KB Home Gets Set to Build
Houses in New Orleans Area

Nearly 10 months after Hurricane Katrina, KB Home is the first large publicly traded home builder to start construction in New Orleans.

After a ceremonial start today on seven homes, the company plans to build hundreds of houses in greater New Orleans in the next couple of years despite an uncertain profit outlook, a shortage of building supplies and other obstacles.

City officials welcome the homes, priced between an estimated $140,000 and $450,000, but they say New Orleans still needs more affordable housing.

The first houses are being built on relatively high ground, on the edge of downtown, which was spared major flooding. The company, based in Los Angeles, says it has also received approval from local planning officials to build homes on roughly 776 lots on undeveloped land in Jefferson Parish, in an area southwest of Orleans Parish. KB is teaming with Shaw Group, an engineering and construction company based in Baton Rouge, La., in a joint venture to build the homes.

"I am thrilled with the progress we've made," says KB Home Chief Executive Bruce Karatz. "Whether we look back a year from now and say if this is a good business is something we will have to judge a year from now."

There's little doubt that New Orleans needs new housing badly, but many issues are unresolved. Ivan Miestchovich, director of the Real Estate Market Data Center at the University of New Orleans, says the local housing market is going to start to "turn some corners" in the coming months.

He says the end of the school year could prompt families with one spouse living in New Orleans and the other spouse in another city to decide whether to relocate or remain in the Crescent City.

Another wave of activity could come after the end of the summer, when the state says it will start cutting checks to cover uninsured damages borne by New Orleans residents. That money could motivate residents to rebuild locally, or take the funds to another city.

So far, Mr. Miestchovich says, one of the hottest markets is on the north side of Lake Pontchartrain, in St. Tammany Parish, where $150,000 to $200,000 houses -- built mostly by small local builders -- are selling briskly. Some new homes, priced for less than $100,000, "are selling before the first nail is hammered," Mr. Miestchovich says.

New Orleans City Council President Oliver Thomas Jr. says the biggest need is for homes priced between $90,000 and $150,000. "When you get above that, it's hard to service people who live in this city," he says.

The KB development within the Orleans Parish limits will total about 73 homes -- including 15 designated affordable units, to be priced as low as $140,000.

Other large home builders haven't rushed into the New Orleans market for several reasons. Even before Katrina, the market never offered the kind of sales volume that many large builders desire. The hurricane created other obstacles, such as high home-insurance costs and difficulty finding qualified workers and supplies.

To compensate for the labor and material shortages, Steve Davis, KB's Gulf Coast region president, says KB has built several roof trusses in Mississippi for shipment to New Orleans.

Mr. Karatz says part of KB's motivation is to help New Orleans recover, but adds, "We are structuring it as a business and for it to stand on its own feet."

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