Word from the trenches on the home building's labor crunch.
Now that completions--interior features and finishes--is the focus of a huge fourth quarter push in many markets, you can guess which trades are in most demand, and which jobs are pushing completion schedules a few extra days past their normal cycle.
Fourth quarter completions and settlements are a particular pain point for public home builders, who need to hit calendar and fiscal quarterly delivery levels so that they can book revenue and meet promised guidance for shareholders and interested investors.
So, now it's the finishing trade crews who are in the cross-hairs of a crunch that has bedeviled builders from the moment recovery kicked up a notch more than two years ago, and is likely to be a chronic issue, at least for another several years.
"From the beginning of the year, we started with labor shortages and then, especially in Texas and a few other parts of the country, bad weather set us back," the ceo of a multi-regional private home building company told me this week.
"The first place we felt it was pouring slabs back in the Spring, after all the rain and flooding caused the first wave of delays. Those were the crews we saw the first shortages occur, and then after that, it was framers and rough finish trades," this executive said.
As each progressive part of the construction cycle occurs, that's where the capacity constraints have kicked up. Now, it's in the area of interior painters, electrical finishes, plumbing trim, countertop installation and other accents and finishes that builders are finding it tough to manage an on-time, on budget cycle.
"We've actually seen things calm down and smooth out in some of the trade areas, like foundation, slabs, framers, and roofers," said my ceo source. "But we're paying higher prices and losing a day or two on the finishing and trim work to deliver the homes."
That's not to say that the "smoothing" that's occurred in some areas indicates an overall improvement on the labor constraints front. Seasonally, where there are more starts scheduled for the Spring, there will be a big mismatch between available crew members and growth in new communities and starts.
"Part of it is that our trade partners are being cautious in how they grow their headcount," added our industry observer. "They're making some pretty good profits now at the current staffing levels, and they're just plain hesitant to bring on too many more employees when they don't have the forward visibility into what's going to happen with volumes."
The most recent starts data indicate that, solved for month-to-month noise, single family permits and starts are tracking on a slow steady upward trajectory. As National Association of Home Builders chief economist David Crowe writes:
The smoothed trends tell the same story: single-family production continues to move forward at a modest pace as more current home owners feel comfortable selling their existing home and buying a new one.
Which means that next year--even if the weather is more cooperative, which there's no reason to expect--the whole labor "shortage" crisis starts all over, with concrete, framers, roofers, and so on.
Interesting parallels one can see in the food industry, where it's come to light that restaurants are desperately seeking cooks to meet ever increasing demand for meals eaten away from the home. New York Times food correspondent Julia Moskin writes:
As food has become a national obsession, more ambitious restaurants are opening, and in more places. The demand is up for chefs who can produce elegant food and know their way around a pair of tweezers, but many young cooks reject entry-level kitchen jobs—with their harsh conditions, low pay and long hours—where those skills are taught. And so, there are more stations in restaurant kitchens than there are bodies to stand in front of them. To hire, restaurateurs have been forced to lower their standards, or at least their expectations. And to effect change, they say, they will soon be forced to raise prices.
To some extent, home builders may have put more pressure on themselves because of the prices they've needed to pay to bring lots on line. As markets soften a bit in the move-up and second-time move-up price and product segments, the urgency to bring lower-priced homes out to the market increases, but lot prices, compounded by higher labor costs conspire against those efforts.
Builders who know tactically how to disrupt land acquisition trends--and sell lots when prices get frothy, and buy them when everybody else is dumping them--are going to play in this market environment much more effectively.