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Housing Recovery Checked by Cost Increases, Labor Shortages

Bottlenecks emerge as the housing recovery gathers pace
Raul Rios, wearing a pair of stilts, applies joint compound to the seams of drywall at a house under construction in Raleigh, N.C.
Raul Rios, wearing a pair of stilts, applies joint compound to the seams of drywall at a house under construction in Raleigh, N.C.Photograph by Jim R. Bounds/Bloomberg

Marty Mitchell’s company in Rockville, Md., builds homes priced from $700,000 to $1.6 million. Business is brisk and could be better. Costs of everything from lumber to labor have been rising faster than anyone in the industry imagined only a short time ago. “We certainly expected some increases as the market improved, but costs have really shot up in the past six months or so,” says the deputy chief executive officer of Mitchell & Best Homebuilders. That’s putting the squeeze on margins even as companies like Mitchell’s raise home prices.

As the U.S. housing industry recovers from its worst downturn since the 1930s, builders are having to cope with steep cost increases for various materials as well as rising land prices and shortages of skilled labor. “We’re seeing somewhat of a bottleneck,” says Michelle Meyer, senior U.S. economist at Bank of America. “Higher costs are one reason home construction is not rebounding faster,” she says. Housing starts, including single- and multifamily homes, advanced 7 percent in March from the prior month, to a 1.04 million annual rate, the highest since June 2008, the Commerce Department reported on April 16.