The housing recovery has been cooling recently, and while severe weather is one factor, it’s not the only one.
The slowdown in home construction and the decline in homebuilder confidence has been partly attributed to the cost and availability of labour. Essentially, building a house takes a lot of people with specific skills, and after the housing crash, many people who had been in the industry set out for work elsewhere.
Jeff Dworkin, president of JLD Custom Homes, has been in the homebuilding business for 25 years.
He was working on a single-family, 3,500 square foot home for a young professional couple within 15-minutes of the business center of Dallas. He had hoped to get them in by Christmas, but a mix of weather delays and labour shortages, meant they ended up closing the home 30 days later than expected.
The delays in this case involved concrete slab contractors and at least six other sub-contractors. that didn’t have crews available wh
Over in North Carolina, Rick Judson, president of Evergreen Development Group and former NAHB chairman, also faced a labour shortage issue when we was working on two town homes with 24 units in Charlotte.
Judson had a painter finish the first townhouse, but by the time he was ready for the second one, the painter wanted a 25% pay raise because the demand in the market had driven up prices. He eventually found a new painter and gave him a 10% pay hike.
Judson’s project ended up being delayed by about two weeks. Since four of those units were contracted, he had to take a hit on them. He could however raise prices on the others.
Shortages first start to appear
Economists and builders we spoke to said they believe the labour shortages first became noticeable in spring last year, as housing demand started to pick up. And it isn’t just homebuilders. It can take 20 – 25 different tradesmen to get a home built — that includes everything from concrete preparation, to framing, to electricity, and plumbing.
An NAHB / Builders’ Economic Council (BEC) survey in March 2013, showed that about half respondents experienced some or serious shortages of framing crews and carpenters.
The same survey showed that labour shortages had caused 54% of respondents had to raise home prices because and pay higher wages or subcontractor bids. 46% said it made it difficult for them to finish their projects on time. 28% said it made some projects unprofitable and for 9% of respondents it resulted in lost or cancelled sales.
The Demand-Supply Story
Homebuilding peaked at 3.4 million jobs, according to Robert Denk, senior economist at NAHB. The sector shed 1.4 million jobs after the bust, and about 200,000 jobs have been added back since the recovery gained traction in 2012.
“We were decimated,” Judson said. After the bust many homebuilders and sub-contractors out on their luck moved to other parts of the country and other sectors.
But once home prices started picking up in earnest in late 2012 and early 2013, demand returned but the labour-force is taking its time.
“I think part of that could be that there’s friction left in the homebuilding industry,” Bank of America’s Michelle Meyer said.
“Housing construction fell to historically low levels and stuck at these low levels for several years,” after the bust.
“So people who had been employed in the construction industry left that industry, found jobs elsewhere. It’ll take time for those workers to enter the labour market again. There’s real friction I think.”
Meyer pointed out that we’ve seen a jump in construction job openings in the JOLTS series but that the JOLTS hire series is trending lower.
Construction Spending And Hires Decouple
While construction spending has increased significantly since the recession construction hires have lagged in recent years.
“The striking part of Figure 1 is the unanticipated difference in construction spending and hiring trends before and after the recession,” writes Thomas Vitlo at CoreLogic. “Before the Great Recession, both series stayed fairly correlated. Construction hires fell as spending declined and vice versa. However, since early 2010, the two series have diverged.”
“But national data show that construction labour today is less tight than it was before the bubble,” writes Jed Kolko, chief economist at Trulia told Business Insider. “What this means is that there are still many construction workers that are out of work.”
Construction hires have risen just 1% on average since June 2010.
Now, even as inventory remains tight and home prices and demand for housing rise, many are headed elsewhere.
Dallas-based Dworkin is seeing the labour force head to South and West Texas as the energy boom has taken hold of the nation. He sees why. They make $US10-15 an hour in construction in Dallas, but make $US30-40 in the fields.
So where do we go from here?
Vitlo thinks we’re seeing construction in employment revert to levels seen in th early 90s. Following the recession construction employment has averaged at 5.8 million, this compares with 7.1 million prior to the recession.
“The share of construction jobs averaged 5.1 per cent before the recession and now is averaging 4.1 per cent,” writes Vitlo. “After the peak-to-trough decline, the share of construction employment has plateaued for the past 50 months.”
“There appears to have been a level shift in the data, suggesting that the construction industry is either going through a fundamental change or it is self-correcting to a more sustainable level of employment.”
“I think we haven’t seen the peak of the problem yet, it will worsen to some degree until labour comes back into the market to supply the demand,” Judson said.
Dworkin says in Texas they’re trying to enhance trade schools.
“Lets face it, not everybody is cut out to go to college. And those that are graduating with a regular high school degree, great they took geometry, they took algebra, they took these other things,” Dworkin said.
“What kind of jobs can they get with high school educations, without other skills? Flipping burgers, waiting tables? We need to train our 16, 17, 18 year olds to go out into the workforce and make a decent wage. And the way to do that is to get them construction skills.”
Dworkin took shop classes back in the 80s and said schools need to go back towards that. “Rick Judson, former NAHB chairman, made a comment ‘we are the survivors’,” Dworkin said. “I remember having to take shop in the 80s, and we got away from that.”
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