Labor Shortages are Raising Home Prices

Filed in Economics, Labor, Safety and Health by on October 19, 2018 1 Comment

Last month, NAHBNow recounted the record share of single-family builders reporting shortages of labor and subcontractors based on a recent survey conducted by the association.

According to the survey respondents, the most widespread effects of the labor shortages were:

  1. Causing builders to pay higher wages and/or subcontractor bids (reported by 84% of builders);
  2. Forcing them to raise home prices (83%); and
  3. Making it difficult to complete projects on time (73%).

As NAHB Senior Economist Paul Emrath reported in this Eye on Housing blog post, these have consistently ranked as the most commonly reported effects of the labor and subcontractor shortages since NAHB began asking builders about them in 2015.

However, all three concerns have become even more acute recently.

The steepest upward trend has been in the share of builders saying the labor/subcontractor shortages are causing higher home prices. This figure jumped by 22% between 2015 and 2018, and is nearly tied with higher wages/subcontractor bids as the most widespread effect of the labor shortages.

labor shortage graph

The survey also revealed that labor and subcontractor costs have risen much higher than the rate of inflation over the past year. From July 2017 to July 2018, for example, overall inflation was up 2.9%, but labor costs increased by 5.2% and subcontractor costs jumped by 7.2% over the same period.

This is particularly significant, given that three-fourths of construction costs typically represent the work performed by subcontractors. It is also consistent with the NAHB survey results showing that the incidence of shortages was higher for subcontractors than for labor directly employed builders in 14 of 15 occupations.

View the complete survey on labor availability.

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  1. Let’s call a spade a spade, the cost of materials increasing beyond the most robust projections doesn’t help.

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