Post-Storm Rebuilding Raises California Construction Prices

High energy costs and anticipated rebuilding in the storm-ravaged Gulf Coast are already prompting panic buying and hoarding of construction materials by contractors and others in California’s building industry.

Even before Hurricane Katrina, the state’s construction boom had tightened markets for all manner of building supplies.

And now, amid surging demand, construction companies are buying up asphalt, cement, rubber, lumber and machinery, pushing prices even higher while fanning worries of possible shortages.

Meanwhile, soaring fuel costs are driving up manufacturing and delivery costs and prompting many contractors to add surcharges.

Chris Behr, founder and chief executive of Behr Construction in La Canada Flintridge, figures that Katrina will force his firm -- and his customers -- to spend upward of 20% more on materials and fuel in the coming months.

Behr said he was asking customers for a 100% upfront deposit on lumber and was including a clause in all new contracts that explained that the prices quoted today for materials -- including drywall, cement and the gasoline it takes to deliver them -- might be higher in the future along with overall costs of individual projects.

“If a job has $200,000 of lumber on it, it might come in at $240,000. And there will be a surcharge for delivery,” he said.

What’s more, the 25-year construction veteran suddenly finds himself hedging against risks of higher prices for his lumber purchases, something he never did before Katrina.

Although prices had been falling earlier this year as national supplies grew, the hurricane immediately fueled worries of a possible shortage.

So now, Behr’s company is treating lumber “like a commodity” that needs to be hedged.

“We’re now telling our lumber yards to give us a 30-day lock-in rate,” Behr said.

Customers of ABC Supply Co. in Monrovia have been snapping up materials such as roofing, plywood and asphalt in recent weeks, assistant manager Jeff Anderson said. His company, a national chain of distribution centers, is bracing for price increases of at least 6% on the goods it sells after receiving letters from manufacturers warning of increases starting Oct. 1.

“It’s crazy and it just got crazier,” Anderson said. Before Hurricane Katrina, “we were anticipating that it would be tough to get materials. Now, “this could be the toughest year we ever had.”

Prices for many building materials are rising largely because of the sharp rise in oil and natural gas prices caused by Katrina’s thumping of Gulf Coast energy facilities. Petroleum in particular is used to make a host of building products, such as asphalt, vinyl piping and roofing shingles.

Higher oil prices had already given a jolt to the plastics piping market in recent months. As of last week, prices of PVC sewer and water pipes had risen about 10% from year-ago levels, in part because of the federal government’s call for thousands of manufactured houses to shelter Katrina’s victims. The new houses require PVC piping for drainage and sewage lines, and buyers fear that the products may soon be harder to come by.

“There is a lot of buying going on right now,” said Bob Walker, executive director of Uni-Bell PVC Pipe Assn., a research and education group based in Dallas.

“In times of crisis, people overestimate what will be required,” Walker said.

A shortage of rubber for tires needed to outfit construction trucks and other machinery is expected to worsen. Petroleum is used in their manufacture, and much of U.S. rubber imports come through the hurricane-damaged Port of New Orleans.

Swelling oil prices have made bidding for jobs a headache for Sukut Construction Inc., California’s largest earth-moving company. With more than 200 pieces of off-road equipment and construction trucks, the Santa Ana-based company burns about 60,000 gallons of diesel each day.

“Fuel has become a highly significant cost of doing business and one over which we have no control,” said Michael Bobeczko, director of marketing. “If we were to bid a job, we don’t know what the price of fuel will be in four months.”

As a result, Sukut, which does construction projects such as highway building and grading for housing developments, has added a diesel fuel surcharge to its contracts.

James Brooks, president of Empire Commercial Real Estate in Ontario, has noticed that since the hurricane, it is taking longer to get gas and electricity meters installed at his office projects. The utility companies “are sending supplies ... where the need is,” he said.

“It’s always difficult when you have a natural disaster like this,” he added. “It’s hard to underwrite the impact of something like this. But there’s definitely a short-term impact ... on budgets and costs.”