The Why of Homebuilding Costs, Part II
Kevin Osteen
For the second piece in this series, I want to talk about the why of homebuilding costs as it pertains to builders (like me).
As a builder, it’s my job to create and maintain solid relationships with subcontractors who have proven their reliability and worth over and over again. I do that. I’m proud of the subcontractors I work with regularly -- I have a lot of respect for their work ethic and willingness to do right by me and my customers. I have always said that I don’t mind paying a higher price for quality -- and I mean that especially when it comes to the work I put my own name on. Subcontractors may cost more than we anticipate, but it’s for good reason.
In the United States, we are still seeing the aftermath of 2008’s housing bubble debacle in the form of labor shortage, explains CNBC in an article from March of this year. It boils down to a supply and demand issue -- construction laborers left the industry altogether, understandably in search of work that was more stable. But it’s still a problem today. According to Rob Dietz, chief economist with the National Association of Homebuilders (or NAHB), "We thought we'd see a flow back of workers from the energy sector...The labor shortage has basically grown and accelerated. It's the top challenge in the building industry right now."
Another reason for the labor shortage is lack of trade education. There are plenty of post-secondary institutions offering construction management and project management programs, but you don’t often see certification or education options in framing or general construction labor.
The bottom line is that as a builder, I have to find decent labor at a price point my customers can afford.
Because it’s not just the price of the subcontractors -- the subcontractors have to seek out their own labor force, and that’s hard for everyone right now. It’s a big deal when one or two or three regular workers are poached by other subcontractors or contractors who promise them more money. And they may well move on again to the highest bidder, simply because they can. So it has become increasingly difficult for any of us to hang on to solid labor, in every layer of the construction world. The price we pay to find and keep quality workers inevitably gets passed to the customer.
After the housing bubble of 2008 busted wide open, lots of construction laborers were out of work. Since the future of home construction was so tenuous, a lot of them went into completely different trades where they’ve stayed. That means that today, in 2017, there’s a huge labor shortage.
In terms of supply and demand, that means that builders pay a premium for labor -- when and if they find it.
Immigration reform and the current political environment play a big part in the continued labor shortage according to home construction industry leaders. Immigrants historically make up a large percentage of the construction labor market.
“Construction labor” doesn’t just mean the employees on a builder’s payroll. That term translates to subcontractors and their teams as well. Subcontractors -- like demolition teams, framers, drywallers, painters -- they all need laborers too. And it’s just as difficult for them to find laborers as it is for me or any other contractor to find them.
Our ongoing labor shortage means that laborers and subcontractors who are worth a darn come at a premium price, for really good reason -- they are diamonds in the current construction building world.
For builders like me, this simply means that finding excellent labor groups and keeping those relationships strong is imperative. All builders face these issues in the labor market today, and the best way to surmount is to press through, keep the conversations open and offer the best prices we can to both laborers and to our customers to ensure your finished product is exactly what you want.
A final note: customers have the power to impact the cost of their home build as well. Making and sticking to plans early, and minimizing change orders once the job begins, means contractors can plan ahead and have materials and subs at the ready. In our next blog post, and Part III of this series on homebuilding costs, we will go in more depth about how to reduce your homebuilding costs overall.