Struggling through the past seven years would give any small-business entrepreneur heartburn. But no economic sector consumed more Maalox than home builders. Worries continue as the recovery improves, but the concerns are different than earlier in the so-called recovery. Some are even dissipating. Each January, the NAHB asks its panel of builders about their concerns from the past year in addition to asking what they expect them to be in the coming year.

David Crowe

Chief Economist 


Washington, D.C.
Anje Jager/ David Crowe Chief Economist NAHB Washington, D.C.

As the recovery strengthens and becomes more focused on housing, supply issues are replacing the broader and more general concerns about the economy. In 2011 and 2012, about 4-in-5 builders were concerned about homeowners' ability to sell their homes but the intensity fell to about 2-in-5 expressing that concern in 2015. Concern about employment and general economic conditions also was highest in 2011 and 2012, but sank to seventh most recently; still a concern but not as heightened as earlier.

Leading concerns now are supply oriented. Over two-thirds of the builders responding listed the availability of labor as their greatest concern for 2015; building materials prices follow closely with two-thirds listing it as an expected problem, and lot availability tops out with 57%. In 2011, only 13% of respondents listed labor availability as a concern and 21% were concerned with acquiring lots.

In another series of surveys specifically on labor availability, builders were most concerned with the availability of rough and finish carpenters, framers, and masons. Over 60% of the builders surveyed reported some or serious shortages of carpenters, which is similar to the shortages felt at the peak of the market in 2005.

The uptick in overall employment has put additional pressure on finding qualified construction workers. Scarcities and rising wages have been worse in the energy production regions of the county. Lower oil prices likely will free up some labor in those regions. A rising economy will induce discouraged workers who have remained on the sidelines to re-enter the market as well. Wages will have to rise to bring more of the experienced workers back from where they went during the housing collapse.

Reports of lot shortages began to pick up in 2012 and by mid-2014, about 3-in-5 builders were experiencing some or serious shortages in lots. Class A lots have the greatest shortage with nearly two-thirds of the builders experiencing low or very low supply, while about half report class B lots in low or very low supply.

Credit availability for developers and builders will dictate future lot production. Bank holdings of residential acquisition, development, and construction (AD&C) loans have increased over the past year as lending begins to open up. Construction lending has been the first to move with development loans seeing a slight increase. Land acquisition loans have been the slowest to rebound. One consequence of banks' slow response to the rising need for AD&C credit has been greater use of private equity and debt for residential lot development, and that trend is likely to continue as NAHB develops more sources.

Some worries have remained high throughout the cycle. Over half of the builders have been concerned about inaccurate appraisals, although the share expressing that concern has diminished slightly. Similarly, concerns about the regulation of financial institutions remains high, but the share of builders listing it as a concern has fallen slightly from over 70% to around 60%. Federal and state environmental regulations and local impact fees and building permits charges have hovered around half of the builders' concern throughout the cycle.

A few concerns have diminished in importance. About two-thirds of builders were concerned about buyers qualifying for a mortgage in 2013, but that shrank to 45% of builders who expect that to continue to be a problem in 2015. Competition from distressed sales was a concern of 40% of builders in 2013, shrinking to 32% in 2014 and expected by only 19% in 2015.

Worrying never will be eliminated, but the categories will change as the market recovers and supply chain repairing continues.