Storm Surge to Demand Surge: Exploratory Study of Hurricanes, Labor Wages, and Material Prices

Abstract

Demand surge is understood to be a socioeconomic phenomenon associated with large-scale natural disasters. It is most commonly explained as higher repair costs resulting from higher labor wages and material prices after a large- versus small-scale disaster. This paper explores this explanation by developing quantitative models for the relative cost change of sets of repairs to residential and commercial properties damaged by Atlantic hurricanes in the southeast mainland United States. Cost data from 2002–2010 show that changes in the labor component drive the changes in total repair costs and that cost changes can vary notably by year and less so by geographic region. A series of multilevel regression models is then proposed to predict the relative cost changes by considering several combinations of the following explanatory variables: the largest wind speed at a city in a hurricane season; the number of tropical storms passing near a city in a hurricane season; and relative cost changes in the first two quarters of the year. For commercial properties in Florida, the data are sufficient to develop models with only linear and interacting explanatory variables. These models, however, show a large uncertainty in expected cost changes and a systematic underprediction for larger cost changes. For residential properties in Florida and both residential and commercial properties in other states on the Atlantic and Gulf of Mexico coasts, either the data are insufficient to develop robust models or a more complex model must be proposed for relative cost changes at these property types.