Do Big Storms Like Hurricanes Help Construction?

Hurricane Sandy caused billions of dollars of damage along the East Coast. New York Governor Andrew Cuomo estimates that storm damage totaled $42 billion in that state alone. Congress stepped up the plate on January 15 and approved a $50 billion aid package for the area. The good news for the construction industry is that much of that cash will go to repair damaged housing and infrastructure.

But in the long run, does the damage caused by storms like Sandy and Katrina result in an uptick in construction? The evidence is not clear, but it seems that there is at least modest gain.

Post-Katrina Construction

When Hurricane Katrina blasted New Orleans in August 2005, it left the city in tatters, including 204,000 swamped homes. How did this affect construction in the city?

“There was a huge pick-up in public works construction as the corps of engineers rebuilt levees,” says Kenneth Simonson, chief economist of the Associated General Contractors of America. “However, construction on hospitals, hotels, and so forth took much longer to get going. That area really languished.”

The reconstruction after Katrina was largely funded through $142 billion in federal funds. In addition, insurers paid more than $28 billion for repairs. Not all of that money was used for construction, of course, but serious money flowed into construction company cash registers. In a New Orleans magazine article in 2010, a local banker estimated that construction spending in the metro area before Hurricane Katrina was about $1.5 billion in a good year, so the money spent after the storm was giant in comparison.

But in long run, it’s hard to make the argument that the storm helped construction. Many neighborhoods in the city remain largely abandoned, and the population of the city remains about 29 percent below its population of 2000.

“There was a partial rebound but not back to previous levels,” Simonson says.

Sandy Construction Effect

So what will we see after Sandy? The geography is substantially different. Unlike New Orleans after Katrina, people are not flocking to leave Manhattan since Sandy. So it’s probable that everything that’s damaged now will get rebuilt.

Hurricane Sandy Damage

Hurricane Sandy Damage

But will the rebuilding work make up for new construction projects delayed because of the storm? That clearly remains to be seen, but the money flowing into the region will definitely help the situation. The $50 billion federal aid package, which should easily be ratified by the Senate, includes cash for rebuilding mass transit systems, homes, and infrastructure, all of which benefits the AEC community.

The advantage – as far as builders are concerned – of repair work versus new construction is that people don’t wait around – they want the work done immediately, especially if they have the insurance or federal money to pay for it.

The final analysis won’t be known for years, but it seems likely that at least some of those billions flowing into New York and New Jersey will fatten construction company coffers.

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