouging from unlicensed contractors, he said.

Until the major reconstruction begins, one group of builders is already primed to see gains: makers of mobile homes. Last week, the Federal Emergency Management Agency asked several companies to ship existing inventories and speed up production to provide shelter for the hundreds of thousands of refugees.

“It would be good for business,” said Kathy Munson, a spokeswoman for Fleetwood Enterprises Inc. Like other mobile home makers, Riverside-based Fleetwood has been in a slump since the late 1990s.

*

Times staff writer Evelyn Iritani contributed to this report.