Alan Hoffmann has been building homes in Texas since 1987, and he’s seen all kinds of real estate cycles.
But he’s never seen a worker shortage this severe.
A decade ago, when Hoffmann needed an electrical crew to wire a house, four or five electricians would show up. Today that crew is typically two people. That means homes take longer to build — usually 12 months instead of nine — and costs rise because longer project time means more months in which builders have to tap bank loans to finance construction.
Hoffmann’s homes are higher-end green “high-performance” houses — so his clients generally help absorb the higher project cost. But that’s not the case for all builders, especially those who are increasingly strained by rising materials costs, arguably tighter regulations, and now, understaffed crews. “There can be situations that make or break them,” Hoffmann said.
Despite his trendy-sounding business model, the way that Hoffmann and most builders work now doesn’t look that much different from the way it did when he started in 1987. And in fact, a Hoffmann worksite then wouldn’t have looked much different from any U.S. worksite in 1957.
The process: developers buy plots of land and assemble contractors and sub-contractors for the manual labor. Labor consists of lower-skilled men who are not always well-paid, and who are frequently foreign-born. Early each morning, they show up at the space that will someday be someone’s brand-new pride and joy, and mostly construct a house one piece at a time from the ground up.
But just as most home buyers no longer visit their local banker like Jimmy Stewart’s George Bailey to get a home loan, home construction itself is poised for big changes.
Men may be joined by women, or even robots. Most likely a lot less of their work will be done on the site where the house will sit, and more components — perhaps even entire houses — will be assembled in factories to a greater degree than they are now.
Hoffmann is proud of the family business he’s built. Still, he says, change is needed so the housing market doesn’t seize up, crashing the economy and butchering the so-called American Dream. “We’re at a potential breaking point,” he said in an interview in April. Hoffmann says he’s heard of 90-year mortgages being passed along generations of families in other countries operating under a struggling building industry. “I don’t know if we’re there yet, but something’s got to give.”
Industry participants and analysts agree: something will indeed have to give.
During the housing bubble, residential construction boomed, and so did the labor rolls. At the peak, in 2006, about 3.4 million workers were employed in the industry. By 2010, the low point of the recent cycle, that number was down to less than 2 million.
Many of the men who had worked in construction pivoted to other trades, such as energy, or they retired, or started collecting disability insurance. In a touch-and-go housing recovery, it was hard for many builders to pay enough in wages or guarantee enough hours for workers to lure them back, especially those who remembered the trauma of the housing bubble bursting and the uncertainty it brought. Many simply aged out.
Rob Dietz, the chief economist for the National Association of Home Builders, estimates 200,000 residential construction workers are needed in the short term. Over the long run, to get to what Dietz calls “the sustainable level of production,” that shortfall is more like half a million.
Worker shortage means a new-housing shortage. Mark Zandi, chief economist for Moody’s Analytics and a long-time housing watcher, says that the shortage of new homes is so severe, homebuilders could work for six months straight just to fill the backlog.
“It’s the No. 1 problem confronting the industry today,” said Paul Cardis, CEO of Avid Ratings, a home builder customer survey and data provider. “The industry is struggling mightily over it. The builders are right now not able to keep up with demand because they cannot find qualified labor to get the jobs done.”
According to Cardis’s surveys, 95% of builders call worker shortage their top problem. It’s causing builders to run three-to-six months behind in delivering homes, a long enough delay that it could start to dampen customer demand, he thinks.
So, what will give?
Begins and ends with immigration
As Zandi put it, “without more immigration, even if we maintain the current level, we’ve got a problem. It’s not just about attracting more, it’s also about keeping the ones you have. The crackdown on illegals is terrifying; it’s causing people to leave. More Mexicans leave than come here. That clearly is not helpful” to strained construction labor pools, where many Mexican men (along with other Latinos) have traditionally worked in the U.S.
It’s not just the rhetoric from the Trump administration that’s stemmed the tide of immigration. A 2015 study from the Pew Research Center found that the flow of Mexicans to the U.S. reversed course in the aftermath of the recession. Since that time 1 million have left the U.S. for Mexico, while only 870,000 have entered.
Many builders, in fact, would like to be more active in luring immigrants via special visas to sponsor them. For the past few years, builders have been tapping the federal H-2B program, which makes visas available for temporary, seasonal workers other than those who work in agriculture, which has its own program.
H-2B makes sense for a lot of builders, NAHB’s federal legislative director, Alexis Moch, told MarketWatch. But they’re competing for a very limited number of visas — 66,000 each year — with every other industry that employs seasonal workers: entertainment, restaurants, tourism and more.
“We don’t look at this as an immigration program, we look at it as a labor program,” Moch said. NAHB and other trade groups are lobbying Congress to allow entry to more H-2B workers than the 66,000 specified by the cap, as was usually the case before 2016.
A few years ago, Hillwood Communities , one of the largest private developers in the country, started to tap the H-2B program for landscaping workers for some of its Dallas-area developments. “We hire as much as we can from the forces that are available to us. The H2B really helps supplement the workforce that is really so strained right now,” Hillwood CEO Fred Balda told MarketWatch.
Each year for the past four, Hillwood has had about half of its visa requests granted, until last year, when it got zero approved.
Hillwood previously offered the services of its in-house landscapers to other communities as a revenue generator. But with a skeleton crew, it will have to forgo that business line and will miss out on about half a million dollars a year, Balda said. And it’s not just lost revenue: costs will go up too.