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Thursday, October 20, 2005

Building Problems

Here's a secondary effect of the recent hurricaines that many people don't know about. Building materials are getting scarce.

Here in anchorage Lowes and Home Depot won't let anyone buy more than two panels of sheetrock at a time. Lumber is getting scarce and the price is rising steadily. Bricks and concrete are more expensive too.

Developers are taking homes that are being built off the market because the increase in building costs will eradicate all of their profits if they sell the homes at the current market price. As it is they are already getting hit on the homes they have pre-sold so far, and with the cost to finish these homes expected to spike by as much as $40,000 they will probably take a bath on what should be a profitable endeavor. While all the billions the government is pumping into the Gulf will help the people in that part of the US, and will make the developers and contractors in that area very rich, it is starting to hurt developers and contractors in other places. How can a normal market compete with virtually unlimited building funds? Kepp an eye out, I suspect we may see massive losses in construction companies that aren't operating in the Gulf.

While I am sympathetic to the victims of Katrina, Rita, and Wilma if it hits us as hard as is being predicted, I am also concerned about the rest of the US. In a free-market economy People would rebuild in the affected areas using their insurance settlements, loans, and personal funds. This would reduce the immediate rebuilding, but would have no long-termnet effect. I can say this because the people who choose not to rebuild would sell their land to a developer and settle down elsewhere. The developer would then build on the land and sell the building at a significant profit. This would reduce the immediate desperate need for building materials to go to one place and would not drive up the price of building materials nearly so much. But with mega-billions in free government money being pumped into the Gulf we have a situation where the government is paying the bloated prices and driving them up even more as it sucks in everything it can reardless of nationwide demand.

I have said this already, but it is so serious that it bears repeating; the cost of building across the nation is rising, and it will go much higher before it setles down. The people who will feel the pinch are developers who will lose mney in the short-run, and the buyers who will pay drastically increased prices for construction for years to come. This will reduce demand for new house construction. This will reduce demand for new business construction. It will harm the national economy. However, the governemnt funded rebuilding of New Orleans will go on.

I want everything back to normal in the Gulf Coast as much as anyone, and I want the displaced people settled down at home as muchas they wantto be settled. I just wonder if we aren't sacrificing the national economy to rebuild a local one. I hope not.

3 Comments:

  • I built a post and beam cabin (with loft) 16 years ago, did all the work by myself with son's help, 32 X24 saltbox on 8 acres for a total cost of $25,000. It has a nice location, stream in back, native blueberry bushes, and level spot where 3 more places could be raised.

    Had a realtor here stop by and wanted to list it at $150K.

    When I built it, a sheet of 1/2 inch
    T-111 siding was 7 bucks.
    It's 22 something now. Add to the wood costs, the man at the lumber yard told me vinyl siding is up 30 percent --(made of oil).

    That's the building business -- Im sure the big companies will make up lossses on presold homes (they can write that off anyway) with increases on new construction, which is waaaaay up (which is not what the press told us a month ago)

    At any rate, the Rancho Lumbago is paid for, so we're stayin' put for a while. May become a Senior Citizen resident of New Hampshire, tho for tax reasons and spend summers up there.

    By Blogger meesterjoneser, at 5:00 AM  

  • good point! this is something i hadn't even thought of...(which, given the fact that i'm not in charge of the money for this country, is not a surprise). if this happens, it's going to suck! i think the area of NO needs to be fixed before anybody puts money into building there!
    LibbY!

    By Blogger Libby, at 7:40 AM  

  • I agree with this to a point, but what's the alternative? The Gulf Coast ports are essential to our economy. We cannot afford NOT to rebuild them.

    Your "free market" model is problematic on several levels. First, we're talking about rebuilding one of the poorest parts of the country. If the people living in those areas could afford insurance and qualify for loans, then they wouldn't need government assistance. Further, huge insurance payouts are a drag on the stock market, as the insurance companies begin liquidating their cash reserves. Plus, a surplus of loans drives interest rates up, which drives inflation, both of which drag on economic growth. Inflation is good for the debtors but disasterous for the banks underwriting that debt.
    The government using tax money redistributes the wealth within the economy, holding down inflation, which is a net plus nationwide. Sure the reconstruction will drive building costs upward, but that will, in turn, drive suppliers' profits up. Any materials manufacturer worth their salt will be raising prices in advance of demand in order to profit in the margins.
    In any case, the free market model only works when all other extenuating factors are equalized, which only happens in text books. But that's another discussion!

    BTW, I have a post up that I would love to have some conservative perspective on, if any of your reader's are interested.

    Jessica's Law in WI.

    By Blogger Samurai Sam, at 8:20 AM  

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