Building Environment Should Strengthen, Labor Shortages Could Persist in Multifamily

apartment construction

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) that measures builder’s confidence fell three points in September after hurricanes battered the Texas coast, Louisiana and Florida.

The rating for newly built single-family homes fell to 64 on the index, down from 67 in August. While the index does not include apartment homes, the score could set a less than optimistic tone for the multifamily industry which is already struggling to finish new construction.

NAHB Chairman Granger MacDonald said hurricanes Irma and Harvey intensified members’ concerns of the availability of labor and the cost of building materials. But the home builder and developer from Texas believes time will heal.

“Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring.”

NAHB Chief Economist Robert Dietz sees some encouraging trends this fall.

“Despite this month’s drop, builder confidence is still on very firm ground,” he said. “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”

Some of the latest data favors a better building environment. In early October, the U.S. Department of Commerce reported that construction spending rebounded in August by 0.5 percent to $1,218.3 billion after two months of decline. Construction in the private sector, mainly residential and non-residential, was a driver.

Apartment construction continues to see delays

Multifamily construction continues to see delays, however.

Axiometrics, a RealPage company, recently estimated that 56,186 units under construction will be delayed into next year. The data, calculated using last year’s delay percentage as a base, is slightly up from 50,658 delays reported last year.

The true supply won’t be known until January, which allows a three-month picture of exactly what the impact of labor and building material supplies will be to multifamily.

Labor shortages have been the construction industry’s Achilles heel and that doesn’t appear to be mending. Builders in Texas were already behind schedule because of difficulty finding enough help before Harvey made landfall Aug. 25 in one of the worst hurricanes in state history.

Construction industry taking proactive steps in wake of hurricanes

Scott Norman, executive director of the Texas Association of Builders, told the Wall Street Journal that Texas is facing a monumental challenge that will frustrate people as they get their lives back from hurricanes. One builder says he will have to reject four out of five inquiries from victims who need to rebuild.

Dietz told the Wall Street Journal that rebuilding Houston will probably affect the national economy by pushing up material costs. At the same time, more construction workers will be needed, which could push the industry’s unemployment rate down.

Putting a hammer back in more people’s hands may be the thing that speeds up construction in commercial and residential segments. That’s a good thing.

Builders and suppliers are already taking proactive steps. The Texas Association of Builders is offering tips and guidelines on selecting a competent builder or remodeler.

Home Depot actively working with multifamily

Also, Home Depot is extending a helping hand. The Home Depot Foundation committed $1 million in disaster relief after Harvey and increased the commitment to $3 million following Irma and Maria and two earthquakes in Mexico. Also, Texas-based Regional Pro Manager Jeff Watson says the home improvement retailer is actively working with multifamily to hold the line on materials cost as much as possible.

“We have a longer term strategy with multiple associates assigned to customers who will need help rebuilding,” he said. “We’re paying close attention to the multifamily arena where water affects so many people at once in a building.”

Watson says Home Depot is well stocked and has deployed its disaster recovery plan which includes freezing prices on some critical products. The company expects that some costs will increase and will try to absorb as much as possible.

Construction materials costs have been on the rise in 2017. The Bureau of Labor Statistics Producer Price Index (PPI) in August included noteworthy increases in softwood lumber, OSB and ready-mix concrete prices, based on an NAHB review.

OSB prices again ticked up and have risen 33 percent since 2016.

Gypsum prices dropped slightly but are set to rise in 2018 (American Gypsum announced a price increase effective Jan. 1), and NAHB says the product supply could be the first affected as rebuilding from Harvey and Irma begin. Gypsum is used to make drywall, which is easily damaged by flooding.

Watson says Home Depot is well aware of the normal laws of economics when disaster strikes and is doing everything possible to ensure that consumers and builders aren’t pinched by supply and demand.

“We’re in the process of educating our stores and keeping an eye out for that just to make sure product is available for our customers at normal retail.”


Contributing Editor, Property Management Insider
President, Ballpark Impressions, LLC

author photo two

Tim Blackwell is a long-time publishing and printing executive in the Dallas/Fort Worth area who writes about the multifamily housing and transportation industries. He has contributed numerous articles to Property Management Insider, and worked as a newspaper reporter in the D/FW area. Blackwell is president of Ballpark Impressions, and publishes the Cowcatcher Magazine. He is a member of the Fort Worth Chapter/Society of Professional Journalists.

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