The Need for Construction Labor in Homebuilding

Construction labor is not keeping up to par with the increased demand for housing
By Sergio Flores

It is a good time to be a homebuilder, and an even better time to address labor. With the month of September celebrating Labor Day, it is important to recognize just how primal of a need construction labor is to the homebuilding industry.

Housing markets across the nation are experiencing some of their best sales since the housing crash in 2007, but unfortunately, each market is reporting one common problem: there are many buyers and not enough units. Despite being on the precipice of a healthy and strong housing recovery, with builder confidence being at an all-time high, the homebuilding industry’s biggest constraint is a shortage of labor.

As I’m sure everyone remembers, pre-recession the housing market was booming. Houses were being built left and right, mortgages were being given out like candy—life was seemingly too good. Much of what aided this boom was the switch from other industries to the construction industry. The U.S. Census Bureau’s article, “Where Did All the Construction Workers Go?” writes, “Workers moving from manufacturing, mining and especially leisure/hospitality jobs fueled much of the employment growth in construction between 2003 and 2005. Flows from leisure/hospitality jobs [were] especially large — about half of employment growth during the construction boom came from workers moving from leisure/hospitality into construction.”

Unfortunately, it was too good to be true. Pre-recession the industry saw the exact opposite of what we are seeing today: too many houses and not enough well-qualified buyers. Anyway, we all know what came next, but an overlooked industry that suffered just as greatly as the multi-million dollar homebuilding companies did was the labor market.

Many of the construction labor flowed into safer fields, including leisure/hospitality, trucking, oil and gas production, and more, while many, unsure of how long the recession would last, remained unemployed, hoping for the best. The report also found that, “…over 60 percent of construction workers displaced by the housing bust are employed in other industries or have left the labor market by 2013. We also find evidence of a persistent drop in hiring of younger workers into construction jobs over the last decade that is likely contributing to the current shortage of skilled workers in construction.” With only 40 percent of the construction labor remaining in the industry, the results are empirically noticeable.

According to a report from the federal government titled The Components of Inventory Change, between 2011 and 2014 the nation’s housing stock increased by a net of 270,000 units, the slowest reported growth measured in more than a decade, which included the Great Recession.

The National Association of Realtors is also noticing the effect the shortage of labor is having. “You need [shortages of lots, labor and lending] to increase,” noted Tom Rhodes, CEO of Sente Mortgage. “It just takes a lot of time.”

The shortage of labor also gives rise to another problem – tight inventory translates to issues with affordability. Prices have soared in markets outside of Silicon Valley. World Property Journal reported that 62 percent of new and existing homes sold between the beginning of April and end of June were affordable to families earning a US median income of $65,700. During the second quarter, the national median home price is at $240,000, a whole $7,000 up from the first quarter median of $223,000. Ed Brady, NAHB Chairman commended the seemingly rebounding housing market thanks to firm job growth and low interest rates, but also noted that, “…regulatory hurdles and rising costs for buildable lots and skilled labor continue to put upward pressure on the cost of building a home.”

Many organizations, however, are addressing the shortage of labor. In California, for example, the California Homebuilding Foundation (CHF), well known for their yearly Hall of Fame reception, understands the value of developing and encouraging the next generation of homebuilders. Through the CHF’s scholarship program, they give students interested in building trades the means to go to college and return to the industry, well-equipped with the needed skills and materials. “Our scholarships were established by CHF Hall of Fame Honorees,” said Executive Director for CHF, Terri Brunson. “It’s an example of how established homebuilding professionals have reached out to offer opportunities to a new generation of individuals who are interested in a career in our industry.”

Brunson is right when she says it is a new generation that is rising to replace the old in the homebuilding industry. According to the Pew Research Center, Millennials have surpassed Gen Xers as the largest generation in the US labor force. One out of every three Americans in the labor market (ranging from adults 18 to 34) are Millennials.
But alas, the homebuilding market continues to edge forward, and recorded builder confidence for the month of July rose two points.

Sergio Flores is an Assistant Editor for Builder and Developer magazine. He may be reached at sergio@penpubinc.com.

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