By David F. Seiders. Since the national economic recession began in March 2001, the volume of residential construction has risen substantially, paced by a powerful expansion in production of new single-family homes. But over the same period, the number of workers employed in the construction industry has contracted, and the construction unemployment rate has doubled--reaching a lofty 13.3 percent by the first quarter of this year. A massive contraction in private nonresidential construction, such as office, industrial, and retail, is responsible for these patterns. Indeed, home builders have benefited as large numbers of workers released from nonresidential construction have sought work in the residential sector.

Labor supply

Several years ago the NAHB surveyed builders, and shortages of skilled labor topped the list of builder problems, causing delays in time to completion and posing challenges to maintenance of quality standards. The dramatic changes in construction labor markets during the past two years prompted the NAHB to conduct a follow-up survey in March 2003, covering nearly 450 builders across the country.

The new survey shows that shortages of skilled labor in home building have eased to some degree, despite the expanding volume of home building. While roughly three-fifths of respondents still cited some shortage of skilled labor, only 17 percent of the builders said that shortages were "acute," while 22 percent said there was no shortage at all. In 1999-2000, fully 30 percent reported acute shortages and only 3 percent said there were no shortages.

Home builder concerns about the quality of labor have receded in the process. Three years ago, 81 percent of builders said the quality of labor was a major concern, and only 1 percent said quality was not a concern; this compares with 37 percent (major concern) and 15 percent (not a concern) in March.

Builders still facing shortages of skilled labor usually cope by paying more for workers or specialty trade contractors. Fewer builders now delay construction or hire inexperienced labor. Furthermore, shifts toward labor-saving techniques have gained little momentum.

Customer callbacks

The improvements in construction labor supply have eased quality-control issues to some degree and have permitted faster response to customer callbacks. In our 2003 survey, nearly two-thirds of builders reported fewer than three callbacks per unit during the past year, compared with half the builders two years earlier. Indeed, the average number of callbacks fell from four to three over that period, and more than half of the callbacks were for minor items involving paint/caulking or drywall/gypsum board repairs. Correspondingly, the average cost of callbacks, per unit, fell by 10 percent.

Additionally, the number of days taken to respond to customer callbacks has declined significantly. In our March survey, nearly two-fifths of builders reported typical response times of one or two days, a rating given by one-fourth of respondents two years earlier. The average response time fell from 10 to six days over this period, while the median fell from five to four days.

David F. Seiders

Chief Economist, NAHB

Washington, D.C.