PulteGroup recently blamed its 6 percent decline in finalized sales in the third quarter primarily on the lack of workers needed to finish projects in time. 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 all pointed to a scarcity of workers for a slowdown in completions in some markets.
“In general, labor is the primary culprit of our lower conversion of sales to closed deals”, PulteGroup chief executive Richard Dugas said on a conference call with investors. “It’s clearly impacting our production. In general, we have to pay more for labor.”
Residential construction spending climbed over $36 billion in August to reach it’s highest peak since October 2007. However, compared to eight years ago, there are about 676,500 fewer laborers in the residential construction industry.
Labor Shortage Sparks Construction Delays
The labor shortage, which began in isolated areas immediately after new-home sales declined sharply four years ago, is worsening as home buyers sign contracts at an ever-increasing pace not seen since before the housing crash. Orders for new homes are up 21% in the first eight months of this year from the same period a year ago, attaining the largest volumes since 2008.
Many of the carpenters, electricians and roofers who lost jobs during the collapse haven’t come back because they have already found other work, aged out of the industry or, in the case of some immigrants, left the country. “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.”
There are many theories as to why there is even a scarcity. Some builders and contractors posit that the industry’s infrastructure for marketing itself to young workers and training them for construction careers needs reinvestment after being allowed to atrophy for many years. Others argue that U.S. immigration policies need to be modified to allow more foreign workers to legally work in the U.S.
“I think [labor shortages are] going to be a recurring theme,” Thomas Lawler, an independent housing-market analyst based in Virginia, said. “But I don’t think you’ll see it for an extended period of time provided that underlying demand [for homes] remains OK and the builders are willing to pay more.”
Others argue that wages need to be increased to attract more workers to the industry. “Wage rates in general have not been moving very fast for all types of work,” said David Crowe, chief economist for the National Association of Home Builders. “But the fact that they’ve lost some of their advantage in residential construction may be one of the reasons it’s hard to attract people back into the industry.”