Hurricane-hit Louisiana faces fresh challenges

One year after Hurricane Katrina hit the US, cost escalation in the Gulf Coast area is running up to 15%. The surrounding region is also suffering high escalation of around 8-10%.

The construction economy of Louisiana has suffered particularly, with the loss of 30,000 jobs in the month following the disaster. The state has yet to return to pre-Katrina employment levels.

The findings come in a new report from Davis Langdon, which said that the Gulf Coast region is expected to see cost escalation running in the range of 12-15% for the year to July 2007. The surrounding area – Arkansas, Louisiana, New Mexico, Oklahoma and Texas – will see escalation of 8-10%. The Market Report – Mid Year said economic activity was strong in all five states except Louisiana, which was “likely to remain extremely weak for some time”.

Louisiana is likely
to remain weak for some time

Market Report – Mid Year, Davis Langdon

But the report added that even though Louisiana’s construction economy was struggling to recover, construction demand would grow as reconstruction took off. As a result, Davis Langdon predicted that construction would play a leading role in the state’s eventual recovery.

Escalation in Texas, Arkansas and Oklahoma is moving from being driven by cost rises in other areas to being locally driven, the report said. In the reconstruction areas of Louisiana costs have risen sharply due to the strain on labour and materials. One British project manager in the US said a major development he was running in the area had suffered from a “lack of manpower and sky-high materials prices”.

But all five states are feeling an impact. “The region is very vulnerable to sudden changes in availability of materials and labour, and so risk premiums will factor heavily in the escalation expectations,” the report said. Chris Soffe, head of US, Gleeds, said a key problem for the hurricane-hit region was attracting former inhabitants: “They would be the labour force that the area needs but there isn’t enough housing for them.”

Even fast food chains are paying joining bonuses

Chris Soffe, head of US, Gleeds

Those who have returned are commanding high wages. Soffe said that all businesses in the region were suffering from the exodus: “Even fast food chains are paying joining bonuses.”

Soffe believes the impact on the rest of the US was temporary. “The rest of the US was affected for three or four months after Katrina. Now we are seeing escalation in the US as a whole of up to 8% but that's due to the world economy.” But the picture is still far from rosy, according to reports in American publications. Inflation is “ravaging” the US, said one, which claimed one in three clients had delayed or scrapped projects due to spiralling costs. Bid prices are said to be up 16.1% in 2006, from 13.2% in 2005.

This chimes with Davis Langdon’s assessment of the wider US construction market. The firm found that all regions were experiencing growth in construction activity but escalation remained high and bids were still volatile. Growth was strong and sustained in the west and south east and relatively weak in the Midwest and Northern Plains states. Davis Langdon predicted that escalation would stay high but drop to a slower pace during the rest of 2006.