Labor Shortage Holding Housing Back, CMs the Answer

Originally published by: CNBCJuly 17, 2015

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Single-family home construction fell to a three-month low in June, which is usually the busiest time for homebuilding. Even building permits are not showing signs of robust growth. Builders claim there is good demand, but they complain they're handcuffed by a lack of skilled labor to build new homes.

The builders' industry trade group calls the incidence of labor shortages nationwide "surprisingly high," given the fact that homebuilding has barely recovered from its 2008 crash.

"In fact, the 9-trade shortage is now substantially higher than it was at the peak of the 2004-2005 boom, when annual starts were averaging around 2 million, compared to current rates of about one million," economist Paul Emrath of the National Association of Home Builders wrote in a recent report. Nine-trade refers to the various skills required for homebuilding, such as concrete pouring and carpentry.

"The last time builder-reported labor shortages were as widespread as now was just before 2001 during a prolonged period of strong GDP growth with overall unemployment as low as 4 percent," he added.

Unemployment in the construction industry fell in June to the lowest level since 2001, according to an analysis by the Associated General Contractors of America. That's because contractors are having a hard time finding enough qualified workers to meet growing demand, association officials said.

"Expanding job opportunities throughout the economy make it increasingly difficult for contractors to find experienced construction workers," said Ken Simonson, the association's chief economist. "This scarcity shows up in record workweeks for craft workers and flattening of employment totals despite higher construction spending."

In Columbia, South Carolina, McGuinn Homes is double-teaming its crews. Trying to frame 15 to 20 houses this week, CEO Wade McGuinn divided his crews, sending them to different lots, but they still only got to half the homes.

"We're being creative in the way that we're dealing with our trade partners," said McGuinn, a 30-year veteran of the homebuilding business.

McGuinn cites two contributing factors to the shortage. First, it was slow for so long that a lot of the trades people went into different fields. Second, new federal mandates on immigration laws:

"We've lost about two-thirds of our Hispanic and South American population in South Carolina, and that has had a profound effect on labor," said McGuinn.

Local high schools have training programs, but they have been slow to churn out new workers.

Bigger public builders tend to have it easier, as they have long-standing employees in larger developments. The shortage is hitting local builders harder.

Local builders, however, still make up the majority of single-family construction in the U.S., and lackluster production is hurting the overall health of the housing market.

That has wider ramifications for the overall health of the economy. This was noted in the latest survey of economic conditions by the Federal Reserve, known as the Beige Book:

"Firms from several districts continued to describe shortages for particular types of skilled labor, predominantly in the construction industry."

The South is particularly hard hit, as it sees the most single-family home building in the nation by far.

The labor shortage in Texas has been "a complete beating," said Bruno Pasquinelli, president of CB Jeni Homes in Dallas. "There's not enough guys to pour concrete, it's going to be a challenging six months."

Other builders say they are not seeing labor shortages, only because demand for new homes in their locations is still weak. That appears to be the case in the Maryland suburbs of Washington.

"It's just below the surface here in D.C.," said Stephen Paul, executive vice president of homebuilding operations at Mid-Atlantic Builders. "The market is just soft enough where we don't have any problems at the present; however if we get any uptick in volume, it will smack us all hard. It's like once I figure out how to sell homes, I'll then focus on how to build them."


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