This morning on Meet the Press, I heard Eric Cantor, House Majority Leader, report that he met an out-of-work home builder and learned where he was working. He recounted: “I just ran into a gentleman the other day in an airport. He is a home
The Corollary to being “Priced-Out” is “Priced-In” An informative article posted on the NAHB website clearly addresses how Housing Affordability and the Housing Affordability Pyramid guide the decisions that homebuilders must make to determine what they will build and how it should be priced to
Federal Reserve chairman Ben Bernanke encourages expanded investment in homes as a way to reduce the housing inventory overhang. This news was not a surprising statement to come from the Fed Chairman. Investors who not so long ago were known as speculators are now being
Take a quick look at what Shaddock Homes is doing to communicate with their clients. Blog post from Shaddock Homes: Do I Need A Digital Thermostat In My New Home? Here is one builder who is taking the first steps in a process that we should
The Great Recession After the housing bubble burst in 2006, there were many who had worked in homebuilding who lost their jobs. So, I once asked an economist at the NAHB to tell me where all the people who have worked in homebuilding have found
I am not really sure I can recall all 1,000 homes that I have built. And, to be fair, I really did not build them. I did have some significant role in all of them.
I started as an Assistant Superintendent. There is a history behind this designation that at the time I did not really understand when I took the job. I think I will save that story for another post. I moved through all the various titles and job designations. Superintendent, Lead Superintendent, Project Manager, Director of Construction, Contracts Manager, Director of Contracts and Purchasing, Consultant. I have worked for more than a dozen home builders along the way. There are a few interesting memories about them as well. The company owners, and all the people who worked with me on the homes.
When I drive through any of the communities that I have worked on, I recall details. Some of the details are of new things I tried to do better or differently. Perhaps it was a funny story of things gone wrong and some that went right. Some of the memories are of the home buyers who turned into a homeowners after I worked on their new home. And a few other memories are of homes that I did not actually work on, but homes that I returned to as one of my duties to the home builder I worked for. Those return trips are each as memorable as the stories of my own experiences of building homes.
Some of the homes I built were townhouse configurations and some condominiums. Many more were single family homes. I built a wide variety of starter homes, move-up homes, luxury homes, and a very few truly custom homes. These homes, of all shapes and sizes have consumed a big chunk of my life.
I won’t start at the beginning. I won’t even have a story about all of them. But I hope to fill this website with a lot of memories that I want to share. In many cases I learned from them, and I home to share those lessons with you.
My career in homebuilding is not over, but this just seems like a good time to write down a few of my memories. I still have a lot of good homes left in me.
The concept of “Priced Out” is a way to describe the effects of the rising price of goods or services. However, there seems to be another way to evaluate this effect. Rising prices of a product assumes that the product already exists in a given form, size or configuration. Within the context of the home building industry, there is a wide range of possible sizes and configuration for all but the highest volume builders. For the large builders who invest large amounts of capital in the design and standardization of their homes, this can reduce their ability to respond to the influences of rising costs. The result is that as prices go up, the size of the potential market shrinks.
The issue for many large builders is that they depend on serving a market of willing and able buyers who fit a given profile. Much effort is put into maximizing the product design for that specific market. There are long lead times to make significant changes in the designs and product specifications when costs go up too rapidly.
Smaller builders however have an easier time making adjustments in size and specification of their products, but the portion of their investment may be similar in size and scope as the larger homebuilders.
When the size of the homes and the size of the homesites they will be built on takes years to go through the process of being approved, it becomes difficult to be flexible. But, not entirely out of the realm of possibility. What is planned today may not be profitable by the time it is built and ready to market.
And still there is the very real possibility that the homebuyers are not priced out because of escalating costs, but by the lack of flexibility in what the homebuilder has designed a received approval on. We might call this being “Sized Out.” or even being “Approved Out.” Price is not the only criterion that closes the doors of opportunity for the buyer.
Now, consider if the homes were made smaller. That alone would reduce the cost of the homes without compromising quality of fit and finish. We see that in the automotive industry. When the economy turns downward, the size of cars that are purchased gets smaller. Would it be possible that smaller homes would gain a larger share of the market.
Profits on smaller homes would diminish. But, the reason to buy and own a home would change very little based on size. A roof over your head and a place to call home and raise a family has been done in smaller homes in the past. And, the ability to realize the value of a smaller home would become simpler when the size of a new home were comparable to the size of an older home. Utility costs would be lower as well.
It might be time to give this size of the homes that are built some thought. While the size of the market is reduced by being priced out, the market would move towards an alternate size product.
In my last post, I published my own calculations and a mishmash of figures from other sources that were slightly wrong. And rather than retract or correct the last post, I want to share with you a bit of my journey as I found better data.
The unemployment among the residential builders and trades is not really 12% . In fact, I find myself unable to calculate that number from what is known. In the Sober Looks blog post the author mentioned 12% unemployment, but that figure was given as the total unemployment for all construction, not just residential builders, and residential specialty trades. The post that Sober Looks got their data from was one offered by the AGC that focused on all jobs in the construction industry.
So, how do we calculate the unemployment within the Homebuilding Industry? The complicating fact is that we do not know the participation rate of these people who have lost their jobs. Maybe they retired as suggested in a recent USA Today article that focused on a shortage of skilled workers:
During the downturn, hundreds of thousands of laid-off construction workers left the field, retired or moved to other states to find work, leaving some markets without an adequate supply for even the current moderate upswing in activity. After scrounging for odd jobs and hoping for an upturn, many workers retooled to become truck drivers, factory workers or roughnecks in the nation’s booming oil and natural gas fields.
Meanwhile, Baby Boomers are retiring and fewer high school graduates are entering the field as parents and school officials promote a college education or training in high-tech fields such as computers.
Maybe they are employed now, but they are now in a different industry such as truck driving, or the oil and gas industry. Maybe they are underemployed and picking up small jobs for cash as best they can. Maybe they have just stopped looking, and moved back home with mom and dad.
41% of the jobs we once had are gone.
Here is what I have learned. According to a post in Eye on Housing, citing BLS statistics as their source:
“…total employment in home building stands at 2.033 million, broken down as 560,000 builders and 1.473 million residential specialty trade contractors.
“Net job losses at the low point of home building employment (December 2010) totaled 1.46 million. Current net job losses are 1.417 million. And according to the BLS data, over the last 12 months, the home building sector has added only 12,000 net positions.”
From this I evaluate the percentage of lost jobs from the most recent available data is 1.417 million jobs divided by the peak employment from early 2006 of 3.45 million jobs in residential construction.
This comes to a loss of approximately 41% of the original jobs.
What I was not wrong about was that the DOL and President Obama do not seem to be able to address this nationwide problem, so they simply say nothing on the topic. I watch the DOL press releases and the statements by the President and we are seldom included in the text. Have we all become invisible? And the NAHB does not often talk about jobs. They are heavily invested in sales and revenue and housing. What is housing anyway? As I have said previously, “housing” is an agglomeration of different parts and pieces. Not all of housing is related to homebuilding. The NAHB knows this and so they typically misuse the word housing to represent the industry as a single unit with an implied cohesiveness that will appear much bigger than it really is. This is wrong. The name on the masthead is … National Association of Home Builders. Why do we allow the figures for rental housing to be included in the discussion of housing units built in a given year for our industry? Most rental units (apartments) are built by commercial contractors and their specialty trades. Construction of a high rise apartment building certainly is NOT homebuilding. And those jobs are not considered residential construction jobs.
Let’s all focus on home building, and the clients we build those homes for, and the men and women who build and sell them.
In a recent post on the Sober Looks Blog entitled Residential Construction Jobs Hit New Low there are facts that point to more than 1.5 million workers who are unemployed from the pool of approximately 7 million workers accounted for in the referenced data. In my last post NEWS HEADLINE: Department of Labor Assists Workers Affected by Layoffs I mention 1 million lost jobs. I am not bothered by my apparent error in knowing if it is 1 million or 1.5 million lost jobs. What bothers me, and I think it was clear in my last post, is that the government (and the news media) do not seem to be responsive to (or report fairly on) the devastation that is being felt by those who are out of work and the industry they serve. I guess it is time for me to say that the mainstream news media should be taken to task for their lackluster attention to the Homebuilding Industry and their employees.
I will keep this short for now and move on, but I will return to this topic again I am sure.
From time to time throughout this long recession, we have read the headlines of how Secretary of Labor Hilda Solis announces that the Department of Labor has funded programs aimed at helping workers affected by layoffs. This typically is focused on large industrial plants that close down abruptly.
I am sure the criteria for choosing when and where to assist workers is as fair as it might be under the circumstances. I did some calculations based on one of these recent reports and it amounts to about $2,500 per displaced employee. There is also a broadly based Workforce Investment Act (WIA) program funded by the federal government and administered by every state.
But there does not seem to be much happening on behalf of the tradesmen from the homebuilding industry. I am unable to find any reports from the DOL that any program is being focused on the estimated 1,000,000 tradesmen who are unemployed or seriously under-employed. There is no other single US industry that is so dramatically affected by the protracted recession. To assist all of these workers in a similar way would cost a minimum of $2.5 Billion.
I challenge Secretary of Labor Hilda Solis to put some thought into this issue and work with the NAHB to see what needs to be done for the tradesmen of our industry. Yes, we are widely disbursed. Homebuilders and tradesmen are by nature a pretty independent bunch. One of the issues she will have to deal with is learning where these workers are now. They have become invisible. And there have been so many bankruptcies among large and small builders that no one knows how many builders have vaporized in a cloud of red ink over the last six years. Many of them were family businesses and there is simply no tally of their demise as a distinct industry category.
I also challenge the NAHB to start to think about how they can better serve the small builders who build 75% of all homes built in the US. They are not the ones who fret over loosing $100 Million in one year. They are the ones who may never come back to homebuilding again. And we just don’t know where they’ve all gone.
What patterns do you see that tell the secrets for success in the home building industry? Are you inclined to see the really large builders that build hundreds or thousands of homes per year as the successful ones? Are you more inclined to see smaller or even mid-size companies as the winners in the race for success?
Do you think of success as a personal victory for the owner of a small family owned homebuilding company? Or does it require a corporation with revenue greater than 10 or 15 million per year to say they made a success out of being a homebuilder?
Where do you draw the line. Do you look from your personal vantage point up and down the scale of company size and think to yourself: “I am glad I am not like them.” Or: “I wish I could be more like them.” And when you say those two things, are you looking in the direction of the larger builders or the other way towards the smaller builders? Which of those two makes you jealous? Is you envy related more to size of the company, or the appearance of profitability, or are there other factors that encourage you to emulate the other builders? Or, better yet, are you really quite satisfied with where you are right now and feel like a success with no drive to change the nature of your homebuilding business?
Do you ever wish you were earning enough to go the annual International Builder’s Show, or do you go to the convention somewhat regularly and consider it all part of being a builder? The NAHB knows a great deal about the demographics of their members, but I am asking these questions to hear you tell me: “Want sort of home builder do I WANT to be?” Let me hear your comments, or join me in a discussion in one of the linked-In Groups for Homebuilders.
Have you ever heard a tradesman refer to your architect as a cartoonist? Do you have any idea how weak or strong your architect’s plans are? Do the dimensions even add up? What goes into the decision of which architect you will use for your next project?
Let’s do some informal word association. Of the following words, which words do you more closely identify with your architect or their building plans?
- Designer or Artist
- Collaborator, Interdependent, or Independent
- Subcontractor or Professional
- Necessity or Luxury
- Accurate or Error Prone
- Critical or Afterthought
- Requirements or Guidelines
- Unique or Ordinary
- Functional or Cosmetic
- Definitive or Representative
- Understandable or Arcane
- Buildable or Conceptual
- Expensive or Valuable
Some of these thoughts might have crossed your mind over the years. Or maybe you have never thought about the Architect at all. If you define the scope of work for your subcontractors, do you put equal thought and preparation into the selection of your architect? Do you have written specifications for his work product?
There are sure to be a wide variety of answers to all of these questions, but it should not be left to chance. And an award winning architect does not necessarily deliver plans that are easy to work with. And the architect himself might be easy to work with or he could just as likely be arrogant and difficult.
In another post, I will look at builders from the architect’s point of view. That might be a fair way to see the world of homebuilding from his perspective. I hope that you will see that I can be even-handed about this, as I have sat in the office and done some drafting for an award winning architect. That was truly an eye-opener for me to look into the industry we are all in from another vantage point.
NAHB Chairman Barry Rutenberg yesterday responded to the recent Actuarial Review of the FHA Mutual Mortgage Insurance Fund. In a nutshell, Mr. Rutenberg is acting as the spokesman for the NAHB. He is asking policymakers who have a role in this to proceed cautiously. He thinks there will be discussion in Washington about changes to the structure of the FHA.
Mr. Rutenberg believes there is a need for reforms in the system used to finance housing. In his statement he writes: “Without government support for home purchasing and refinancing, the nation’s mortgage markets will grind to a halt, throwing the economy back into recession.”
He goes on to write: “Given the significant role that housing plays in the economy, policymakers need to take a long-term, holistic approach to housing finance reform and carefully gauge how it affects other efforts under way to get the nation’s fiscal house in order and achieve long-term economic growth.”
Are he and the NAHB still so confident that homebuilding matters to the economy enough to influence it in any way? I believe that it is the other way around and that homebuilding will never return to its former position of influence over the United States economy. The economy is the driver here, and Homebuilding is the caboose on the train. And if you know much about railroads, they have almost completely eliminated cabooses and the train crewmen that rode in them.
Mr. Rutenberg is leading a group of builders who have become addicted to what comes out of Washington and they cling to the hope that they might influence our elected officials. That is unlikely as the number of homebuilders dwindles and the banking, energy, medical, and tech industries control the lobbying on Capitol Hill.
Homebuilder’s glory is fading, and the legislators will simply give them the same tired answer: “We’ll get back to you on that.” This is of course if they get anything more than an automated standard email reply.
Homebuilders are a mere footnote in the playbook that is politics. And when the season is over, homebuilding will be no more that an asterisk in the record books.
WASHINGTON, Nov. 16 – Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla., today issued the following statement on the latest actuarial review of the FHA mutual mortgage insurance fund:
“In light of today’s report, there will certainly be discussion about altering the structure or role of the FHA. We would urge policymakers to proceed cautiously.
“The FHA was created during the Great Depression to promote stability in the housing marketplace and allow first-time buyers and middle class families to attain the dream of homeownership. Over the ensuing 78 years, the agency has successfully achieved its mission at no cost to taxpayers. The fact that the FHA finds itself in this position now, as opposed to four years ago during the height of the financial meltdown, is testament to its ability to meet its mission in these difficult economic times.
“While there is no doubt that the housing finance system needs to be reformed, the contributions that the FHA has made during this economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets. In times of crisis, private financial institutions have fled the marketplace and consistently failed to step up to the plate.
“Given the significant role that housing plays in the economy, policymakers need to take a long-term, holistic approach to housing finance reform and carefully gauge how it affects other efforts under way to get the nation’s fiscal house in order and achieve long-term economic growth.”
As I read news stories lately about the homebuilding industry, I find reporters seem to favor the words “surge” and “jump” quite often to describe seemingly positive news on the topic of new home sales. I do not always have an easy feeling about some of the reporting, and have been asking myself why that is true.
I think most of the issue is the vocabulary used to report monthly changes to the sales, or permits, or new construction starts.
Think about the term “surge.” Do you find it in your common everyday speech? I do not use it myself. Lately we have been reading it in terms of a storm surge along the coast line. Sometimes we see it in the news as it relates to a crowd of people in line for a retail store to open on the Friday after Thanksgiving. In many contexts the word has some negative connotations. When it comes to reporting on the subject of new home sales, we all seem to want the word to have a positive meaning along the lines of pushing upward or forward. But there is a very real downside to seeing it in a news story about improvements in the market. It will often imply things that are not true, or are very unlikely to be sustained. Think of the storm surge. It has immediate damaging effects. Then the sea water recedes to where it came from. Tidal surges are the same way. The crowds of people at the department store that surge forward through the open doors often injure someone in their path and accomplish very little on the positive side. The word is deceptive. A better word in many cased would be flood. We all know the negative side of that word. The damage of a flood is often permanent. So we use the word flood to convey that negative outcome. A surge does not change the sea level after it recedes, and that is what is wrong with using the term to convey meaning to the facts about homebuilding and new home sales.
And the word “jump.” What we all know about the word jump is that midway through the jump, gravity takes over and we land right where we started.
As I watch the slow, painful recovery from the six-year-long homebuilding recession, I prefer to look at the trends that are often visible in charts that stretch back to prior recessions over the past 30 to 50 years. These often tell a story in which the word surge would not be found. Trends become evident when looking at the big picture. And, right now it is very evident that the trend is positive, but the upward slope of that trend is shallow. It is not much to cheer about, and wishing for more and then getting it might not be such a good thing. It might just turn out to be nothing more than a surge or a jump. One that drains away as fast as it came rushing in, or a painful return to earth with the resulting sprained ankle.
This morning on Meet the Press, I heard Eric Cantor, House Majority Leader, report that he met an out-of-work home builder and learned where he was working. He recounted: “I just ran into a gentleman the other day in an airport. He is a home builder. He told me, Congressman, please do something about this economy. He said I had to take a position as a chef in an airport diner because I couldn’t find a– a position that matched my skills.”
Well this is the first time I have ever seen evidence that anyone in the Federal Government knows what has become of any of the home builders who have lost their career and the hope of meaningful employment. I have been on this quest for information for a very long time. I think I will just have to call every Carpenter, Roofer and Plumber to ask them what they are doing now. The Federal Government only gets interested in an industry when there are not enough workers. But the homebuilding industry sure has enough to chose from. They are simply unaware of the plight of the workforce that makes up the homebuilding industry.
Both the Federal Government and the National Association of Homebuilders need to start thinking of homebuilding as an employer and an industry just like any other industry. These jobs were not exported out of the country, but the workers were just told to stay home and wait for a call. Right now, the Department of Labor simply does not know where all the workers have gone. The NAHB doesn’t either. If we were any other major manufacturing plant in the country that had laid off over a million workers, there would be federal funding available to help the employers with outplacement efforts. There would be grief counselors and crisis management teams sent in to the affected area to help with the efforts to re-employ these displaced workers. But as it is now, the homebuilding industry is so dispersed around the country that every state and every major city is home to their share of the lost jobs and lost wages. This dispersal of the workforce makes it hard to find and serve these uniquely qualified tradesmen. It makes it even harder to find a common voice that can get the attention it deserves.
My challenge to Eric Cantor and the rest of the House and the Senate: “Please do something about this economy. I am unqualified to be a chef. And after building more than 1,000 homes, home building is all I know.”