pursuits

Labor Shortage Sparks Production Delays for Homebuilders

Updated on
  • Meritage, Hovnanian say lack of workers lengthens completions
  • Texas rains and Colorado winter pressure builders to pay up

Homebuilders spent years waiting for the U.S. jobless rate to fall so that more people would buy houses. Now that employment is up, they’re struggling to meet demand as a scarcity of construction workers worsens.

Meritage Homes Corp. plunged last week after lowering its earnings forecast, citing rising labor costs and a shortage of workers to finish houses. Shea Homes, Hovnanian Enterprises Inc., Beazer Homes USA Inc. and William Lyon Homes have pointed to a paucity of tradesmen for a slowdown in completions in some markets. 

“The lack of labor is a national problem for all the builders,” said Jay McCanless, a homebuilding analyst with Sterne Agee CRT in Nashville, Tennessee. “The thing we’re seeing and we’re hearing in the field is there’s just not enough qualified people at all.”

The labor shortage, which began in isolated pockets soon after new-home sales hit bottom four years ago, is deepening as buyers sign contracts at a pace not seen since before the housing crash. Many of the carpenters, electricians and roofers who lost jobs during the collapse haven’t come back because they found other work, aged out of the industry or, in the case of some immigrants, left the country.

Industry Jobs

There are about 1 million fewer residential-construction jobs than at the 2006 peak, according to an analysis of Labor Department data by the National Association of Home Builders. Since the bottom in January 2011, the industry added 469,400 employees through last month. The unemployment rate for the construction sector was 6.1 percent in August, down from 17 percent five years earlier.

“We could be growing faster if the labor shortage issue wasn’t present,”
said Robert Dietz, an economist with the builders association.

U.S. new homes sold at an annual pace of 507,000 in July, up 26 percent from a year earlier, the Commerce Department reported Aug. 25. That’s still 31 percent below the average since 1995. Housing starts, including apartments, fell 3 percent last month from July, the Commerce Department reported Thursday.

Jeff McQueen, president of the Active Lifestyle Communities division of Walnut, California-based Shea Homes, said the shortage is so severe in Arizona that the company is telling customers now signing contracts that their home may not be completed for a year. It normally takes five or six months.

“We’re not confident we can start because we don’t have the labor to start them,” McQueen said. “The industry needs more laborers. We can’t just keep stealing from each other and ratcheting up costs. The labor pool is not deep enough to deliver what we need.”

Immigrant Workers

Increased border enforcement, along with an improved Mexican economy, may be keeping some international workers from entering the country, according to John Burns, a housing consultant based in Irvine, California.

About 22 percent of construction employees are foreign born, according to the National Association of Home Builders, which is asking Congress to institute a temporary guest-worker program for the industry.

“How this is going to get solved is people are going to get paid more and they’re going to have to get trained, and training takes time,” Burns said.

Fifty-two percent of single-family homebuilders reported labor shortages in June, up from 46 percent a year earlier and 21 percent in 2012, according to a survey from the National Association of Home Builders.

Texas Rains

The search for tradesmen has become more competitive in Houston and other Texas cities, where heavy rains prevented workers from pouring concrete for as many as 60 days and insurance companies repairing damaged properties offered higher pay for laborers, according to McCanless. 

That hit Meritage, which sells about one-third of its homes in Texas, harder than other builders, McCanless said. Weather also slowed construction in Colorado, where demand has been pushing up home prices faster than most of the country.

“There are shortages of skilled labor in many markets as subcontractors struggle to catch up with the increased demand of a continued recovery in homebuilding,” Steven Hilton, chief executive officer of Scottsdale, Arizona-based Meritage, said in a Sept. 9 statement. “Competition for labor has resulted in increased costs and longer construction times, intensified by the impact of severe spring weather in certain Texas and Colorado markets.”

Meritage shares fell 8.9 percent the next day, the most in three years.

Wider Net

The company has had to bring in an Oklahoma concrete contractor to work on homes in Dallas, and Arizona framing crews to work in Colorado, said a spokesman, Brent Anderson.

“You almost have to go outside the immediate market area to expand the labor force,” Anderson said. “All you need is to be short one trade or one contractor at the time that you need them and it backs up everything.”

Schools should do more to persuade young people to train for construction trades to reduce the shortage, Doug Bauer, CEO of Irvine-based homebuilder Tri Pointe Group Inc., said at an Aug. 25 interview at the Bloomberg bureau in Los Angeles.

“Electricians, plumbers, framers -- their average age is about 50,” he said.

— With assistance by Felice Maranz

(Updates with housing starts in seventh paragraph.)
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