Last week, we shared an article on how the potential import tariffs that President-elect Trump is discussing could put a renewed strain on the construction material supply chain. Since then, the devasting news out of California related to the recent wildfires has impacted thousands of residents and businesses. As with all natural disasters, we are left on the road to recovery once they pass. While the fires were across the country, there could be a reverberating effect on the national construction industry as Los Angeles and surrounding areas start to rebuild.
Infrastructure Damage
The fires have severely damaged critical infrastructure systems such as power, sewer, and water. While rebuilding people’s homes should be the primary focus, restoring needed utilities cannot be too far behind. The damage these systems incurred will require extensive reconstruction efforts, increasing the demand for construction materials and labor in that region and across the country. Expect to see infrastructure projects to be fast-tracked and surge as designated federal funds are released.
Supply Chain Disruptions
Undoubtedly, there will be an increase in demand for construction materials in the affected geographies, which could lead to local material shortages and higher prices. Construction companies can combat this by purchasing materials from other parts of the country, which they may not be accustomed to selling across State lines. The ripple is the strain on the national construction supply chain, causing disruptions nationwide. This, coupled with potential tariffs, the construction industry could be looking at a double threat, and should revisit its procurement plans and strategies immediately.
Skilled Labor Effect
Regardless of the rebuilding California will experience, skilled labor is needed. Local laborers are already in demand, which has started to create shortages and increased wages and benefit costs. As with material concerns, the immediate strategy would be to pull labor from nearby markets and states, thereby creating another ripple effect creating additional labor shortages for an industry that already does not have enough skilled labor to meet the pre-disaster demands of construction.
Insurance Considerations
The insurance market is bracing for record claims and substantial losses expected due to the high value of properties affected. Preliminary estimates of insured losses range from $10 billion to $20 billion, with a minimum of 10,000 structures damaged and rising. While local premiums are expected to increase and underwriting standards will not get easier, there is also a national insurance consideration. Insurance companies are in the business of making money, and paying out will necessitate nationwide increases. And for New York, a region already in a complex insurance market, this translates to another increased cost and bottom line hit.
An Opportunity
Amidst all this tragedy and loss, there is an opportunity to focus on and build more resilient homes and infrastructure by adopting construction practices that can potentially withstand natural disasters. The national construction industry should lean into technology to research and build with more evolving materials that can withstand wind, fire and water, emphasizing sustainable and resilient building practices.
Conclusion
What California is enduring will impact the local and national construction industry, driving demand for materials and labor, stressing the insurance market, and prompting a reevaluation of building practices. As with everything we have experienced in the last few years, the savvy construction company executive can study and learn from this, from starting to invest in new ways to build, identifying and developing an emerging labor pool or identifying new materials to incorporate into building practices.
