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
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
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
http://ofa.bo/h0EP #ReadyToWork was trending on Twitter so I thought I would follow the links to see what was being said about the homebuilding industry. After all, we hear the builders saying that there are labor shortages. But, what about training Americans for these jobs. Or, is training totally out of the question? Do trade contractors just put up a sign at the jobsite and hope the guys that show up are fully trained?
Well, I found only vague references to construction or commercial construction. I didn’t find the word homebuilding in the White House website post on the Ready to Work Initiative. Rhetoric is just not enough when all they can say is more workers will get training. We need them all trained. Maybe you disagree, but I feel we need everyone who works in residential construction trained to build the green homes of the 21st century.
If the builders do not ask for help from the federal government to establish job training programs, will we be sympathetic to them when they cannot build the homes they have already sold? Or, will they let the shortage of trained workers get to crisis proportion and then they will ask for help? The NAHB shows no evidence of any national planning for their own solutions to labor shortages beyond a few local programs that have trained about 12,000 workers in 2013. Or, maybe there really is no labor shortage and the government reports which inform us that we had lost nearly 1,000,000 residential construction workers during the recession are all just irrelevant numbers.
In his presentation at the World Maker Faire 2012 entitled the “Art and Science and Making Things”, Seth Godin tells about how our school system is built to serve the needs of the industrialized society of today. In his presentation at the 10:35 point in the video, the topic of a fork in the road is introduced. The question is put to his audience about which of two choices they will make at this critical juncture. “We can go on the left fork, and the left fork is a race to the bottom.” He explains further: “And the problem with a race to the bottom is that you might win.” I found this to be a wonderful way to look at this question of choice. “… it’s a race to be faster and cheaper and more compliant. It a race to say: ‘you know that factory that you moved over there [pointing to his left] because those people work cheaper? Come back over hear, ‘cuz we’ll work even cheaper than that.’
Seth goes on to talk about how the race includes cheaper innovations that have been changed just enough not to get sued. Overnight shipping that is just one hour faster. You get the picture?
Next he talks about the other path that is totally different. He talks about how the Internet affords us all the opportunity to become connected and to get the feedback we need from our customers about what they want in our product. Seth is basically saying that there is not going to be a next industrial revolution that will make it easier to build more houses faster and cheaper. The other path to be taken is to ask: “How do we become more human? And how do we turn that humanity into something that is absolutely worth doing?”
Then Mr. Godin gets a bit philosophically about school, and work, and innovation, and success. And in spite of this, I recommend that you finish watching the rest of the video. I have faith that you will get something out of it. Will you decide to make something that matters and not simply take the path towards cheaper, faster, more compliant?
Based on my perception that sustainable construction should be in vogue these days, I went looking for a place to buy used lumber around the Chicago metro area. I found one site on the interweb and it was for a company that buys, sells, and salvages old lumber from factories, and other large commercial buildings. But, I really did not find anyone offering lumber that we might typically find at the lumber yard. I have visited two local ReStore outlets run by Habitat for Humanity, and there were many interesting things for sale that can be used to finish out small projects on your home, but no dimensioned lumber.
Then, I did another search for reclaimed lumber and found a site that presented the idea that it is actually financial better for you to deconstruction a home rather than tear it down with heavy machinery and haul it to your local dump site. But the financial equation included a tax deduction and requires an assumed federal income tax rate of 28%. I think this would work for large corporations and the onepercenters, but for the common man with a more modest income tax rate, there seems to be no financial advantage to deconstruction.
Please let me know of any good examples where someone chose deconstruction and came out ahead financially.
Also, if you know of any sources around Chicago where I could buy some 2x lumber that has been used, please let me hear from you.
I spent a lot of time looking for certain products to overcome a particular challenge or do things the way I saw it through the eyes of a perfectionist. One particular design called for some lumber of a particular rating (stress) due to the span. The alternative was to double the members up. It seemed easy enough to just look for the right material and it would be available somewhere in the Chicago metro area. After spending too long at the task, I grew impatient with hearing the same answers from everyone I called. The answers were something along the lines of: “Sure they are available from the mill, but the lead times are long, and you will need to buy an entire bunk, or sometimes even an entire carload to get them.” But I only want a few for each of these homes I build and I do not have any appropriate storage place to buy enough for the next ten or fifteen home.
Another version, related to interior millwork, went something like this: “Sure, I can get it in Oak, but that item simply isn’t available in a paint grade product like pine or poplar. Those species are just not made in THAT profile. Then the kicker is when the lumber salesman, in his effort to be helpful, asks: “Why don’t you just paint the oak?” Well, here in the Midwest, we simply do not paint oak. Maybe they do that in other parts of the county. Do you paint oak?
This scenario played out over and over again with everything from appliances, to light fixtures, to faucets, to MDO. Being a small builder means you must buy the same things that the volume builders buy, or they are simply not available, or not affordable, if your aim is to be price competitive yet distinctive. So, over time, we all start to build homes that all look the same as the big volume builders build. And that’s not what the client wants when they buy from a small builder. They want distinctive, while still affordable.
You are probably seeing the title of this post as just a cliché to get your attention the way other bloggers do, but it will be apparent to you shortly how this relates to the news, views, and message that is being sent out by the NAHB.
On a regular basis, the NAHB has a poll taken of its members that measures how their members feel about the current market conditions for their homebuilding business. They call the resulting report the NAHB/Wells Fargo Housing Market Index. This is sorta like your doctor taking your pulse to see how you are doing. But, the number of home builders who are in the home building business has gone down over the past few years during the recession. Some went bankrupt, while others simply closed up and went out of business. Further reduction in the number of builders who are polled is the result of consolidation and acquisition of one or more builders by other builders who can still raise the capital needed to buy out the assets of other builders. And finally, some of the builders who are still in business might not be member of NAHB right now. All of this reduction in the number of builders who get polled by the NAHB will change the resulting answers that are given. A fewer more home buying prospects and new sales will look good in the eyes of any remaining builders, but to compare the HMI from today to anything in the past is like moving the goal post. Imagine 100 sales going to 20 builders today compared to those same 100 sales going to 30, or 40 builders from a few years ago. Those 20 surviving builders will say things are good, but the industry itself is still rather depressed throughout most of the country. What counts in the grand scheme of things is actual sales, and the number of units being built by builders today.
The builders who are gone from the mix today are rendered mute by the way the opinion poll is taken by the NAHB. This is sorta like your doctors telling us that all of his patients are doing well, when he is not reporting the condition of his patients who just died. I suspect that if those builders were still members of the NAHB today the HMI would likely be down around 35 to 38 rather than the reported HMI value of 49 seen in the latest report.
We should all be cautious about media reports that compare where we are today to where we have been in the past when the goal post has been moved. We should be asking for the NAHB to tell us how far the goal post is from its original position. How far has the NAHB membership slipped since the recession? The HMI should be adjusted to be proportional to the number of NAHB members who are available to be polled. That is to say, the current HMI should be lower than is being reported.
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.