How Hurricane Recovery Efforts are Making Construction More Expensive

Following two “once in a century” storms, Texas and Florida begin the long slog of rebuilding businesses and homes. Moody’s Analytic believes that Hurricanes Harvey and Irma caused up to $200 billion in damages.

To get this job done, there is a need for thousands of a variety of construction crews of all kinds such as plumblers, drywall installers, electricians, tile installers, and really any trade imaginable.

Needless to say, state governments and their contractors have their work cut out for them. Let’s take a deeper look into their recovery efforts, and the economic ramifications for both.

Construction Workers in Short Supply

When it comes to construction workers, Texas is in much better shape than Florida – the Sunshine State’s licensing laws prevent out of state construction companies from coming in, which has complicated the process.

Texas doesn’t have these kinds of restrictions, so crews from all over the United States are pouring in while Floridians have a long wait for reconstruction contractors.

Construction workers have been in short supply since the country began to climb out of the Great Recession. An estimated 30% of construction workers left the industry since that time, and are pursuing careers in other industries.

According to a survey by the Associated General Contractors Association, 69% of Texas contractors were finding it difficult to fill construction worker job vacancies before Harvey hit – the destruction caused by the hurricane only made matters worse.

Additionally, the federal government is cracking down on undocumented workers. In 2016, 28% of construction workers in Texas were in this category.

Despite the need for massive rebuilding in Texas and Florida, contractor confidence levels have decreased because of the increase in building supply costs and labor costs.

“The recent hurricanes have intensified our members’ concerns about the availability of labor and the cost of building materials,” he said. “Once the rebuilding process is underway, I expect builder confidence will return to the elevated levels we saw this spring NAHB Chairman Granger MacDonald said following the storms.

Insurance Adjusters Scrambling

Insurance adjusters have flocked to Texas, leaving Florida scrambling for adjusters who are 1,000 miles away. Since Harvey tore through Texas a week before Irma, that was the state that independent adjusters rushed to.

To remedy the situation, insurance companies have increased the pay of insurance adjusters by as much as 30%. One multifaceted claim can pay an adjuster as much as $30,000. The need for adjusters is not as critical for large insurance companies who have their own, in-house adjusters throughout the country. Large insurance companies can temporarily transfer adjusters into Florida and Texas. However, smaller insurers depend on outside adjusters that they contract -finding licensed adjusters to settle claims is a challenge.

A major concern related to the paucity of insurance adjusters in Florida is that damage to structures will continue to deteriorate due to mold and other problems caused by claim settlement delays.

John Rollins, an executive with Cabrillo Coastal General Insurance Agency LLC in Gainesville, Fla., and a former chief risk officer of Citizens Property Insurance Corp., a state-run insurer of last resort in Florida spoke briefly about how challenging this process can be.

“A stale claim is an expensive claim,” he said. “The key in a situation like this is getting to the policyholder and getting some money in their hands so they can begin the recovery process.”

Construction Prices Soar

In addition to a shortage of construction workers, Texas and Florida face scarcities of construction supplies. Lumber products were already in short supply as a result of a trade dispute between the US and Canada.

Naturally, the need for building supplies in Texas and Florida is pushing prices up. One lumber vendor increased the price of plywood by 25%. Other supplies expected to be in short supply includes lumber, drywall, finishing trim, insulation, electrical wiring and other essential building supplies.

Price increases are not restricted to these two states either. The combination of lumber products being in short supply and extraordinarily high demand due to the two storms will inevitably lead to increased building supply costs across the country.

Other factors impacting rising construction supply costs are also at play. Since the Great Recession of 2007 and 2008, fewer outlets are selling building supplies. Wildfires in the west and on the West Coast add to building supply demand too.

Builder confidence fell 3 points since the two storms, while labor and building supply costs are rising quickly. With hundreds of thousands of businesses and homes destroyed, it will be years before the construction industry returns to normalcy.

Regards,

Ethan Warrick
Editor
Wealth Authority