Where's the Talk of Home Builder Bailouts?
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If the government can rescue insurance companies, mutual funds, commercial banks, investment banks, and perhaps even automotive companies, maybe it should be looking at home building companies as well. After all, they generate millions of jobs--jobs that are in serious jeopardy. And the downturn certainly jeopardizes the continued existence of thousands of home building firms.
These arguments notwithstanding, you don't see many home building companies lining up at the federal trough, asking the government for bailouts. They are asking legislators to prop up the market for home sales with $268 billion in tax credits and mortgage rate buy-downs. But you don't hear executives clamoring for the American taxpayer to save their venerable businesses.
That's because few if any home building CEOs believe their individual companies are that important to the national economy. The U.S. automotive industry has consolidated to the point where three companies control nearly all of the country's production. You lose those companies, you lose an American industry.
When a major U.S. home builder goes down, another one steps up to take its place. Home building has long been a bastion of entrepreneurship. Even today, we see new companies opportunistically forming to take advantage of depressed land prices with the hope of building whole new empires.
But if policy makers are looking to save jobs, which seems to be a large part of a potential automotive rescue, residential construction would be a good place to focus. Employment in residential construction, according to Bureau of Labor Standards statistics, has declined 20 percent since its peak in 2006. Since then, the country has lost 199,000 jobs in residential construction and another 349,000 in residential special trades.
On the surface, it's bizarre to think that employment in residential construction could be down only 20 percent in the face of a more than 60 percent peak-to-trough decline in housing sales. The explanation, of course, is that many people losing their jobs due to the housing downturn were never on a home builder's payroll. They either worked for builders on a contract basis, or they worked for subcontractors.
One controversial study published last year by economists at Deutsche Bank estimated that the government job data fails to count the loss of jobs for 500,000 illegal Hispanic workers. The Deutsche Bank economists cite a report from The Pew Hispanic Center, which estimated that the illegal Hispanic construction workforce swelled from 800,000 in 2001 to 1.9 million in 2006.
And in addition to those missing numbers, the home building industry also produces a job multiplier effect, though it might not be as robust as the one in the auto industry, with its large system of parts suppliers. Economists at the National Association of Home Builders, however, estimate that every home built in the country generates about 3 jobs, half of them in construction, the rest in manufacturing, transportation, finance, and other service industries.
All in all, not a number to sneeze at. Shouldn't the Feds be doing something for them?