Hurricane Irma & Harvey: Effects on Real Estate?
Hey guys,
I was wondering what are the effects of Hurricane Harvey and Irma on the real estate market?
My prediction is there would be a slow dip in the market, due to the general delay of all operations; Fixing damages, delay of payments, mortgage operations, and development of new properties. There will be a brief moment when sale prices are low, due to to slow operations and for people to come back to where they used to live, but afterwards, it would shoot up in specific areas in Florida and Texas.
Furthermore, (I'm a little confused if this is true or not), but there would be an increase in building permits and housing starts (Sounds obvious, but would it be considered double counting for building permits and housing starts after a natural disaster?) Let me add on that there would be more demand for development and construction labor, which would bolster the local real estate market.
(Also quick Q: When people on title on the property, they own the land rights. So the only way development companies can develop on land is if they buy out their land. So technically, development companies would be acting as contractors?)
What are your thoughts on this issue?
This is a great question. Between Houston and Florida I have 3 projects in various stages of development. I can answer the best I can on the development front, although I'm sure I'll be at least somewhat wrong.
Following natural disaster there is usually a window of time before markets price in the excess material and labor demand. In Florida, we are expecting little to no change to our construction costs in the immediate term (4-8 weeks). After the window we are expecting an increase for 6-12 months before things level out again. The magnitude of the increase is hard to pin down but I've been told 10-15% isn't out of the question. Our contractor believes they can manage costs by locking in contracts within the next few weeks and through buyout strategy.
Houston is a different story because there was more damage and the labor market was much hotter there than in Florida before the storm. Several major plastic plants were down which has had an impact on PVC all across the south. We are expecting a longer and more severe uptick in pricing there than in Florida - 15-20% for 12-18 months. Some of the increase in pricing will be materials but a larger % will be labor.
We have several multifamily, office, and self-storage developments/operating properties in both markets and wanted to share an interesting article from Berkadia that looks at the impacts from Katrina on the multifamily business - https://www.berkadia.com/aboutus/newsroom/berkadias-houston-team-shares…
In short, when a hurricane takes ~60,000 units offline the occupancy/rates will shoot through the roof for a ~1-3 year period of time but decline thereafter. Houston already has a large multifamily pipeline so this has impacted owners positively if they didn't flood. The states have already started going after MF owners for price gouging given that some places will increase rents ~20% over night. All of our self-storage properties that were in lease-up filled up almost over night but Florida and most sub markets in Texas have an over-supply so these spikes in operating performance will be short lived once these markets return to a recovered and more balanced business environment.
We will see FEMA redraw the flood plain maps(just like 2014) and insurance will go through the roof.
We do not have any projects in Florida or Texas, but we did order a lot of our sheet materials (like drywall) for our Atlanta and Charleston projects way ahead of time, and pay to store them on or near the site, in anticipation of cost escalations and/or shortages. Even if you buy this stuff out, those prices can change on you, so it's best to take that next step, IMO.
Just kicking off a couple new projects and I heard OSB has already gone up and I guess a major supplier to the plumbing industry located in Houston (as in supplier to 80% of US) sustained damage too which has plumbers scrambling, similar what one to of the posts above indicated
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