In this blazing-hot housing market of severe home shortages and rapidly rising prices, many buyers around the country have found themselves left shivering in the cold. But while builders would love to swoop in, construct a bunch of homes, and save the day (while making bucketloads of cash), they can’t. They simply don’t have the manpower.
Construction workers have become an increasingly rare and precious commodity in today’s housing market. The national labor shortage is dramatically slowing down builders—many of whom already have their hands full with remodeling homes for baby boomers planning to age in place, and rebuilding thousands of homes ravaged by last year’s hurricanes and wildfires. Combined with overall rising construction costs, it means an influx of new homes to ease the housing shortage and tame runaway prices isn’t coming anytime soon.
Skilled workers such as home framers, electricians, plumbers, masons, carpenters, and HVAC installers are especially in demand, builders say.
But builders are partly to blame for the crisis, which is helping to drive up home prices across the nation. They were some of the first to lay off workers during the financial crisis as development stalled, and many of those workers have since moved on. The crackdown on immigration and the opioid epidemic have siphoned off laborers. Meanwhile, many potential workers simply don’t want to toil outside in the heat and the cold when they could work in a climate-controlled office.
In other words, it’s a perfect storm for both builders and aspiring home buyers.
“We’ve got rising housing demand at the same time that the residential construction industry lacks workers,” says Robert Dietz, chief economist of the National Association of Home Builders. He predicts about 900,000 single-family houses will be built this year—whereas 1.2 million are needed to keep up with demand from those hoping to purchase a home of their own.
How bad is the labor shortage?
To put the problem into perspective, there were 250,000 unfilled construction jobs at the beginning of the year, according to an NAHB analysis. The unemployment rate for the industry, reflecting unfilled positions, was 7.4% in March, according to a government data analysis by the Associated General Contractors of America, a trade group for commercial builders. That’s significantly higher than the national unemployment rate of just 4.1%.
The dearth of construction workers is slowing down all stages of the business, says Jason Scott, owner of North Star Premier Custom Homes in Westlake, OH, and president of the local Home Builders Association.
“It takes me twice as long now to do an estimate as it used to,” he says.
Instead of being able to find workers that day, he now waits eight to 10 weeks. Delays due to overbooked contractors slow the pace of homebuilding, amplifying existing shortages.
The shortage is also inflating costs for buyers and homeowners. Scott has had several subcontractors (siding, roofing, concrete) raise their prices by at least 10% since the new year. He’s paying double what he was 10 years ago for framing.
“I know builders who haven’t factored these [worker pay] increases in, and they’re watching $10,000 to $15,000 come off their bottom line,” Scott says.
With no relief in sight, builders may just have to rely on ingenuity, perhaps by using more prefabricated components.
“We’re going to have to build more with less with the current workforce,” NAHB’s Dietz says. “Builders have to find a way to be more efficient.”
The hangover some never recovered from
The burst of the housing bubble a decade ago was an A-bomb, flattening just about all of the construction work in sight. Residential home construction employment peaked at more than 5 million in 2006, but in postrecovery 2016 it was just 3.8 million, based on the NAHB’s data.
That’s because many workers didn’t have the luxury of waiting out the bad times. With bills still coming in, they were forced to move on to other gigs.
“The recession 10 years ago took a lot of people out of the construction industry,” says Brian Turmail, vice president of public affairs and strategic initiatives for AGCA. “We were the first to lay off and the last to start adding [back].”
The opioid epidemic and immigration policy take a toll on labor force
Some issues that have been in the national spotlight have also had major repercussions for housing business. This includes the opioid crisis.
Construction work is physically tough, and the rate of injury leaves some open to developing an addiction to prescription opioids, an epidemic sweeping the nation. The crisis has also likely kept many potential workers out of the labor pool.
The White House’s harsh stance on illegal immigration is also likely impacting the construction labor supply, housing experts say. About a fourth (24%) of all construction workers are immigrants—and 13% of those are living in the U.S. illegally, according to a Pew Research Center analysis of 2014 U.S. Census Bureau data.
As construction economist Ed Zarenski points out, immigrant laborers not only add to the workforce, but also help increase productivity because they are typically paid less. This may help to keep prices for the final homes down.
Immigration from Mexico, the largest source of U.S. immigrants, has been declining steadily since 2004, according to Pew, thanks to improving conditions south of the border and, more recently, anti-immigrant rhetoric in the U.S. that has made many feel unsafe or unwelcome.
“Some of the slowdown in immigration has affected the labor pool,” NAHB’s Dietz says.
The need to develop the next generation of laborers
So where is the next generation of potential laborers? The short answer: doing other stuff.
“A lot of people who would have gone into construction years ago are now going into computers or the IT field,” says Corey Dean, general manager of Bel Arbor Builders, which puts up about 18 to 20 custom homes annually in the Richmond, VA, area. “[They’re] not outside sweating or freezing.”
Plus, the decline of vocational educations has led to fewer young people today prepared for those skilled trades—and fewer that would be inclined to take the years needed to learn them. Those with bachelor’s degrees typically earn about $17,500 more annually than those who lack them, according to a 2014 report from the Pew Research Center.
So blue-collar workers are retiring, and fewer people are waiting in line to take their place.
“We made these cultural changes the last 30 years for all the right reasons: We wanted kids to go to college, we appreciated the economy was transitioning,” says AGCA’s Turmail. “But like [with] so many things in this country, we over-corrected for one problem and created another problem in its wake.”
Builders step up their outreach
The construction industry has begun to take action to feed its need for workers. That should give the home buyers of tomorrow a sliver of hope.
For example, the Home Builders Association in Colorado Springs, CO, recently partnered with the local school district to start a vocational program in six schools. Called Careers in Construction, it instructs over 350 kids in carpentry, plumbing, HVAC, and electrical trades.
“We’re giving them a choice because not all of us are meant for college,” says George C. Hess III, CEO of Vantage Homes Corp., a Colorado Springs–based builder, and chairman of the Home Builders Institute, an educational trade group.
On a grander scale, Home Depot recently pledged $50 million for HBI to support a Pre-Apprenticeship Certificate Training program. It provides vocational education not just in schools but also on military bases.
“We know the younger generation is where we start to overcome perception and make the trades cool again, if you will, so we can have that pipeline continue over the next several decades,” says Shannon Gerber, executive director of the Home Depot Foundation.
Women, who make up about 9% of the field, are another potential source of untapped workers. Compared with other fields, there’s relatively less inequality in construction (women make 95% what male construction workers make), but the industry is still 200,000 female workers short of the precrisis peak of 1.13 million, according to U.S. Bureau of Labor Statistics and National Association of Women in Construction data.
“The worker shortage is severe,” says NAHB’s Dietz. “The industry is going to have to recruit the next generation of construction workers—or we’ll continue to underbuild houses, there won’t be enough houses, and home prices will continue to rise faster than incomes.”
A house with a fabulous view can be hard for a home buyer to resist. But seeing the mountains, water or city lights from the comfort of home comes at a price. The hazy part is figuring out what that added cost is — and whether it’s worth it.
That’s where real estate appraisers and analysts who study home values can help, even though they recognize there’s no simple answer.
“Views are actually really difficult to quantify,” says Andy Krause, principal data scientist at Greenfield Advisors, a real estate research company. “It’s somewhat subjective. What makes a better water view? Do you want it to be wider? Do you want more of the water from a taller angle? You know, some of that is in the eye of the beholder.”
Assigning a dollar value can also be difficult because not all views are equal or valuable, and a view that’s sought-after in one location may not be in another.
In Manhattan, a place that overlooks a green space or woods will cost you a lot extra. In the countryside? Not as much, says Mauricio Rodriguez, a real estate expert who chairs the finance department at Texas Christian University’s Neeley School of Business.
Putting a price on it
So how do you put a price on a variety of views? Krause, who builds automated valuation models that analyze home data, produced these estimates for what five different types of views might add to a home’s price in Seattle:
5 to 10%: For a home on flat ground with an unobstructed view of an open space or a park, a seller could add 5 to 10%. In other words, if an identical home without a view is worth $500,000 elsewhere in Seattle, this view could boost the price to $525,000 to $550,000.
10 to 30%: A home partway up a hill with a partially obstructed water view over neighbors’ rooftops could increase the overall price by 10 to 30%. It depends on how much of your field of vision the view fills, both vertically and horizontally, Krause says. In this example, a home otherwise worth $500,000 might fetch $550,000 to $650,000.
30 to 50%: This time Krause considered the same home as above, in the same location, but with an unobstructed view. “You still have the neighbors above looking down into your house, but you have a nice water view,” he says. With this clearer view, the $500,000 home could sell for $650,000 to $750,000.
50 to 75%: Next, envision a home atop a hill with an unobstructed cityscape or open-space vista. To buy the $500,000 home in this location, a buyer might have to pay $725,000 to $875,000.
75-100% or more: Finally, imagine a house with a stunning, unobstructed view of a big lake or the ocean. This type of prized view can boost the value of a home worth $500,000 in an ordinary location to $1 million or more, Krause says.\
How to shop for a home with a view
If having a view is a must on your homebuying list, here are a couple of tips from the experts:
1. FIND OUT IF THE VIEW IS PROTECTED
Frank Lucco, a residential real estate appraiser and consultant in Houston, once had clients with an expensive home who sued after a high-rise office tower went up across the street. The building disrupted their view and gave office workers a view of their formerly private backyard and their teenage daughters using the pool. The lawsuit was dismissed, Lucco says, and a bit of detective work could have told them that commercial development was allowed.
To avoid a similar outcome, Lucco says before you place a bid on a home, ask planning authorities what the zoning allows and if high-impact developments are planned nearby.
2. LOOK FOR DIAMONDS IN THE ROUGH
Bargain-hunters can occasionally find views for cheap because poor design — walls where a big window or a deck might go, for instance — blocks what should be a nice view.
“It may cost you $15,000 to $30,000 to do a very limited remodel that gives you a better angle, or higher vantage point, or a rooftop deck,” Krause says. But that could be a deal compared with buying a home that already takes full advantage of its view. Lucco suggests inspecting the home’s deed for any restrictions limiting additions to the height. Pay careful attention to homeowner association rules, too.
A view can be one of the most attractive aspects of a home. Knowing that you paid the right price for it can make the scenery that much more enjoyable.
This article was written by NerdWallet and was originally published by The Associated Press.
The information is not guaranteed and a prospective buyer should verify information with the appropriate party. Windermere Stellar and MJ Steen Group assume no liability for any errors in this information.