David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com  
Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com  

The NAHB recently surveyed its members to learn just how much home building is subcontracted and, because the same questions have been asked before, how the practice has changed over the last decade.

Currently, 86 percent of the total construction costs are subcontracted, up slightly from 84 percent in 1999. Three-in-10 builders contract out all of their construction, up from 26 percent in 1999. At the other end of the distribution, about one-in-five builders contract out less than half their construction costs, which has remained unchanged.

More than 90 percent of home builders contract out operations typically done by skilled and specialty trades such as: security systems, technology, HVAC systems, carpeting, electric, plumbing, masonry work, and fireplaces. The list has not changed significantly since 1999. The most frequent in-house functions (one-in-four or more builders) are finished carpentry, doors, windows, framing, and siding. Over the span of the two surveys, there has been a slight increase in bringing these components in-house.

In total, builders use 20 different subcontractors, which is the same as it was in 1999. The slight increase in the share of the cost subcontracted without a change in the number of subcontractors suggests the more expensive operations were the ones shifting toward subcontracting. From a separate survey of the construction cost shares, a likely reason is an increase in the share of construction costs for plumbing, electrical, and HVAC from 12.4 percent in 2004 to 15.2 percent in 2011.

The use of subcontractors grows with the size of the home building firm. About one-quarter of firms building fewer than 25 homes per year spend 100 percent of their construction expenditures on subcontractors, a little under half of firms building 25 to 99 homes per year devote all of their construction expenditures to subcontracting and more than three-quarters of firms building 100 or more use subcontractors for all their construction costs. The primary operations kept in-house in smaller firms are framing, exterior windows and doors, and finished carpentry. Along with an increased dependency on subcontracting, larger firms use a larger number of different subcontractors. The median number of subs used rises from 20 for firms building fewer than 25 homes to 28 for the 25 to 99 units per year firms and to 30 different subs for firms building 100 or more homes. Regionally, there is a slightly higher use of subcontractors in the South but all other regions are very near the national distribution.

Subcontracting also means fewer direct employees and the expenses of finding and keeping staff. In a separate survey, the NAHB asked builders the status of finding and hiring both direct and subcontractor labor. Although there have been spotty reports of some skilled labor shortages, labor availability for both direct and subcontractor labor is at its best nationally since 1996 when the questions were first asked. Over 80 percent of builders reported no shortages in the highly subcontracted operations such as electrical, plumbing, and HVAC.

While builders reported the greatest availability of labor categories in the history of the question, there are some professions and subcontracting categories where some availability problems exist. Framing and carpentry were cited the most frequently as having some or serious shortages in both contracting and as a direct employee. About one-in-three builders reported some or a serious shortage of framing labor. These levels pale compared to the two-thirds reporting a shortage in 2005. Over a quarter of the builders also reported shortages of rough and finish carpenters.

Building homes requires an array of specialists and as a result the home building industry employs a broad range of firms. The wide dispersion of work is part of the reason why home building provides jobs and a large economic impact.