By John Burns Real Estate Consulting Homebuilders tend to assume construction costs will not rise, because even if they do go up, home price increases will cover the cost increases. This time might be different, as the dynamics surrounding home price and labor supply are very unrelated. Smart builders are putting big cost increase contingencies in their budgets, which makes land acquisition very challenging, as land sellers are not willing to drop prices. With so much discussion today about the lack of construction labor, despite low levels of construction, and rising construction costs, I want to share some research from our chief demographer Chris Porter, who projects household formations for us. Construction labor shortages Two out of three builders have reported they cannot find enough carpenters and framers with half noting shortages in all the other major skills they need. CEOs say what keeps them up at night is the loss of two-thirds of Hispanic population in South Carolina. In Texas, it is going to be a challenging six months because builders cannot get their concrete poured. It is surprising that construction is at such low levels. How can this be? Why are we having a shortage? Chris notes that there has been a 67 percent decline in immigration from Mexico, and there are 570,000 fewer Mexico-born construction workers than in 2006. We believe many of those 570,000 workers have likely returned to Mexico and will not return to the U.S. construction industry because of: Significantly higher border patrol investments Acceleration in court-ordered deportations over the last seven years Implementation of E-Verify technology by employers Arizona’s SB 1070 bill passing in 2010 Economic opportunity in Mexico To be clear, we are not policy advocates, and we are not taking any position on the controversial immigration issue. In summary, if you put all this together, we just want our clients to realize that many of the 570,000 experienced, Mexico-born construction workers are not likely to return to the U.S. construction industry. Our builder clients are already learning this on the job site today. This means construction costs have only one way to go, which is up. I wish I had more positive news for the builders, and I know a lot of them don’t want to hear that. But this is the way things are looking. If you have any questions, please call (949) 870-1210 or email for more information. This article courtesy of John Burns. Learn more about our research and consulting services. Here is a video from John Burns that gives more detail on this topic. About the author: John Burns founded the company in 2001 because he saw a need for better analysis on the housing market. The company has grown to a highly passionate team of research analysts and consultants in offices across the country, who work together to provide the most trusted source of U.S, housing analysis.
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