Leading Question

By Hannah Wallace November 30, 2005

You'd think so. Harris Private Bank says the construction industry, as well as engineering firms, banks and building material companies saw their stocks rise since Hurricane Katrina. But at least one local contractor isn't so confident.

"People think, 'Boy, they're going to get rich because there's more work.' It's not true," says Kenneth D. Smith, president and CEO of DooleyMack Constructors, which is building condominiums, outpatient surgery centers, schools and other commercial projects in Sarasota and Manatee. "It's not a wonderful utopian market."

Because of this region's explosive demand for residential and commercial construction and the lack of skilled workers to handle the volume, DooleyMack already had a record backlog in projects-the company's projects take twice as long to finish today as a few years ago, with bookings into 2007. Now Smith sees a severe labor shortage on the horizon because of Katrina (and this was before Rita and Wilma roared through). He anticipates the crunch will start this month or next, after much of the hurricane clean-up is finished and people are ready to build.

"It will exacerbate an already existing problem," he says. "We do not have enough skilled trades to execute the work. A disaster the size of Katrina draws skilled and unskilled labor out of the market because the federal government and people desperate to build will pay double and triple what they can make here. A guy with a couple of trucks might get $100 an hour for a piece of equipment here. If he loads up and goes to the Gulf Coast, he'll get three times that much."

This backlog in work "eats into overhead," says Smith. And because so many jobs are rushed and being performed by workers who are not properly trained, the quality of construction suffers as well. And this means contractors and subcontractors spend time going back to the job site to correct problems.

The availability and prices of building supplies also will rise as plywood, cement, drywall and PVC products are diverted to the hurricane-affected areas, says Len Mills, executive vice president and CEO of Associated Constructors of America, South Florida Chapter. "Strand board has already gone up 50 percent since Katrina," he says. "Some estimates are predicting a 14-percent rise in the cost of labor in Louisiana, Texas and Mississippi. We were hoping to see a leveling off from an 8-percent material cost rise to a 5-percent or less in Florida. Now people area predicting a 12- to 14-percent rise and some as high as 20 percent in construction costs."

Factor in the climbing price of oil in an industry of trucks and huge equipment, and contractors worry about the eventual effect on the larger economy as consumers decide they can't afford the additional costs.

Smith says developers who are planning big projects in the region are going to have to make a decision soon: "Do I want to make this investment without really knowing what the cost of construction will be? There's a higher degree of risk."

Right now, Smith and Mills say baby boomer demand continues to fuel our market. "Housing drives the economy," says Smith. "Yes, costs are high, but the sales price moves with construction. The risk is that if these increases fuel inflation and the government raises interest rates, will it slow the housing boom?"

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