Steven J. Hilton
Steven J. Hilton

Dr. Christopher Herbert, Managing Director of Harvard’s Joint Center for Housing Studies began his Labor, Lots, and Lending panel at HIVE with a simple question for builders Bert Selva, president and CEO of Shea Homes, and Steven J. Hilton, chairman, CEO, and co-founder at Meritage Homes Corp.—can you expect to increase entry-level production given significant impediments?

In his answer, Hilton dropped a bit of news by announcing that Meritage will launch a new “entry-level plus” brand that's 100% spec. Buyers will get the opportunity to purchase certain upgrades, but the main cost savings may occur with Meritage’s trades.

“The trades like it,” he said. “They will be able to stay on the job site.”

As panelist Ivy Zelman, CEO of Zelman & Associates, pointed out in a presentation before the panel, there’s a growing need for entry-level homes. The non-banks, and even banks are stepping up, by offering more, but lots and labor are holding back what builders can supply. And, Fannie Mae announced a program that will evaluate a person’s readiness for a mortgage based on their utility payments, instead of merely relying on credit scores

“Young millennials want home ownership,” she said. “They just need you to build it for them.”

Labor is one of the largest constraints. In her regular survey of builders, Zelman said they rated the labor obstacle at 78.8 (zero is the least difficult and 100 is most difficult on the scale).

Hilton says labor has eased up over the past year and there are more trades in each of the categories, particularly in the Western states. “It helps us keep up with rising demand,” he said.

A guest worker program in Texas has also been helpful for trades in The Lone Star state. But labor is still a huge issue. Millennials aren’t expected to fill the gap and a number of former construction workers have left for other industries. “A lot of them went into hospitality,” Selva said.

Eventually technology and new building techniques, like SIPS roofs, could lessen the need for construction site labor.

Land is also another issue, though Zelman says the success of LGI Homes and D.R. Horton’s Express lines have convinced builders to take more chances on less desirable lots. Selva isn’t moving to C locations, but says in notoriously pricey California, local and state fees add a lot to the cost of new homes. “The regulatory fees are a big issue,” he said.

If builders can overcome these issues and supply starter homes, they could be entering a long period of prosperity. “I think we’re in the early stages of an elongated cycle for the entry-level product,” Zelman said.

But building those starter homes will provide a greater reward as well. “Providing good, affordable housing is imperative for our well-being as a country,” Herbert said.