What's Holding Back the Housing Market? Not Enough Construction WorkersThe drumbeat of hammers echoes most mornings through suburban Denver, where Jay Small, the owner of company that frames houses, is building about 1,300 new homes this year.
That’s more than triple what he built a few years ago, when “you couldn’t buy a job” in the residential construction industry, he said.
Now, builders can’t buy enough workers to get the job done.
Eight years after the housing bust drove an estimated 30% of construction workers into new fields, homebuilders across the country are struggling to find workers at all levels of experience, according to the National Association of Homebuilders. The association estimates that there are approximately 200,000 unfilled construction jobs in the U.S. – a jump of 81% in the last two years.
The ratio of construction job openings to hiring, as measured by the Department of Labor, is at its highest level since 2007.
“The labor shortage is getting worse as demand is getting stronger,” said John Courson, chief executive of the Home Builders Institute, a national nonprofit that trains workers in the construction field.
The impact is two-fold. Without enough workers, residential construction is trailing demand for homes, dampening the overall economy.
And with labor costs rising, homebuilders are building more expensive homes to maintain their margins, which means they are abandoning the starter home market. That has left entry-level homes in tight supply, shutting out may would-be buyers at a time when mortgage rates are near historic lows.
Nationwide, there are 17% fewer people working in construction than at the market peak, with some states – including Arizona, California, Georgia and Missouri – seeing declines of 20% or more, according to data from the Associated General Contractors of America.
The labor shortage is raising builders’ costs – and workers’ wages – and slowing down construction.
Small, the Denver builder, estimates that he could construct at least 10% more homes this year if he had enough workers. But he remains short-staffed, despite raising pay to levels above what he paid during the housing bubble a decade ago.
“It’s getting to the point where you’re really limited in what you can deliver,” Small said. “We lost so many people in the crash, and we’re just not getting them back.”
HIGHER COSTS
The average construction cost of building a single family home is 13.7% higher now than in 2007, even as the total costs of building and selling a house – a figure that includes such items as land costs, financing and marketing – are up just 2.9% over the same period, according to a survey by the National Association of Homebuilders.
The problem is accentuated by strong demand for newly constructed homes, with sales reaching a nine-year high in July.
Private companies say that they are having a hard time attracting workers, and they are often forced to give employees on-the-spot raises to prevent them from going to competitors. Carpenters and electricians are often listed as the most in-demand specialties.
Tony Rader, the vice president of Schwob Building Company, a general contractor in the Dallas area, said his company has started handing out flyers at sporting events, churches and schools in hopes of luring more people into the field.
“The biggest problem I face every day is where are we going to find the people to do the work,” he said, adding that it’s becoming increasingly common for his company and others to turn down projects.
Dallas contractors are fighting over the limited supply of workers as three major mixed-use projects are going up right next to each other on the so-called “$5 billion mile” in Frisco, a northern suburb. Meanwhile, the metropolitan area is adding about 30,000 newly built homes annually.
With fewer workers, contractors are becoming wary of signing new work contracts, especially as many of them include fines for not completing a job by a designated date.
“I’ve got two lawsuits right now where it may cost us mid-six-figures because there’s not enough labor out there to get it done,” said one contractor in the North Dallas area who declined to be identified.
Lawyers in hot residential markets say that it is becoming increasingly common for construction companies to try to negotiate for more time.
“Subcontractors are having a hard time staffing up,” said Edward Allen, a Denver attorney who said he has seen more lawsuits over project delays in the past two years.
So from this we can safely say that if the 8 million undocumented workers were immediately transported back to their countries of origin, houses would be less plentiful and they'd be more expensive. And this is only one example of how their sudden absence would negatively affect the economy.
Let's say Johnny lives in two different scenarios.
In scenario 1, he lives in an American society without illegal immigration. He makes $30/hr at his warehouse job. He has a wife and three kids to support. His
nominal wage allows him to barely afford a mortgage for a newly constructed 4 bed/3 bath 3,000 sqft home listed at $300,000. At 4% interest his monthly mortgage on a typical 30 year loan is roughly $1,430 per month.
In scenario 2, he lives in our current American society making the same wage, but thanks to a large supply of cheap labor he is able to afford the same exact house by paying $260,000. With the same exact loan his monthly mortgage is around $1,200.
So while Johnny makes the same exact wage in each scenario, his purchasing power is much stronger in scenario 2 because he saves $230 per month. After controlling for taxes, that's about a $2 increase in his
real wage assuming he works 40 hours per week.
And this is just one example. We could spend literally hours going through the many examples goods and services are much cheaper in a society fraught with cheap labor.