Washington, D.C., November 17, 2005 With the total devastation cost expected to top $125 billion or more, Hurricane Katrina ranks as the costliest natural disaster in U.S. history. Undeniably, none of the hurricane's impact on the D.C.-Baltimore region can compare to loss of lives, jobs, homes and infrastructure that the Gulf States will struggle with for many months. However, the after-effects on the economy as a whole and on the national capitol area are now starting to hit the region's robust construction market.

Shortages in building materials and skilled labor due to the red-hot housing market and commercial building boom, already evident even before Katrina hit, have only been exacerbated as local D.C. building contractors can attest. "We just received the notice from our main drywall supplier of a 20% price increase starting on December 5th," explains Rollins-PCI Construction President, Barry Lake. "This will certainly have an effect on overall job costs but since we handle most of our drywall and carpentry work with in-house forces, at least we can hold the labor in check."

The price of gypsum was already up 12.4% year-over-year through August when Katrina hit, but cement, steel, lumber and machinery prices are starting to escalate long after the winds have subsided. Since Rollins-PCI Construction specializes in the construction of office interiors as well as new bank branches, their estimators are keeping a close eye on materials pricing across the board. "Steel got hammered in 2004 but has eased back somewhat this year," explains John Ford, Rollins-PCI's Senior V.P. of Projects, "but a lot of imported steel flows through Gulf ports which are at greatly reduced capacity due to the storms. Our savvy clients have already issued steel orders in anticipation of potential delays and price increases."

Other materials could also experience increases. Cement was up about 12.7% through August and could go higher due to power losses and road and rail disruptions as a result of Katrina's wrath. In addition, 22 lumber plants were boarded up as a result of flood damage but any increases in costs will likely be offset by the abundant supply of softwood lumber that has held prices down considerably so far this year. In fact, it is highly probable that overseas factors and outside political pressures may have an even greater impact on construction materials pricing than the recent storms.

For example, the U.S. and Canada remain mired in a NAFTA dispute over illegal American tariffs on Canadian lumber imports. In addition, the Chinese construction industry continues to gobble up supplies of construction materials as it experiences double-digit growth which is expected to continue for the next several years.

Katrina to Hit D.C. Construction Costs?