Before Hurricane Katrina, it already was reported that overall construction costs had inflated approximately 10 percent to 15 percent over the prior year. However, many analysts believe that the increase in construction costs after the hurricane could be as high as 20 percent over the next 12 to 24 months.

According to the monthly economic forecasts released by the National Association of Realtors, it is projected that commercial and public property losses equated to approximately $100 billion. This damage estimate is considerably higher than most storms, and primarily can be attributed to the widespread flooding and subsequent property damage in New Orleans.

Prior to the hurricane, increasing oil prices already were financially impacting shipping costs for construction materials throughout the United States. With the disruption in oil production in the hurricane-ravished area, an additional spike in oil prices is anticipated.

In addition to higher oil prices, national carriers are being diverted to deliver goods to areas that were impacted by the storm. This is creating a shortage of carriers to deliver construction materials to states such as Colorado. Interviews with local construction material distributors indicate that shipments of construction materials have been faced with delays, which is adversely affecting construction timetables. Also, construction material manufactures who had typically seen material shipping rates at $1.60 to $1.70 per mile now are receiving quotes as high as $3 to $4 per mile.

The construction materials that will be most impacted from the increased demand include concrete, plywood, framing lumber, sheetrock and roofing materials. According to the trade publication Random Lengths, it was reported that the composite price for framing lumber has risen 13.5 percent, and the price of structural panels rose approximately 32 percent.

Also, before Hurricane Katrina hit, Colorado (like many other states) had been facing concrete shortages. Prior to the storm, the port of New Orleans handled approximately 12 percent of all cement coming into the United States. Although alternative ports are being used, the disruption in supply and additional shipping expenses are having an overall impact on the availability and price of concrete.

If the pain of increased construction materials prices is not enough, Colorado also is facing a skilled-labor shortage in the construction industry. Now, due to the demand in the hurricane stricken areas, workers will be able to receive higher pay for taking jobs in the devastated areas. This demand in areas such as Louisiana, Alabama and Mississippi will create additional labor shortages in other areas of the United States, and could drive up labor costs locally.

Overall, who will pay for these additional costs? Initially, the increase in construction costs will impact the developer. Most developers will be required to satisfy contracts and commitments made prior to the hurricane. After these contracts and commitments are satisfied, the construction costs likely will be passed on to the end user. However, if the cost increases are more than the market can bear, or if they have an impact on the overall financial feasibility of proposed construction projects, contractors may be required to cut into their profit margins.

Are these price increases a knee-jerk overreaction to a climatic event? It is quite possible. If there is any silver lining in these storm clouds, many analysts believe that the initial price increases are a result of an overreaction to the climatic event, and likely will stabilize and then decrease slightly. However, overall construction costs are expected to remain higher than what were seen prior toKatrina.