More Builders’ Profits Taking a Hit from Labor Shortages

Filed in Business Management, Economics by on September 13, 2018 7 Comments

silhouette of a man framing a new houseA recent NAHB survey found that over the last year, the average cost of builder-employed laborers increased 5.2% and the cost of subcontractor work rose 7.2%.

Comparing those numbers to 2018’s overall inflation (just 2.9%) helps explain why the pace of residential construction continues to be flat: The cost increases are not only resulting in higher home prices for buyers, but a growing number of builders are feeling the pinch as well.

In his recent Eye On Housing blog post, NAHB economist Paul Emrath closely examined the widespread effects of the labor shortage on home builders. Among the notable findings, larger portions of builders are being forced to:

  • Turn down more projects (40%)
  • Deem more projects as unprofitable (41%)
  • Accept new orders at a slower rate (32%)
  • Overcome an increase in lost/canceled sales (26%)

Read the full Housing Market Index report here.

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Comments (7)

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  1. AS a roofing contractor I have had to take quotes from last year pricing and not only pay more for materials at at least 8% but Pay my long term Employees 27% more money to keep them on my payroll instead of being head hunted by other roofing contractors

  2. As a Builder of Semi-Custom Homes ranging in price (without lot) from $230,000 to $750,000 I have seen an over all increase in both labor and materials in excess of 7% in higher priced homes to more than 10% in lower priced homes. I have had to raise my pricing 10% over the past year just to maintain necessary profit levels.

    Finished Lot pricing in the Springfield MO Market have gone from an average of $35,000 over the past 2 years to over $50,000 and on up in our current market. That equates to over 42%. increase. It virtually eliminates the ability to build homes below 2,000 sf with sales prices, including lot, priced at least $295,000.00. $150 per square foot is pretty much the norm.

    Increase costs in Lot Development , Labor Shortage (especially Framers), along with Material Increases which are ongoing have been devastating.

  3. david Thompson says:

    I don’t understand what is devastating about the best economy any of us have ever seen.
    The shortage of employees means that Tradesmen are finally getting increased wages. It is about time!!
    The people complaining are probably the same ones that are using illegal aliens and paying them substandard wages.
    In addition, we are charging more for our work, because there is a labor shortage, so we are making a higher markup as well.

    • Jerry Highley says:

      Right on David
      The price of a new home is higher and that means that my profit goes up with it. And with the shortage of labor and builders I have increased my profit margins by 5% because no one can do what we do.

  4. Keenan Knight says:

    Paying more to tradesmen is irrelevant when the shortage is so bad that nothing gets done (which we are experiencing here). David and Jerry, the skilled trade shortage impacts many things including pricing customers out of building at all, inefficiency in getting jobs started / completed, lower quality and higher prices. Hopefully in our capitalist system the supply of skilled labor will move to the higher priced demand for it. David, you are making a broad assumption that builders have used underpaid illegal labor. Builders and customers are willing to pay a fair wage for a quality job and usually trades that do good work and are dependable never want for pay or business. No question that the future in many skilled trade businesses will be profitable since “no one can do what we do.”

  5. Bickley says:

    Demand has out run the supply of labor so much that builders will go out of business not because people don’t want houses but because not enough people in the labor pool are available to produce them..
    The prices of new houses are set by the appraisers that base their appraisals on what sold last. Its kind of like steering a boat by looking back at the wake. It doesn’t matter how much it cost the builder. It matters how much the homeowner can borrow. Bottom line eventually it work its way down through all the trades until most everyone will need to move to manufacturing or some other Industry until the supply of labor comes up to meet the demand or lenders are willing to stick their necks out to give more for the home than it appraises for. Which is not likely to happen.

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