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Houston's Rebuilding Could Cause Construction Costs To Rise Nationwide

Brace yourselves. Hurricane Harvey will fuel higher construction costs far from the affected area.

Arnall Golden Gregory partner Orlando Cabrera

Arnall Golden Gregory partner Orlando Cabrera told the audience at Bisnow's Atlanta Affordable Housing event Wednesday morning that he expects construction costs across the board to rise as a result of the Houston recovery. 

During an interview following his panel appearance, Cabrera said he expects the cost of everything from labor to materials to rise over the next 24 months.

"Everything will be affected," he said to Bisnow. "You're going to see a flow of labor to Houston."

Turner Constructions' Building Cost Index, which tracks nonresidential construction costs in the U.S.,
as of Q2.

Construction costs across the U.S. were already at a high prior to the flooding. According to data compiled by Turner Construction Co., construction costs have been rising every year since 2010, with labor a major influence in rising costs.

“The steady pace of construction starts across the country is continuing to have an impact on the skilled labor workforce,” Turner Construction officials said in the report. "As a result, we are seeing subcontractors exercise greater caution in their pursuits. Their selective approach to bidding also contributes to increased prices."

Cabrera — a former assistant secretary for Public and Indian Housing at the U.S. Department of Housing and Urban Development, as well as the former CEO of the Florida Housing Finance Corp. — said the disaster in Houston is “on a scale that we have never seen. This is a recovery unlike anything we've seen in the past.”

Experts recently said Hurricane Harvey and the ensuing flooding of Houston could see the price tag for recovery reaching $190B, making it the costliest natural disaster in U.S history, mainly due to unprecedented flooding. The White House on Thursday said some 100,000 homes are estimated to have flood damage.

Three Gorges Dam on the Yangtze River in China

Escalating construction costs will not be solely due to labor, either. Construction materials will also feel the effects of increased demand. Cabrera highlighted, for instance, what happened to the cost of concrete when China was building one of the world's largest dams.

“What I think is going to happen is the same thing we saw … when the [Three] Gorges Dam was being built in China,” Cabrera said.

Three Gorges Dam is a 1.4-mile hydroelectric dam on the Yangtze River in China that was completed in 2012 and is among the world's largest dams. Between 2011 and 2013, China consumed 6.6 gigatons of concrete, more than the U.S. used in the entire 20th century, according to Forbes.

Atlanta Mayor Andre Dickens, speaking at a 2018 Bisnow event when he was a city councilman.

Atlanta City Councilman Andre Dickens said there was some hope construction prices could moderate now that most of Atlanta's simultaneous stadium developments are either completed or nearing delivery.

“It's like, OK, we're going to have labor that's a little more available,” Dickens said. 

As the city looks to expand its affordable housing stock, Dickens said developers should consider retrofitting existing buildings into affordable projects, since those projects tend to be more inexpensive per unit than building from the ground up.