Wednesday, October 14th, 2015 by John Phillips
Residential construction spending in the US in August exceeded $36 billion, the most since 2007. But a labor shortage could affect builders' ability to construct new homes on time and within budget, because the number of experienced construction workers without a job is at the lowest level since 2000, according to the Associated General Contractors of America. "To get people back onto the construction site, we're going to have to pay a lot more," said Christopher Huebner, who owns HSCB Homes. Home builders this year have booked their strongest sales since the recession. A shortage of construction workers, however, is making it tough for them to deliver all those new homes on time. U.S. residential construction spending in August climbed above $36 billion, the highest monthly total since October 2007, according to government data. Yet there were 676,500 fewer workers in residential construction nationwide to handle the work this time around.
The delays, economists and builders said, could dent builders' profits in the short term due to higher labor costs and concessions to buyers. "Eventually, the higher costs, if we want these projects to go forward faster, are going to mean passing on the costs" to buyers, said Bernard Markstein, president of Markstein Advisors and a construction-industry consultant. That could price out some buyers. Builders, contractors and economists point to a few reasons for the labor shortage. Wages, particularly in residential construction, are still too low to attract enough qualified workers to the physical and sometimes dangerous work of building houses. Tightened immigration policies, meanwhile, are deterring foreign labor from returning to the U.S. And efforts to train and recruit young trade workers atrophied in past years as many school districts focused less on certain vocational training.
The labor shortage has led to costly delays. Seventy-four builders surveyed in September by industry tracker John Burns Real Estate Consulting Inc. have reported slowdowns as long as two months as they wait for carpenters, drywall workers, foundation pourers and other specialists. Texas builder CastleRock Communities LP now needs an average of 155 days to complete a house, up from its historical average of about 115 days. "Our flooring contractors are having a hard time finding enough guys to lay tile," said Lance Wright, a partner in CastleRock. "Plumbing is three weeks out. Everything that used to be a three- to five-day lead time is now three weeks to 30 days out." Construction-labor shortages aren't unheard of during housing-market recoveries, but this shortfall is more extreme than usual, economists said.
Overall, the residential industry has regained less than a third of the roughly 1.5 million jobs lost from 2006 to 2011. An analysis by the Associated General Contractors of America found that the number of jobless workers with construction experience dropped last month to the lowest September level since 2000, a development the trade group attributes to a dearth of available workers. At the same time, the housing market is heating up. New-home sales, which historically account for about 10% of all home sales, are up 21% in the first eight months of this year from the year-earlier period, while the ranks of home- construction workers are up only 4.2%. Lennar Corp., the second-largest U.S. builder by homes sold, said labor costs in its most recent quarter rose by 10% from a year earlier. Meritage Homes Corp., which builds in nine states, in September lowered its earnings forecast, due in part to higher labor costs and deferred revenue and profit due to delayed home completions. Some builders are offering concessions to customers. In Columbia, S.C., McGuinn Homes has paid for two families to stay at a Hilton Garden Inn for the past month as their homes near completion. McGuinn, which builds about 150 homes a year in South Carolina, is about 30 to 45 days behind schedule, and the hotel is costing it $200 per night per family. "If I promise something and I can't deliver it, I'm going to make it right," Chief Executive Wade McGuinn said.
Housing analysts said the shortage could hamper home-construction output in the short term and eventually lead to even higher prices. Already, the median price for newly built homes in August was $292,700, just 3.3% shy of the record set last year, due to roughly five years of builders aggressively increasing prices as far as buyers allowed and building increasingly larger homes. In Blue Springs, Mo., builder Tom Woods said it takes six to eight weeks to line up a framing crew, versus less than two weeks last year. Their rates, he added, have climbed as high as $8 per square foot from the $5.50 to $6 range. Electricians, bricklayers and other subcontractors are also charging more, he said. That ripples through significantly to home prices, Mr. Woods said. The national average pay for residential-construction workers was $26.32 an hour in August, compared with $25.10 for all private-sector jobs, according to Labor Department. That isn't enough of a premium to entice people to leave other jobs. "To get people back onto the construction site, we're going to have to pay a lot more," said Christopher Huebner, owner of HSCB Homes LLC, a framing contractor in Houston. "If I can't get them a step-up in pay that's great enough to make a difference for them, then there's no reason for them to make the jump." Juan Antonio Rivera worked as a carpenter and painter in Texas for 12 years, leaving in 2013 to rejoin his family and trade cattle in the Mexican city of Tempoal. He was part of a 30% decrease in Mexican-born construction workers in the U.S., to 1.32 million in 2014 from 1.89 million in 2007, according to John Burns Real Estate Consulting. Mr. Rivera said he now earns twice to nearly three times as much each week as the $700 to $800 he made on job sites in the U.S. "I'm doing excellent--much better than in the U.S.," said Mr. Rivera, 44 years old. He added that he might return to the U.S. to visit, but "to work, no."
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