Myth or Reality: Construction prices spike after a disaster

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We would like to preface this article by stressing that it is extremely important to properly estimate the replacement cost of your home when purchasing a policy and again on a regular basis thereafter.

In the aftermath of natural disasters there is often a concern that replacement costs calculated beforehand will not cover a post-disaster spike in prices. Yet the idea of a post-disaster spike doesn’t hold up to analysis. Looking at the process after a major disaster uncovers how this is more a myth than reality.

“Construction price increases are a more gradual process.”

First, it takes months to clean up the damage, and file and settle claims, before the new construction process can even begin. In areas where homes and businesses are uninsured, underinsured or not covered for the risk, rebuilding takes even longer. Extensive or expensive updating of building codes further delays the process.

The United Policyholders* survey taken 12 months after the 2017 North Bay Fires reports that 53% of survey respondents have not settled the dwelling portion of their claim. This is consistent with previous surveys by UP, where 12 months after a disaster roughly half or more of the respondents said their dwelling claim had not been settled.

The article, What Effect will Hurricane Florence have on Construction Project Starts?, charts constructions starts after hurricanes in the Carolinas since 1990. Immediately after the hurricanes there is a dip in construction activity, not a spike, and only incremental growth after that.

A group of Coffey Park, California residents whose neighborhood was destroyed last year by wildfire are studying ways to rebuild with the wildfire—and earthquakes—in mind. They hope that changes to landscaping, different building materials, a barrier wall to the neighborhood and updated building codes will help when the next wildfire occurs. However, it takes time to research and implement these types of changes.

Current construction activity is already putting stress on the availability of materials and labor before catastrophes occur and these events do impact prices. However, it is not a large spike that occurs immediately. Price increases are a more gradual process as the area cleans up and prepares for rebuilding.

As the leading provider of web-based property valuation solutions, e2Value can assist you with all of your Insurance-to-Value (ITV) and collateral value monitoring needs. Whether you are looking for valuations for high-value homes, Mainstreet® homes, condos, co-ops, commercial properties, manufactured homes, log cabins, or farms and ranches, our patented estimator can quickly calculate the cost of replacing a residential, commercial or farm structure and provide you with a fast, cost-effective and accurate replacement cost valuation.