Labor and subcontractor shortages remained widespread in July of 2019 and are continuing to impact the industry in a number of ways—including putting additional upward pressure on new home prices— according to results from special questions on the survey for the NAHB/Well Fargo Housing Market Index (HMI). In July, the HMI survey asked builders specifically about shortages in 16 different occupations. Shortages of labor directly employed by builders remained at least fairly widespread for each of the 16, ranging from a low of 47 percent for building maintenance managers to a high of 83 percent for framing crews.
Many of the shortage percentages were little changed from where they were at this point last year. The share of builders reporting a shortage of rough carpenters actually ticked down a percentage point, from 83 percent in 2018 to 82 percent this year. Labor shortages in the other 14 occupations were either unchanged or even more widespread than they were in 2018. Averaged across the 9 occupations NAHB has been covering in a consistent way since the 1990s, the incidence of shortages reached 69 percent in 2019—the highest number on record.
This shortage seems especially severe relative to housing starts, which still have not fully recovered from their historically low 2009-2011 trough. Nor, with the possible minor exception of rough carpenters, has the softness in new home production during the first part of the year had a noticeable impact on the incidence of reported shortages.
So far, the numbers reported above all pertain to labor directly employed by builders. But builders also employ workers indirectly, through the use of subcontractors. Recently, shortages of subcontractors have been more severe than shortages of labor builders directly employ. A possible reason is workers who were laid off and started their own trade contracting businesses during the housing downturn returning to work for larger companies. This would improve the availability of workers directly employed by builders while reducing the availability of subcontractors.
Since 2013 a persistent 5- to 7-point gap opened up between the 9-trade average shortage of subcontractors and labor directly employed by builders, with subcontractor shortages being consistently more widespread. This is significant, given that subcontractors account for three-fourths of construction costs in a typical new home, and failure to take them into account can yield an incomplete and skewed picture of the residential construction industry. In 2019, the gap was still evident, although it narrowed somewhat for the first time in quite a while. The 2019 survey showed only a three-point spread between the 9-trade shortage averages for subcontractors and labor directly employed by builders.
The same survey asked builders about the effects labor shortages may be having on their businesses. Four of these effects stand out as very common (cited by at least three-fourths of builders). Three are the same as the ones we’ve been reporting consistently over the past several years: causing builders to pay higher wages/subcontractor bids (reported by 87 percent of builders), making it difficult to complete projects on time (81 percent) and forcing them to raise home prices (75 percent).
The impact of the labor shortage on home prices is particularly significant, as this is one of the factors contributing to the ongoing and serious problem of housing affordability discussed in recent posts.
Based on comments from its builder members during a recent leadership meeting, NAHB added a new option to the list in 2019: difficulty finding subcontractors with well-trained employees. This turned out to be another common phenomenon. Seventy-nine percent of builders said that the shortage of labor was, in fact, making it difficult for them to find subcontractors with well-trained employees.
Readers interested in more details, including a complete history for question in the labor availability survey, can find them in the full survey report.