Labor Shortages Push Up Construction Costs

Builders are being forced to raise home prices and are having a more difficult time meeting project deadlines because of the ongoing labor shortage in the construction industry, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. Eighty-four percent of builders say they have had to pay higher wages to subcontractor bids, 83 percent say they have had to raise home prices, and 73 percent say they can’t complete projects on time without more manpower. The number of builders reporting labor and subcontractor shortages reached a record high in July.

“The steepest upward trend has been in the share of builders saying the labor/subcontractor shortages are causing higher home prices, which increased by 22 percentage points between 2015 and 2018—to the point where it is now nearly tied with higher wages/sub bids as the most widespread effect of the shortages,” NAHB reports on its Eye on Housing blog. The survey also shows other effects of the labor shortage, such as builders saying that, in some cases, they’ve been forced to turn down projects.

Source: “Housing Market Index (HMI),” National Association of Home Builders/Eye on Housing (September 2018)

‘Tear-Downs’ Account for More New Homes

More than 10 percent of new single-family homes that began construction in 2016 were part of a tear-down project, according to new data from the National Association of Home Builders. That’s up from 7.7 percent in 2015. NAHB defines a tear-down as a home that is built on a site where a previous structure existed. Nationwide, there were 79,300 single-family tear-downs started in 2016, up from 55,200 in 2015, NAHB estimates.

Builders continue to cite lot shortages as a major setback to new-home construction. Home shoppers and builders are now eyeing tear-downs because many of the properties are in prime locations. Take a look at the charts posted on below ‘source’ blog to see the breakdown of tear-down starts by region.

Source: “NAHB Estimates 79,000 Single-Family Tear-Down Starts in 2016,” National Association of Home Builder’s Eye on Housing blog (June 19, 2017)

Home Builders End the Year ‘More Upbeat’

Home builders are getting more optimistic over the single-family home market, specifically over current sales conditions, sales expectations, and prospective buyer traffic, according to the December reading of the National Association of Home Builders/Wells Fargo Housing Market Index.

“Following a two-month pause in the index, this uptick is due in part to release of the pent-up demand caused by the uncertainty generated by the October government shutdown,” says David Crowe, the NAHB’s chief economist. “We continue to look for a gradual improvement in the housing recovery in the year ahead.”

The overall index rose four points in December to a 58 reading. Any number above 50 indicates that more builders view conditions as good than poor.

“This is definitely an encouraging sign as we move into 2014,” says Chairman Rick Judson, NAHB chairman. “The HMI is up 11 points since December of 2012 and has been above 50 for the past seven months. This indicates that an increasing number of builders have a positive view on where the industry is going.”

Source: National Association of Home Builders