Labor & Material Shortages Lengthening Construction Cycle

Key Points

• A new housing shortfall ranges from 1.3 to 2 million, experts say.
• About 27% of new home inventory has not started construction, according to federal data.

Many Americans seeking to buy a newly constructed home are now playing the waiting game as supply-chain slowdowns and a lack of labor are adding more months before buyers can move in.

It now takes about eight months or longer to build a new home, compared with about four to six and a half months before the COVID-19 pandemic, said Robert Dietz, chief economist for the National Association of Home Builders.

The housing shortage comes as demand for housing accelerated during the onset of the pandemic, when more Americans began working from home and sought more space.

Why is new construction taking so long?

"There's a lack of lumber, appliances, cabinetry, electrical transformer equipment, land to build on, and workers," Dietz said.

Earlier this month, the NAHB said in a post that "shortages of materials are now more widespread than at any time since NAHB began tracking the issue in the 1990s, with more than 90% of builders reporting shortages of appliances, framing lumber and oriented strand board," a type of material that's preferred in most home building.

About 9 out of 10 homebuilders across the country surveyed by NAHB say that number of available housing lots in their markets are “low or very low.” 

Oh, and garage doors are in short supply, too.  

There's a strong consensus that the shortage might not improve any time soon.  The supply chain slowdowns and manpower shortages are expected to last through 2022, maybe even longer. 

The U.S. Census Bureau said building permits for new residential construction dropped to a five-month low in April. Most of the downfall was due to a dip in single-family home construction despite homebuyer demand that pushed home prices up 15.5% year over year to a median selling price of $424,405, according to real estate company Redfin. 

As a result, experts say there is a new housing shortfall ranging from 1.3 to 2 million. Moody's Analytics projects the U.S. shortfall is about 1.5 million homes, fueling a spike in sales and rental prices.

And with inflation hitting 8.6%, the highest rate in 40 years, there's more uncertainty about the state of building new houses fast enough. 

"Housing, as a source of inflation, is about a third of the current inflation pressure in the U.S.," Dietz said. "And dealing with the supply side is a part of the overall inflation challenge."

Jerimiah Taylor, an Austin, Texas-based realtor and vice president of real estate and mortgage services of OJO Labs, said a look at the numbers shows the decline in new home construction. 

Citing April U.S. Census data, Taylor said there were about 281,000 homes under construction nationwide and available for sale, roughly an additional 118,000 homes available for sale but not under construction, while just 38,000 homes nationally were complete and available for sale.

"That means 91 percent of new homes under construction aren't ready for move-in today," Taylor said.

There's a labor shortage, too 

Vaughan Buckley, the CEO of the Philadelphia-based Volumetric Building Companies,  said construction workers were "disappearing" from the industry.

Some workers are retiring, and some are leaving the industry altogether for jobs in other sectors, he said. 

Construction trades lost workers  after "the last extended recession, a lot of immigrant workers, those with work visas and other traditional sources of field labor did not come back," said Sean Shields, communications director of the Structural Building Components Association, a trade group representing manufacturers.  "Their spots have become tough to fill."

The share of immigrants in construction trades is 30%, said a recently released construction labor market report from the Home Builders Institute, a nonprofit. 

The industry faces the shortage as its workforce ages. The median age of a construction worker is 41, the HBI said. Despite construction companies paying an hourly average of $34, compared with nearly $32 for all private sectors, the BLS said it may still not be enough to attract workers due to the physical demands. 

And many construction workers need to provide hands-on training to some of their less-experienced colleagues. 

"You need to do the craft to learn the craft," Buckley said. "We're in a bad cycle right now."

His comments echo sentiments made by Ed Brady, the HBI's president and CEO. Last year, Brady said that some 2.2 million new construction workers were needed within the next three years to help meet the housing demand.

"That’s a staggering number," Brady said.

The lack of supplies and workers is proving to be a "one-two punch," said Na Zhao, an NAHB researcher. The lack of both is also having an effect on remodeling older homes, Zhao added. 

Zhao said a friend bought a second house about a year ago in the D.C. area, but hasn't moved in because the house needs some upgrades that can't be completed thanks to the supply chain shortage.

 She is currently paying mortgages on two homes, Zhao said.

And with housing sales slightly easing, Zhao said her friend is worried if she "missed the peak" selling market for the first home.

"She thought she would be able to sell quickly," Zhao said. "But she is still waiting for some materials."