How catastrophes impact building costs

By Higginbotham on May 08 , 2019


Rebuilding after a catastrophe is always an expensive endeavor. Exactly how expensive, however, depends on current building costs, and that depends on a number of other factors. Although you might not think about construction costs often, if your home or business is destroyed in a natural disaster, the issue could become very relevant.

Imagine a fire that destroys a single business. This is clearly a catastrophe for that business owner, who will have to rebuild. Now image a larger fire that burns multiple businesses, causing significant damage to each. Now all of the business owners will have to rebuild, possibly putting a strain on local resources and leading to an increase in costs. The more buildings that are impacted, the greater the strain. This can have a direct impact on the people who are trying to rebuild, even if they have insurance.

Demand Surge

A single fire or tornado might not have a huge impact on building costs. After all, minor catastrophes occur regularly, and this need is anticipated in the economy. But what happens after a string of disasters? Or a single large disaster, such as a massive earthquake, wildfire or hurricane? A spike in the frequency or severity of natural disasters will lead to a surge in construction demand.

When this happens, materials will become scarce, and prices will rise as a result. Labor shortages can also occur when the demand for construction workers becomes greater than the number of trained workers. This, too, can result in higher costs and cause delays.

Many Texans experienced this first-hand after Hurricane Harvey caused massive flooding. According to Houston Chronicle, the demand for labor and materials soared after the disaster, and so too did the costs. Xactware, which makes software used to estimate building and repair costs, said hourly rates for construction workers increased by 7.2 percent between September and November. Among siding installers, the increase was 19.3 percent.

Takeaways for Business Owners

After a disaster, business owners will face many costs as they recover and rebuild, all of which may be impacted by a surge in demand:

  • Debris removal and cleanup
  • Building materials
  • Construction labor and equipment

You can protect your property with insurance. However, having insurance does not necessarily mean you will be able to rebuild your structure if it is destroyed. If you don’t have enough insurance, you may find that you are unable to afford rising construction costs after a natural disaster.

This is the sad situation that many people in California are facing after losing their homes and businesses to wildfires. According to PBS, construction costs in Santa Rosa doubled after a 2017 wildfire. Paradise, which was destroyed by Camp Fire in 2018, is facing a similar fate. Mike Zuccolillo, a city councilman for Paradise, said, “What we are facing now is the cost of rebuilding is going to be far beyond what people are insured for.”

Do you have enough commercial property insurance to cover the cost of rebuilding after a natural disaster? Now is a great time to review your coverage limits. Talk to a Higginbotham insurance agent today.

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Tags: Business Insurance


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