PRODUCTION OF SINGLE-FAMILY HOMES HIT A record high in 2004 and started off 2005 with a bang. But construction of nonresidential structures was quite weak last year and remains far below the pre-recession highs in 2000. As a result, unemployment in the construction sector is running fairly high (11.8 percent in January), and the proportion of home builders reporting labor shortages is well below pre-recession highs despite surging housing production.

The improved availability of skilled labor has helped builders maintain construction quality, limit customer complaints and call-backs, and respond to problems promptly. Ongoing efforts by company management to reduce and deal with callbacks also has bolstered quality and enhanced customer satisfaction.

Labor Supply Improves The NAHB surveyed more than 500 builders in February to assess the availability and quality of construction labor and to monitor customer callbacks and buyer satisfaction. On the labor front, only 17 percent of builders complained about acute shortages of skilled labor, and only 10 percent said specialty trade contractors were in serious short supply. In 2000, 30 percent of the companies reported critical shortages of skilled labor, and only 3 percent said there was no shortage (that proportion is now up to one-fourth).

We also asked builders to describe their level of concern about the quality of available labor. Only one-third said labor quality was a major concern early this year, down from four-fifths in 2000. Indeed, one-sixth said quality is not a concern at all, up from only 1 percent in 2000.

Callbacks Controlled Better availability of skilled labor helps builders maintain product quality and customer satisfaction. In our February survey, two-thirds of the builders who responded said they averaged only one or two callbacks on homes sold during the previous 12 months, and only 10 percent had six or more call-backs per unit. The comparable readings in 2000 were 50 percent and 15 percent, respectively, a much less favorable pattern.

Most callbacks during the past year were for minor items such as paint and caulking and gypsum board and plumbing issues—patterns found in earlier surveys. The median cost per callback was $200, also similar to earlier surveys. But the average response time has been shortened. Two-fifths of the builders surveyed now say that they usually respond within two days, up from just one-fourth in 2000.

The vast majority (94 percent) of builders call subcontractors who did the construction work to follow up on callbacks, and three-fifths send their own maintenance workers to follow up on minor issues. Many firms obviously do both—and they do it quickly.

Management Steps Over time, builders have intensified their efforts to prevent callbacks, and these efforts clearly have been rewarded. In our February survey, four-fifths of the companies said they do walkthroughs and thorough punch lists before closing; three-fifths hire the most qualified subcontractors and conduct extensive inspections during construction; and half “strive for zero defects.” More than one-third cited subcontractor education as a step taken to boost quality and reduce callbacks.

David Seiders
Chief Economist, NAHB, Washington, D.C.