home building labor shortages constrain capacity and new home inventory

The question was "what are we going to do about it?"

The question was an answer to a question about labor capacity. The question arose because labor capacity, or rather, constraints on labor capacity, is now adding to the number of days it takes to build a home in places like Denver, Dallas, and, so some extent, Phoenix and other markets as well.

Adding to the number of days to a completion sets up a domino effect of consequences: more days equal higher costs, which equal lower profits for each of the houses affected. Not to mention customers who learn they'll have to wait longer than they were told initially.

So, profit margins on the house erode, and the customer's upset.

Start out running some days late because of bad weather, especially in Texas this past Spring, and then have your framers walk off your job sites because they get an offer for a few dollars an hour more at one of your competitors' sites.

Home builders see it all, and they're fighting those suddenly extended construction cycle schedules, and they're also paying more for the trades from the get-go.

The root of the problem of labor shortages?

It's a many-headed hydra. And it also depends on who you are and what you do. As I mentioned the other day, builders (and skilled tradesmen) do not grow on trees.

To say "labor shortages are affecting our ability to complete homes on time" states a problem that has tentacles. All of the "root causes" below are partly true. None tells the complete story by itself. This it what is known as a complex challenge.

Meritage ceo Steve Hilton
Meritage ceo Steve Hilton
  • The Great Recession decimated the workforce (and, by the way, home building cycles regularly, every 10 years or so, make it almost impossible for some part of the trades workforce to make a living plying their trade)
  • Builders don't pay high enough hourly wages to make it worth it for younger men and women to learn the skills and join the crews (again, depending on who you are, and what you do)
  • Immigration laws currently forbid and penalize using workers from outside U.S. borders, who are willing to do those jobs for those hourly wages that U.S.-born workers refuse
  • For many U.S.-born workers, who've learned the building trade skills, and practiced them for years, "Immigration reform" that would allow non-U.S.-born workers who arrived in the U.S. illegally to "undercut" their wage negotiation by accepting lower pay, "immigration reform" is no reform at all
  • What is more, "immigration reform" that would legalize the hiring and contracting of workers who both arrived under illegal auspices and who accept lower pay for the work is tantamount to "taking jobs away" from U.S. citizens
  • Finally, if home building firms hiring tradesmen are only looking at paying as low and hourly wage as they can, and tradesmen are only looking at getting paid as high an hourly wage as they can, then everybody continues to lose due to the domino effect of higher costs to produce, less satisfied home buyers, less affordable homes, fewer sales, and less economic activity.

The two questions we think are in order are these: Can we agree on what "labor shortage" means? And, as Meritage ceo Steve Hilton says, "what are we going to do about it?"

If we can not--within the ecosystem of home building companies, tradesmen, subcontractors, etc--agree on what labor capacity is when it's normal, we're going to have a hard time answering the second question.

  • Is it a fair pay issue?
  • Is it a fair-wage issue?
  • Is it a fair market value issue?
  • Is it a free-enterprise issue?
  • Does government policy belong in the conversation?
  • Does advancing technology, data science, robotics, unmanned aerial vehicles, etc. play an increasing role in the conversation?
  • Does transparency on both the builder side and the trade side work as part of the solution?

How you answer the questions above may say something about how you make a living. It shapes your vantage point. To say that it is any one of these without being mindful of the intricate linkages with the others, is to trivialize one of the United States' economy's key challenges, which is creating new sustainable ways of making a living as structural shifts make legacy industry jobs go away. Like many challenges, there's "right now" and there's "right."
For this one, when it comes down to "what are you going to do about it," there's right now, and then there's right.

Right now might look like this:

  • "Preferred builder of choice" programs 
  • Bring trades in (to markets in Denver and Texas) from other states 
  • Higher hourly pay and prompt payment 
  • More accurate scheduling and contingency planning 
  • Honesty and integrity in dealing with contracts

Yes, for the moment, builders will have to ante up more per hour in some markets for some of the labor pool to get their homes closed on schedule to keep home buying customers satisfied.
That's the right thing for now. The next right thing is to work on making it clear that young men and women can make a good living doing this line of work.