“One thing about our organization is that I’m pretty quick to make a decision and I don’t have to run it up a ladder,” he says. “I can react pretty quickly to what the market is doing and make changes and adjust.”
More than 80% of builders and contractors that annually produce 101 to 250 homes reported labor issues, while 70% of builders and contractors producing 51 to 100 homes a year reported labor issues.
The best spot might be for builders in the 11 to 50 homes-per-year category. Only 40% of those builders and contractors reported labor issues. But labor problems rose to above 50% for the tiniest of builders, who build one to ten homes per year.
Yet, Fred Delibero, CEO of Kansas City based Summit Custom Homes, which closed 184 homes last year and is the largest builder in its market, see advantages in having size.
“Being the largest home builder in the market with quick invoice payment terms gives us a definite advantage over the smaller builders, many of whom are paying a premium right now to keep their building schedules on track, while still more are experiencing dramatically lengthened building cycles because of the labor shortages,” he says. “Our trade partners do business with us, and put us first in line because we provide uninterrupted work flow and consistent payment terms.”
Outside Competition
While the slump in oil prices might alarm some Texas builders, Doug French, CEO of College Station-based Stylecraft Builders, which completed 430 homes last year, isn’t one of them.
“The silver lining with the oil prices is the fact that we will get some of the labor back,” French says. “I think as building continued to rebound and as our starts continued to improve and get stronger, it was difficult for our guys [subcontractors] to scale up. Where they used to be able to go into Houston and grab additional crews to increase capacity, that was no longer the case.”
Like French, a lot of builders and contractors, especially those in oil-heavy markets, saw labor flee to other industries. In fact, 26% of respondents to the Metrostudy survey who lost labor to other industries said they lost it to the oil/energy sector. Another 23% said manufacturers pulled their labor away.
“The labor shortage was at its worst in the places that are growing faster or the places that have some other competing industry, like energy,” says NAHB’s Chief Economist David Crowe.
Yet, only 39% of the builders surveyed revealed they are losing labor to other industries. In contrast, the survey showed that 59% of all builders are losing labor to the competition.
The competition for labor also hits builders of all sizes. Approximately six out of 10 builders who produced 11 homes or more per year said they were losing labor to their competitors. The labor they’re most often losing seems to be framers. A large percentage of builders, almost eight in 10, are having a difficult time finding framers.
“We are having to pay .10 to .15 cents more per framing footage to keep our framers… ,” Cates says.
Finish carpentry (more than 40 percent of respondents), drywall (almost 40 percent), plumbing (more than 30 percent), electrical (30 percent), roofing (more than 25 percent), and concrete (more than 20 percent) also ranked as hard-to-fill trades.
“We are experiencing labor shortages in many categories, but they’re most pronounced in our framing and drywall installation even after moderate permit growth in our market,” Delibero says. “We are especially concerned about the very real shortage of skilled labor in the mechanical trades as the housing market heats up further and we see bigger gains in permit count because right now the availability of skilled labor in that segment is stretched to the breaking point.”
French has had issues finding framers, but beyond that, there have been other problem areas as well.
“Roofers and sheet rockers have been a problem,” he says. “Those are really the biggies. The mechanical, the electrical, and the plumbing contractors have been easier to find. We never had issues finding those guys.”
Supply and Demand
Brookfield’s Prewett, whose company closed 785 homes last year, sees a simple reason for this intensified competition. “Part of the problem is simply the number of contractors available to do work,” Prewett says.
Prewett should know. When the last bubble started to burst, he started keeping track of the contractors going out of business. Eventually, that list hit 50. Nationally, construction employment dropped by 2.3 million between the peak in April 2006 (7.7 million) and the trough in Jan. 2011 (5.4 million), according to AGC.
“When we had the downturn, the Great Recession, a lot of Hispanic labor went back to Mexico,” Prewett says. “What I’m hearing from guys in the field is that a lot of them just didn’t come back. The economy improved in Mexico. That’s one factor. The other is they went into other industries.”
But construction is coming back… albeit slowly. Housing starts climbed from 554,000 in 2009 to just over 1 million in 2014, according to the Census Bureau. “As builders respond to new demand, they’re running up against supply issues,” Crowe says.
For instance, as the community count rose in Southern California—Prewett says its up 23% year over year—builders and their subs are being squeezed.
“Now that the amount of work is picking up as much as it is in Southern California, there are only so many trades out there that can handle it,” Prewett says.
Long-Term Problem
Labor shortages are having serious effects on builders. More than 70% of respondents in the Metrostudy survey said labor issues increased both their expenses and delivery times.
Either of these results could ultimately hinder the amount of homes coming online. And, when those homes do come online, persistent labor issues would make them more expensive. In this nascent housing recovery, where the entry-level home has seemingly been left behind, that’s bad news.
The good news is, while builders are feeling the pain of labor costs, many contend they haven’t had to shelve projects… yet.
“The labor shortage is a big factor, but it’s not preventing us from building homes,” Prewett says. “It’s causing costs to increase because the trade contractors are having to pay more to keep the crews working for their company, and builders are having to pay more to keep the quality trade contractors on their neighborhoods.”
Cates agrees. “It has not caused me to not do any projects but it continues to be an issue,” he says.
But that could change. Bill Handler, president of Florida-based GHO Homes, which closed 121 homes last year, feels pretty secure because of his firm’s long history and partnerships with longtime vendors and trades. Still, labor weighs on his future plans.
“We’ll continue to expand—but we’ll do it with discipline,” he says.
Additional reporting by Kayla Devon and Jennifer Goodman.
