Alan Hoffmann
Alan Hoffmann has been building homes in Texas since 1987, and he’s seen all kinds of real estate cycles.
But he’s never seen a worker shortage this severe.
A decade ago, when Hoffmann needed an electrical crew to wire a house, four or five electricians would show up. Today that crew is typically two people. That means homes take longer to build — usually 12 months instead of nine — and costs rise because longer project time means more months in which builders have to tap bank loans to finance construction.
Hoffmann’s homes are higher-end green “high-performance” houses — so his clients generally help absorb the higher project cost. But that’s not the case for all builders, especially those who are increasingly strained by rising materials costs, arguably tighter regulations, and now, understaffed crews. “There can be situations that make or break them,” Hoffmann said.
Despite his trendy-sounding business model, the way that Hoffmann and most builders work now doesn’t look that much different from the way it did when he started in 1987. And in fact, a Hoffmann worksite then wouldn’t have looked much different from any U.S. worksite in 1957.
The process: developers buy plots of land and assemble contractors and sub-contractors for the manual labor. Labor consists of lower-skilled men who are not always well-paid, and who are frequently foreign-born. Early each morning, they show up at the space that will someday be someone’s brand-new pride and joy, and mostly construct a house one piece at a time from the ground up.
But just as most home buyers no longer visit their local banker like Jimmy Stewart’s George Bailey to get a home loan, home construction itself is poised for big changes.
Men may be joined by women, or even robots. Most likely a lot less of their work will be done on the site where the house will sit, and more components — perhaps even entire houses — will be assembled in factories to a greater degree than they are now.
Hoffmann is proud of the family business he’s built. Still, he says, change is needed so the housing market doesn’t seize up, crashing the economy and butchering the so-called American Dream. “We’re at a potential breaking point,” he said in an interview in April. Hoffmann says he’s heard of 90-year mortgages being passed along generations of families in other countries operating under a struggling building industry. “I don’t know if we’re there yet, but something’s got to give.”
Industry participants and analysts agree: something will indeed have to give.
During the housing bubble, residential construction boomed, and so did the labor rolls. At the peak, in 2006, about 3.4 million workers were employed in the industry. By 2010, the low point of the recent cycle, that number was down to less than 2 million.
Many of the men who had worked in construction pivoted to other trades, such as energy, or they retired, or started collecting disability insurance. In a touch-and-go housing recovery, it was hard for many builders to pay enough in wages or guarantee enough hours for workers to lure them back, especially those who remembered the trauma of the housing bubble bursting and the uncertainty it brought. Many simply aged out.
Rob Dietz, the chief economist for the National Association of Home Builders, estimates 200,000 residential construction workers are needed in the short term. Over the long run, to get to what Dietz calls “the sustainable level of production,” that shortfall is more like half a million.
Worker shortage means a new-housing shortage. Mark Zandi, chief economist for Moody’s Analytics and a long-time housing watcher, says that the shortage of new homes is so severe, homebuilders could work for six months straight just to fill the backlog.
“It’s the No. 1 problem confronting the industry today,” said Paul Cardis, CEO of Avid Ratings, a home builder customer survey and data provider. “The industry is struggling mightily over it. The builders are right now not able to keep up with demand because they cannot find qualified labor to get the jobs done.”
According to Cardis’s surveys, 95% of builders call worker shortage their top problem. It’s causing builders to run three-to-six months behind in delivering homes, a long enough delay that it could start to dampen customer demand, he thinks.
So, what will give?
Begins and ends with immigration
As Zandi put it, “without more immigration, even if we maintain the current level, we’ve got a problem. It’s not just about attracting more, it’s also about keeping the ones you have. The crackdown on illegals is terrifying; it’s causing people to leave. More Mexicans leave than come here. That clearly is not helpful” to strained construction labor pools, where many Mexican men (along with other Latinos) have traditionally worked in the U.S.
It’s not just the rhetoric from the Trump administration that’s stemmed the tide of immigration. A 2015 study from the Pew Research Center found that the flow of Mexicans to the U.S. reversed course in the aftermath of the recession. Since that time 1 million have left the U.S. for Mexico, while only 870,000 have entered.
Alan Hoffmann
Many builders, in fact, would like to be more active in luring immigrants via special visas to sponsor them. For the past few years, builders have been tapping the federal H-2B program, which makes visas available for temporary, seasonal workers other than those who work in agriculture, which has its own program.
H-2B makes sense for a lot of builders, NAHB’s federal legislative director, Alexis Moch, told MarketWatch. But they’re competing for a very limited number of visas — 66,000 each year — with every other industry that employs seasonal workers: entertainment, restaurants, tourism and more.
“We don’t look at this as an immigration program, we look at it as a labor program,” Moch said. NAHB and other trade groups are lobbying Congress to allow entry to more H-2B workers than the 66,000 specified by the cap, as was usually the case before 2016.
A few years ago, Hillwood Communities, one of the largest private developers in the country, started to tap the H-2B program for landscaping workers for some of its Dallas-area developments. “We hire as much as we can from the forces that are available to us. The H2B really helps supplement the workforce that is really so strained right now,” Hillwood CEO Fred Balda told MarketWatch.
Each year for the past four, Hillwood has had about half of its visa requests granted, until last year, when it got zero approved.
Hillwood previously offered the services of its in-house landscapers to other communities as a revenue generator. But with a skeleton crew, it will have to forgo that business line and will miss out on about half a million dollars a year, Balda said. And it’s not just lost revenue: costs will go up too.
“Every aspect of our labor force is so strained,” Balda said. “You add it all up and it’s like, unemployment is so tight. I’d rather have these times than a recession for sure, but it’s creating some significant inflation.”
Next generation
Forget “Not In My Backyard.” Construction has a “not for my kid” mindset that holds back growth. Highly-educated economists who sit in comfortable offices and extol the virtues of physical labor are a dime a dozen. But those who say they’d encourage their own children to take a job in general contracting or a trade, a potentially short-seasoned one at that, are few and far between.
Hoffmann is one of the rarities. He studied English literature in college and was pursuing a master’s degree in theater when he fell into construction by accident. He continues to marvel that his theater studies took place in a Frank Lloyd Wright building that was one of the first poured-in-place concrete buildings in the region. Now Hoffmann uses the same technology in his own designs.
“I love what I do,” he told MarketWatch. “I get to do design, I’m involved in a holistic process, I’m very passionate about green technologies and moving our product line forward. There are opportunities for creative expression.”
Hoffmann doesn’t just talk the talk. His daughter, Alison Charley, joined the company to run all the back-office operations. Charley also started in a creative background — she studied fashion in college and worked for a menswear company for a few years but didn’t see many growth opportunities there.
Charley said she’s always surprised by how many people look down on the “not glamorous” home building industry, given how complex the process is. “Everyone wants to be in fun professions, and this has so many dimensions to it,” she said.
And yes, there’s opportunity. “Texas is growing so much, every single day. This is kind of the future,” Charley said. That growth isn’t just tech jobs — home building is an integral part of the economy, too, she said. “I hope in the future people can recognize that and honor it.”
There’s a certain flexibility that working for a mom-and-pop business offers — especially when you’re the mom and the pop. Charley’s husband Charles went from a successful career as a chef to become his father-in-law Hoffmann’s site manager. If the couple has children who want to go into a physical trade, Alison believes she’d support it.
Boy’s club no more
There are several demographics, not just immigrant men, that home builders will have to start tapping as a labor source. Alison Charley is the face of another: women.
“I would like to see more women involved in the industry,” she said. “It definitely feels like a boy’s club. It’s definitely different to be the odd one out. I think that we have a huge role to play in this industry.”
Women’s share of the jobs can only get bigger. Right now, the NAHB’s calculations of 2016 American Community Survey data show that of the 2.8 million people in residential construction, only 9% are women.
Rob Dietz, the economist for the industry association, agrees. “I particularly challenge remodelers and builders to recruit more women,” he said. “I think that will occur as the industry capitalizes.”
And just what does he mean by “capitalize?” Producing more components of the home off-site, usually in factories where the process can be made more efficient, often with the use of machines, or making more use of machinery on the work sites themselves.
“The rank-and-file home builder is a family-owned business, often multi-generational, using tried-and-true methods,” Dietz explained. “When you talk to someone who’s been in the industry a long time there’s a great sense of pride and craftsmanship, there’s reluctance to change. What will cause that to change is the availability of technology and the relative prices.”
And as changes come, glass ceilings get broken, Dietz thinks.
Biggest shift: human to machine
Right now, it’s fairly common to see factory-built components get added into on-site home construction projects. Less common is “modular” construction — which is when the entire house is built, in pieces, in a factory, and assembled on-site. Dietz estimates only about 3% of all homes built now are modular.
“You would think builders would start thinking about trying to improve productivity,” Zandi said. But the industry is simply far more fragmented across mom-and-pop businesses than, say, fintech, where a few deep-pocketed giants like Apple or Google can get new innovations adopted quickly.
There have been attempts.
Even rarer than component construction is when the entire home is factory-built. That’s right: houses built in a factory, then trucked to the property. For a few years starting in 2007, Canadian company Mattamy Homes built a subdivision’s worth of homes in a facility called Stelumar. Media reports at the time touted the efficiency in factory-building — “a new home can be turned out from the factory every 11 days,” the Toronto Star noted — as well as the safety and the ability to keep a construction crew working even in a blizzard.
Stelumar was the brainchild of Mattamy CEO Peter Gilgan, a man industry participants referred to as “the Henry Ford of homebuilding.” But MarketWatch could not get any comment on the project, which has been shut down for several years, from either Mattamy or Gilgan, who is famously press-shy.
Even if most houses are never produced on an assembly line, most analysts believe home building will start to become at least somewhat more automated. There’s already a “brick-laying robot” named Sam, which can work far more quickly than human laborers can.
And Katerra, a company which describes itself as bringing a “Silicon Valley” mentality to construction, has raised nearly $900 million to “disrupt” the industry, via factory assembly, component building and other approaches. “Every building shouldn’t be a one-off prototype,” Katerra says.
Industry re-think
Or should it? After all, homes are more than buildings. They’re the embodiment of American Dreams.
It’s tempting to think of the Hoffmann Homes approach as more ideal, more “authentic”: it’s a family business, rooted in the creative arts, and connected to the land where the homes will stand. But not everyone can afford a Hoffmann Home, and it may not be appropriate for everyone — or even for most people — to live in one.
No one understands that better than Alan Hoffmann.
He thinks houses of the future will probably look a lot different than the ones we’ve built over the past century or so, and it’s likely the construction crews and factory workers of the future will be building homes that are much smaller, more densely-packed, and more environmentally-friendly than what’s defined the twentieth century.
Those shifts, as much as the realities of labor, immigration policy, and regulations, may help define how we live.
“As a country we have to do a little soul-searching as to what we want to provide,” he said.
Alan Hoffmann