Page 12 - Sites_December 16

ELEPHANT IN THE ROOM continued
12
At ULI, a panel of home builders
and community developers on the developer/builder relationship in master planned communities spent the bulk of its effort talking about demographic trends, the need for more product segmentation to drive incremental velocity, and the rapid introduction of ever-more sophisticated technology tools to target buyers, to get to know more about them, to show them Virtual Reality model homes, and, generally, how to drive more sales to accommodate the coming millennial demand that is now, nally, upon us.
Yet, the reality is that in many markets in the country right now, builders cannot keep production up with the current sales level, forget one that
is signi cantly stronger. More sales
in this environment equals extended delivery times and eroding pro ts (just look at the recent batch of public builder operating metrics for case studies) and, most likely, really ticked- off customers.
There simply is not enough skilled labor to build what is being sold in many markets, and the prospect of more labor coming in time to make any kind of short- or medium-term difference is not very bright. Further back in the chain, the existing skilled labor pool for construction is relatively old and retiring out at rates that are becoming concerning.
The historical response to this issue has to bring in immigrant labor (both legal and illegal) to ll this gap. However, in the current political environment, this solution seems taboo.
The reality is that if any of the existing non-working population really wanted a pretty good paying job, the existing demand in construction would
have been lled long before now. It seems that the truth is that the hard manual outdoor labor required for site-built construction in the current business model does not t the fancy or inclination of the remaining unemployed.
“Meaningful and permanent innovation in production was not on anyone’s radar...”
The logical conclusion is that we are stuck, most likely, with a continuing and worsening labor shortage in all of construction, whether it is residential, commercial, or the services to the industry.
I asked the panel why they were focusing on the generation of even more demand when it appears that the real problem is how to generate more housing supply in a world where the labor supply to the industry is relatively xed. Not surprisingly, no one had an answer or had thought much about it (other than to complain).
In fact, it is a relative new and vexing problem.
In the last housing cycle (1991-2008), we lled many construction jobs
with baby boomers who didn’t mind working outside and immigrant labor from Central and South America, the former Communist Eastern Europe, and, particularly Mexico. Before that, the non-college-educated blue collar
population of the country plus immigrants provided the labor in every cycle before.
The structural immigration changes we have made and the relative demonization of manual labor for millennials has left the cupboard bare.
The bottom line is that some of the smartest people in the industry were back focusing of the intellectually stimulating, tech and demographic fun stuff of marketing, sales, and demand generation, because that was the solution when production constraints were minor in the past.
The fact that the current problem (structural supply constraint instead of demand constraint) is not the past problem, but a new one, had not garnered much intellectual capital for solution.
Meaningful and permanent innovation in production was not on anyone’s radar.
At John Burns’ Homebuilder Conference, that perception was reinforced again through many of the presentations.
Great and thoughtfully analyzed demographic data from John’s
team showed a surge of demand coming for both the millennials nally starting households and baby boomers needing retirement housing. A rosy demand picture for the foreseeable future.