The Beutler Corp., one of the largest HVAC, plumbing, and fire sprinkler contractors in the western U.S., hired 270 employees last year, bringing its total workforce to more than 600. It expects to hire another 250 employees in 2013. At a time when home builders and subcontractors around the country are becoming nervous about the availability and rising cost of labor in core trades, McClellan, Calif.–based Beutler is Exhibit A for how construction companies with foresight are getting ahead of impending shortages via proactive recruiting and training programs that align their workforces with a housing market that’s expanding again faster than labor is keeping up.

“Our view is that someone is going to do this work, and builders are going to find labor,” says Rick Wylie, Beutler’s president. “But it’s going to take a while for contractors to catch up.”

Concerns about labor shortages started surfacing more than a year ago, about the same time the housing market began showing signs of sustained recovery. A survey of builders conducted by John Burns Real Estate Consulting released in the fall found that shortages were causing delays of up to three weeks to start houses, and up to three months to finish them.

In March, the NAHB—which previously downplayed labor shortages as regional and spotty—discovered that more than half of its members were experiencing problems accessing labor, with 46 percent claiming they had delayed projects. Its member survey showed that Arizona, Nevada, Florida, and California are experiencing the greatest problems finding labor.

However, the relative severity of labor shortages depends on whom you talk to.

On one hand, construction unemployment rates have been shrinking steadily this year. In June, they fell to 9.8 percent, the lowest level since 2008, according to government estimates and analysis by the Associated General Contractors of America.

“We’re running into labor shortages in all of our markets, but this is a short-term problem,” says Terry Russell, CEO of FrontDoor Communities, which builds in Naples and Orlando, Fla., Charleston, S.C., and its headquarters city of Atlanta. “Labor always figures this out.”

But what worries other industry watchers is that construction activity is expanding faster than construction jobs. Jed Kolko, chief economist for the online real estate website Trulia, observes that labor is tightening in markets that have rebounded the fastest, such as Washington, D.C., and Denver. So, the thinking goes, labor availability becomes a bigger problem as the housing recovery spreads.

But Kolko is quick to point out that labor shortfalls today pale beside those during the previous housing boom, when construction unemployment stood at 6.9 percent in April 2006, “and builders had fewer workers on each unit under construction,” he recalls.

Production builders sounded more exorcised this spring about rising materials costs than finding subcontractors. “Drywall went up at the beginning of the year, plumbing just went up, and there have been two price increases for trusses so far this year,” laments Dan Koch, operations manager for Bill Clark Homes in Greenville, N.C.

But materials costs aren’t necessarily disconnected from the labor supply: An article in Random Lengths’ April 12 newsletter quoted wood producers who partly blamed skyrocketing lumber prices on a shortage of loggers. However, the concern is that job creation within the residential housing sector won’t keep pace with construction. Fannie Mae predicts that if residential construction increases to a “normal” level of 1.6 million annual starts by 2016, and if 412,000 new residential construction jobs are added from 2012 to 2016, the industry still would be about 1 million jobs short of its peak during the previous housing boom.

Labor shortages already are giving some builders headaches. In Dallas, Tim Jackson Custom Homes, which typically builds 10 to 12 houses a year, must cope with framers that send partial or split crews to its jobsites. “Where they used to have a crew per house, now they have one crew handling six or seven,” says owner Tim Jackson. He’s also had difficulty securing subs for masonry, roofing, and HVAC, which has impacted his completion times.

Several production builders, on the other hand, insist that labor still is manageable. Dublin, Ohio–based Epcon Communities, whose 100 franchised builders are in more than 100 communities in 20 states, reports “noticeable” shortages among plumbing, electrical, and concrete trades.

“I’m certain this is causing some delays, and our builders have needed to schedule projects more in advance,” says Tim Rini, Epcon’s vice president of franchising. But overall, he says, “We’ve been able to get the jobs done,” and he suspects that Epcon’s policy of paying subs promptly has helped. Epcon expects its franchisees to close at least 1,125 homes in 2013, a 25 percent leap over last year.

In Phoenix, Maracay Homes is on pace to close 550 to 600 homes this year, up from 450 in 2012 when the local labor problem was “more acute” than it is now, says CEO Andy Warren. During 2012’s third and fourth quarters, Maracay’s cycle time jumped by an average of 10 days to 120.

“But we didn’t miss any closings,” asserts Warren. And more recently, cycle times leveled off to 114 days. “The building and trade communities have reset to this new activity,” says Warren, who notes that 12 percent to 14 percent of the new jobs created in Greater Phoenix are construction-related. “The trade base recognizes that this recovery is not just a blip.”

A Shallower Labor Pool

As builders calculate their future construction needs, they should listen to their subcontractors, several of whom told BUILDER that keeping up with a housing market approaching 1 million annual starts again is getting harder and more expensive. That situation could slow the market’s recovery and dampen buyer demand if rising labor costs translate into higher home prices.

“Right now, we’re struggling” to keep pace with construction, notes Kevin Padgett, owner of KEP Electric in Batavia, Ohio, which expects to work on 800 new homes and 450 apartments this year. “I’ve had to use temporary workers, which I hate to do.” Mechanical subs must be licensed “and usually require some schooling,” which makes finding qualified workers more difficult, he adds.

Vance Johnson Plumbing in Fayetteville, N.C., has 90 employees and expects to work on 5,000 housing units this year. Owner Vance Johnson says he was turning down work because he doesn’t have enough help. Outside of Hispanics, “who are the only ones willing to work in the field,” he says the labor pool in his market is extremely shallow.

F&F Builders in Dallas normally has 100 workers on a 400-unit apartment project; now it’s 25. “We’ve got 3,000 apartments in our pipeline, and only 125 people to handle the work,” says owner Floyd Seitzinger. “There’s no help down here.”

Spurned by Young Workers

Seitzinger, who has been in business since 1974, says the Texas construction industry is “controlled” by Hispanics. That’s not necessarily a bad thing, says the NAHB, which supports changes in the federal government’s immigration policies that would extend visas to more immigrant workers for construction (see sidebar, page 55).

Immigration reform is part of a broader debate about who will build America’s homes—and at what cost—because the residential construction industry lost 1.4 million to 1.5 million jobs during a recession, and the skills of the workers who remain are highly variable, say contractors. “A lot of people left the labor pool, and we don’t have a handle yet on where they went and whether they’re willing to come back,” says Giles Patterson, president of Fischer HomesCincinnati division, which isn’t seeing shortages yet but is hearing trades asking for higher wages.

One big challenge is finding new blood to replenish the subcontractor base. In 2011, only about 8 percent of construction and extraction workers (and about 12 percent of the subset of construction laborers) were ages 20 to 24, the Bureau of Labor Statistics estimates. And there’s a fairly widespread belief among builders and subs that the industry holds no appeal to young workers who only see the manual labor in all kinds of weather for meager pay. “How do you replace an aging workforce?” asked Bill Hannah, CEO of Nabholz Construction in Conway, Ark., during an interview with Arkansas Business News. “I don’t know what the solution is.”

This lack of interest among the younger generation has forced the 74-employee American Electrical Contracting in Jacksonville, Fla., to hire workers in their 40s and 50s, who generally earn higher wages and cost more to insure, says president Billy Frick. “This is a young man’s game, but for years parents and guidance counselors have been saying to kids that if they didn’t pay attention in school, they’d end up digging ditches or in construction.”

Mary Bernard, Beutler’s corporate recruiter, thinks there are legions of tradespeople “hungry to get back into HVAC [installation].” Job applicants at Beutler run the gamut: young and old, experienced and novice, and across all ethnic and racial lines. Women generally aren’t applying for jobsite work, Bernard says, but some have been hired for warehouse jobs.

Beutler’s Wylie thinks subs and builders must be willing to “put [younger workers] onto crews so they can learn as they earn.” Beutler recently restored its training and safety departments, which it mothballed during the recession. It also shifted the company’s message to attract new workers, and besides tapping high schools and colleges, it expanded to social media.

Wages Vs. Affordability

Beutler also is readjusting its benefits and pay scale, which starts at $12 per hour for entry-level workers and rises to $23 per hour for journeymen with five to seven years’ experience. But subs say they are in a bind when they try to raise wages because, as Padgett of KEP Electric notes, “production builders keep pushing to reduce expenses.” (KEP starts its entry-level workers at $10 per hour. Those with more experience can earn up to $25 per hour.)

Seitzinger of F&F Builders says he knows local framers who can’t find workers for even $15 an hour.

“We’ve been framing houses for $3.50 per foot for 100 years down here, and that’s going away, as will the $80-per-square-foot house, because labor is becoming more expensive.” He notes that construction wages in Texas are dictated by home prices, which are among the lowest per square foot in the nation. “For us to change [in terms of increasing pay], those house prices will have to go up.”

While a number of builders said they favor raising wages for subs, they also want to keep their houses affordably priced. “My tile setter has been talking about needing more money to pay crews and transportation,” says Jackson, the Dallas-area custom builder. “I remind these guys that I stuck with them when business wasn’t good.”

If labor becomes scarcer, Patterson concedes that Fischer—whose Cincinnati division is on track to increase closings this year by 33 percent to 1,160—might need to “rescale our operations in terms of the number and quality of homes we build, and price our products accordingly.”

The Modular Alternative

During BUILDER’s Housing Leadership Summit in May, a discussion about the future of housing turned into a referendum on how mechanized construction might become.

Representing the traditionalists—those who doubt technology can alter the basics of home building that have resisted change for centuries—was Emile Haddad, CEO of the Lennar spinoff FivePoint Communities. The futurists—who insist that technology will usher in a new dawn in construction management and design—found their voice in Bill Haney, co-founder of the modular manufacturer Blu Homes.

While Haddad and Haney at times seemed to be talking at rather than to each other, they articulated viewpoints that have greater urgency for builders who are looking for ideas that will help them mitigate rising labor and materials costs as housing demand heats up.

“Those builders who will be most profitable are the ones who figure out the production part of the business,” predicted George Casey, the former CEO of Orleans Homebuilders who now runs the consulting firm Stockbridge Associates. Casey acknowledged, however, that historically the housing industry must face a threat of “impending execution” before it changes. He thought this sector would make a “technological leap” just by getting the right information to its workforce “so they would be able to do the job right the first time.”

FivePoint assembles huge mixed-use communities that cater to homeowners’ 24/7 lifestyles. And right now, “technology is moving much faster than our designs,” said Haddad, who doesn’t expect a manufacturing process for construction to emerge in a big way for at least five years. In fact, he’s skeptical about technology’s influence on housing in general “as long as the land business and the building business are intertwined.”

Haney conceded that most of the energy-efficient modules that Blu Homes delivers to builders in 18 states are one-off, on-your-lot custom homes. But his company, with a 250,000-square-foot plant in Vallejo, Calif., has invested millions in technology that Haney said is lifting home building to more cost-effective heights by streamlining production (which uses proprietary steel framing), and by taking design cues from the 100,000 prospects who visit Blu’s website each month.

The presence of five-year-old Blu Homes on this panel gave builders in the audience another chance to consider the pros and cons of modular and prefab alternatives to stick-built construction. Executives from builders as diverse as Meritage Homes and Texas-based M. Christopher Custom Homes indicated they were at least looking into modular.

But in interviews with BUILDER earlier this year, component and module suppliers doubted there would be a groundswell of builders shifting to prefab unless field manpower really became extremely scarce.

“We think [shortages] are really going to hit the fan in 2014,” if projections about buyer demand and housing starts come to pass, says Kevin Flaherty, director of marketing for the modular manufacturer Champion Enterprises, which drew surprisingly large audiences for a series of seminars it presented during the International Builders’ Show in January. “So builders need to be ready for it.”

The objections to modular housing—including that it’s hard to find contractors familiar with its assembly and that municipalities confuse modular and manufactured housing and balk at permitting it—are slowly eroding as modular suppliers like Blu, Champion, and Innovative Building Systems get larger and sell nationally. And at least one study has found that the cost of stick-built versus modular can be a wash.

Combining 2011 data from the NAHB with proprietary information from his own clientele, Fred Hallahan of Hallahan Associates, a Baltimore-based consulting and market-research firm that tracks modular housing trends, estimates that for a 2,300-square-foot house priced at $300,000, modular’s hard construction and on-site costs range from $73.10 to $102.70 per square foot—depending on the area of the country—with the national average at $77.40, or roughly equivalent to the U.S. median for a comparable stick-built house.

Modular may never break out from its single-digit share of housing starts, regardless of the labor situation. But builders commonly include prefabricated roof trusses in their construction. Wall and floor systems, though, remain niche components, and it will take more than a labor shortage for that to change.

“What it really comes down to is education,” says Tim Collins, general manager for the Reliable Truss & Components division of National Lumber in Massachusetts. Collins explains that most home buyers and framers “still don’t understand” that components allow houses to be built quicker, produce less waste, and require fewer returns of unused products to suppliers.

Builders Hedge Their Bets

Most builders contacted for this article are confident that there will be sufficient labor to keep the housing recovery humming, noting that they don’t expect market growth to be nearly as bubbly as it was during the boom.

Warren of Maracay Homes says Phoenix isn’t increasing at the same rate as last year. And if there’s a “measured” return to 25,000 annual housing starts (the market is expected to hit 16,000 in 2013), “there shouldn’t be any cap on capacity.”

Still, some builders are hedging their bets. Reston, Va.–based Stanley Martin Homes expects its closings to increase by 63 percent to 650 units this year. Mike Cleary, vice president of production and purchasing, says Stanley Martin is benefiting from trade partner loyalty that the builder sustained during the recession through biweekly meetings with framers to keep them abreast of production schedules, and through a trade council with 25 subs and suppliers as principals.

D.C.-area builders were lucky that their trade base wasn’t decimated as in other markets, although through the first quarter of 2013, Stanley Martin’s build times exceeded its requirements.

But Cleary isn’t ready to declare that labor shortages are behind his company. “We’re being proactive instead of waiting around for shortages to happen,” he says.

Learn more about markets featured in this article: Orlando, FL, Phoenix, AZ.