John McManus, award winning editorial and digital director at Hanley Wood, writes in Architect magazine, the magazine of the American Institute of Architects, about the top 10 take-aways from the recent 2018 Housing Leadership Summit. The overall theme of the conference of builders, investors, lenders, architects, subs and thought leaders from throughout the industry was Collaborate to Accelerate. They explored the near-term horizon for the industry and the theme of Collaboration. Collaboration in the housing industry is like herding cats in a wheelbarrow, nigh on to impossible under the best of conditions.
Their exploration of the ways to keep the industry vibrant over the next 3-5 years boiled down to the top 10 takeaways.
One of those takeaways hit me in the gut and spun me around. Not that all of the points that McManus spells out are not relevant, it is just one of those that made me realize that there might be a reality that builders are denying in hopes that it gets resolved like it always has before the bottom drops out of the market again as it surely will. That point that hit me hardest is the labor availability issue for the housing industry and for the rest of the construction industry as well.
In a world where builders and subs are already being squeezed for labor by retirements and a crackdown on the immigrant labor, the conclusion from the Housing Leadership Summit was that “Labor capacity is not going to get better ... ever: Today, for every young individual who enters the construction labor workforce, five are aging out of the field. Further, immigration policy under consideration at the Federal level looks like a hindering rather than a helping factor when it comes to mitigating the age demographics impact. Conservatively, it would take 15 to 20 years--a generation--to replenish and retrain the skilled associates necessary to bring housing activity back up to historical levels. No one expects that to happen. Being builder of choice is a best option of the moment, but it's going to prove to be a band aid at best as the trend plays out.”
Right now, contractors, builders, developers, subs, educators and governmental agencies are scrambling to solve this problem that is reaching critical stage and will likely, as McManus spells out, take a generation to address.
Meanwhile, the Summit concluded that, “Offsite's moment of truth is nigh: The smart money is betting that 2018 is an inflection point in the single-family for-sale embrace of offsite construction as an essential, non-negotiable dimension of new home building in the United States. True, even amid the hype, less than one in 10 new homes avails of offsite, factory-fabricated construction of parts or systems of homes to be assembled on site. Two forces--both of them considered to be intractable challenges in today's housing and broader economy--mean that this business model will pivot, the affordability crisis, and the labor shortage.”
McManus goes on to quote from the summit, “In our opinion, although it's still early in the process, the 'tech tipping point' has arrived, and 36 months from now, construction operations among higher volume home builders will be profoundly impacted by a new infrastructure of geographically dispersed offsite manufacturing facilities. One pushback among builders who say they're not likely to vertically integrate such factory capability into their business models: migrating the variable costs of doing business--purchasing materials and products, stocking that inventory, labor costs, etc.--to a fixed cost basis would make those firms too rigid in a downturn. They would not be able to reduce those costs the way they can now if business slows down in a cycle. The answer to that is that builders cede the manufacturing and construction capital expenditure to a third party, buying those services the way they'd take down lots from a land bank.”
So, you should ask yourselves and your colleagues, “What happens if the labor issue cannot be resolved in the near term?” As one wise sage said, “The future that you ordered has arrived.” Now is the time to decide what you will do about it.
We would welcome any feedback you have about this tough question for the industry.
You can, by the way, read more of the McManus article here.
