Damage from Hurricane Harvey has not hit developers and potential homebuyers in North Texas yet, but experts say an increase in the price of labor and materials is coming. “Based on what we saw after [Hurricane] Katrina ... I would guess that in some products for some period of time we will see increases of 20 percent, easily,” said McKinney Mayor George Fuller, who has been a developer for more than 30 years. “Will they be sustained? Hopefully not, but it’s tough once prices get up to a certain level and labor will go to the highest bidder.” Harvey made landfall in Houston and nearby towns Aug. 25. However, developers and real estate consultants say the full effects from the storm would not be felt in North Texas until the end of November at the earliest. “It’s a process, so I really think it’s about 90-150 days from when Hurricane Harvey hit that we’re going to start seeing [its effects],” said Paige Shipp, regional director at Metrostudy, a real estate consultant company in the Dallas-Fort Worth area. When the full effect is felt in North Texas it will leave an impression on developers and new homebuyers. “What you will find is that everybody along the chain will try to absorb some of that cost, but ultimately that costs will be passed on to the final consumers,” said J. Martin Sanchez, CEO of the Sanchez Group, a planning, civil engineering and real estate firm. Why the delay? North Texas has not yet felt the full effects of Harvey because cleanup work has to be done in Houston and nearby cities prior to rebuilding, Shipp said. Houston is still assessing storm damage, which Gov. Greg Abbott estimates to be between $150 billion and $180 billion. Homeowners, businesses and developers have to go through the insurance claims process before funding is available for rebuilding, Shipp said. As rebuilding begins, the cost of materials and labor is expected to increase. As of Oct. 26, the National Flood Insurance Program has paid out $2.821 billion to people affected by Hurricane Harvey, according to John Miles Jr., Federal Emergency Management Agency Region VI representative, and approximately 90,000 claims have been filed in Texas since Harvey hit. Due to the increased number of claims filed, all timelines for adjusters to visit sites has “gone out the window,” Miles said. “We’ll know when lumber’s going to [increase],” said Phil Crone, executive officer at the Dallas Builders Association. “We’re going to know when sheetrock [increases]; we’re going to know [when] brick [increases]; and it’s all just going to follow sequentially throughout the construction process because everybody is going to get started in that 90-day window when they have all of the finances sorted out.” Material cost increase For homes affected by the hurricane, materials 4 inches from the ground and below will be in short supply when reconstruction begins in Houston, Shipp said. This includes appliances, cabinets, carpet, doors, lumber, sheetrock, baseboards, tile, windows and wiring. Shipp said some Metrostudy members are reporting that lumber is already up 12 percent since the hurricane. Shipp said she thinks this is because suppliers are increasing prices now in preparation for what is to come. “There’s going to be spikes and I think we’re going to see increases in some products and some labor forces [up to] 20 percent, and then others won’t be effected near as much,” Fuller said. “Maybe on average it’s hopefully not anywhere near 20 percent, but it’s going to be enough to really impact any and everything that’s been planned to date based on pre-disaster numbers.” Local developers, including Sanchez, are also keeping a close eye on the potential effects of Harvey. Sanchez spoke to McKinney City Council during a September meeting about the construction of a parking garage he is developing. During the meeting, council voted to delay construction on the structure for 60 days to further analyze options, including location and number of parking spaces, for the garage. Sanchez spoke in opposition to this delay, saying Harvey will likely increase the cost of materials for the structure. In a worst-case scenario, Sanchez said increases will be no more than 20 percent. Aaron Graham, senior vice president of sales and marketing for Highland Homes, which is building homes in Trinity Falls, said in the Dallas region Highland has seen lumber increases ranging from $1,200-$1,400 per house in one month. “There’s probably another round of a very similar type of increase coming [in November],” he said. “Street pricing usually lags behind what’s printed. Recent lumber updates have shown that increases are beginning to lessen, but we still anticipate increases coming. … We just haven’t seen the full impact yet.” Some of these costs will be passed along to customers, including homebuyers and businesses, but often times developers will reduce their margins, or experience margin erosion, meaning the developer will bring in less profit to accommodate for the increased cost of materials and labor, Graham said. When the market is good and a lot of land is being developed, margins for builders are thinner, Crone said. Developers make up for thin margins by developing more, but margins will only shrink to a certain degree, he said. The rest of the costs will be passed to future homebuyers. Labor shortage Lit Chiropractic, a new business expected to open at the beginning of November on McKinney Ranch Parkway, has already felt the effects of Harvey, according to owner Kha Do. “Basically, I had a set date to open. … Then all of a sudden my contractor told me that all of his workers were headed towards Houston,” he said. “And then everything slowed down, and he had to find workers.” Do said no work was done on his location for about a week, and then only one worker was willing to do the job. Having fewer workers and a week-long delay caused his opening to be pushed back a month. Some builders and businesses will feel the effects, and some will not, Shipp said. The Dallas Builders Association has approximately 400 members, many of which said labor is still their top concern, Crone said. Members said subcontractors already have all the work they can handle in the Dallas area with the workers in the area now. Graham said Highland Homes has seen labor migrate to Houston, but not a substantial amount. To stay competitive, he said contractors have to remain competitive in pay and have enough work in the Dallas-Fort Worth region to keep workers busy. Small builders are going to struggle to keep contractors in the region more than large builders will, because larger builders have plenty of work to commit to the labor, Graham said. “Labor is still first and foremost the biggest challenge that [contractors] face,” Crone said. “Fortunately for us, a hurricane isn’t going to make that situation worse, but it’s still bad, no doubt about it.”