More Hurricane Pain: Fewer Homes, Shortage of Construction Workers
the need to rebuild and repair houses following Hurricanes Harvey and Irma is likely to put a damper on new construction and aggravate the inventory shortage.
The same crews that build new homes are also used to renovate existing ones, said Mark Fleming, chief economist at First American Financial Corp.
After any storm, “there is a material slowdown in the pace of new construction because all of the construction workers are busy repairing the existing homes,” Fleming said. “So the housing stock stops growing as much as it had been but that’s really the only longer-term implication.”
Even before recent the storms, there was a labor shortage in the homebuilding industry.
“This will only serve to exacerbate the existing shortage of supply problem. It’s hard to know at this junction if the magnitude of that exacerbation is significant or not,” said Fleming.
In August, the residential construction industry employed 786,400 peo- ple, the second most since the housing bust, according to preliminary data from the Bureau of Labor Statistics.
There were 1.4 million employed in residential building at its peak in August 2006. Employment bottomed out at 528,000 in February 2011.
“Labor shortages have been the story of the construction underperformance for the last three years,” said Redfin Chief Economist Nela Richardson. “A lot of those workers will be diverted to rebuilding and repair, not just the homes, but the infrastructure damaged during the storm. So it is a bleak picture from a new construction point of view.”
The storms were responsible for September’s three point drop in the National Association of Home Builders/Wells Fargo Housing Market Index.
“The recent hurricanes have intensified our members’ concerns about the availability of labor and the cost of building materials,” NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas, said in a press release.
From discussions with builders and material dealers, “our takeaway is absolutely across the board labor is the critical, critical pain point that we’re getting a tremendous amount of feedback on,” said Todd Tomalak, the vice president of research at John Burns Real Estate Consulting.
During Hurricane Katrina in 2005, the rebuilding in the Gulfport-Biloxi, Miss., area took eight years. Across the state, wages went up 12% on average per each construction worker, causing a reallocation of the labor force from other parts of the country.
The magnitude of damage in coastal Louisiana and Mississippi was well above what happened in Houston, but there could be a similar effect in Texas and Florida as material costs and labor costs rise in those areas, Tomalak said.
Storm-driven labor shortages are also affecting the building supply companies, he said. There are even shortages being reported for the workers that install electric and natural gas equipment in a new home, said Jody Kahn, senior vice president of research at John Burns Real Estate Consulting.
“Everything is backed up because the utility crews have gone to the hurricane zone to help with the recovery process,” she said.
Building inspectors and insurance adjustors are being taken from other parts of the country as well, she added.
For existing-home sales in areas affected by a hurricane, there are also short-term price and transaction disruptions.
“As a buyer, my first question is ‘the home I was thinking of buying, has it been damaged? And if it’s been damaged, does that make me want to walk away from the transaction?’” Fleming said.
Sales generally slump while prices rise immediately after a storm. While that seems counterintuitive, usually these storms remove “a sizable portion of inventory and it’s really inventory, not demand, that is driving prices, especially now.”