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LABOR'S LOVE LOST?

6/24/2016

Labor is not just a pain point for home builders, it's a divisive, polarizing pain point. It's the summer of 2015's most-painful pain point too, given the this-way-or-that-way fragility of the current housing recovery.

At the very moment builders can and must stretch their product and community offerings down the price spectrum to where more home buyers can enter the arena, their ability to assemble home systems predictably within budget goes kerflooey. At the very moment builders are taking on the massive, capital intensive exposure to extend the net of homeownership and fortify the basis of the broader economic recovery, a critical variable input cost starts behaving wildly variable. Industry observers' present focus obsesses with some confabulated notion of pent-up demand, when the real world, down-and-dirty structural issue is pent-up supply.

In this case, it's the supply of workers whose output for a day's wage would be new homes that more Americans would find to be affordable. Now, you can tell me this a political issue, and blame our favorite whipping boy, Uncle Sam, for overstepping or under-enforcing, and, generally, messing with business it has no business messing with. And you might be right. You can argue that our borders should be shut; that our "entitlement-friendly" social welfare programs should be locked down; that our colleges should deny entry to people who can't afford to pay for them. Those measures, you may assert, would ensure a healthy stream of young skilled subcontractors in the making, willing to pay their dues, learn a craft, and enter a career path that will reward effort with recompense.

You might be right, in which case the answer might be to vote the right people into office for the next four years, and all of home building's labor shortage issues would be a figment of the past, an unpleasant memory. Really? Can we vote our way out of this mess?

I think we're facing a different issue, or two issues, really. Both are real and both are hard ones, but they're not insurmountable, and they're only addressed on a case-by-case basis, not a macro, broad-stroke policy reform basis. This means you can do something about it, today.

No. 1, the "labor shortage" issue is an economic problem. It comes down to hourly wages vs. time to complete a designated task in the home building process, which translates into the cost and time-value measure to complete a home. We know right now that the "kind" of skilled labor required to build highly scalable entry-level homes is different than the artisanal sophistication required to build homes that are more personalized, more custom-tailored, more-heavily crafted. So, it's a mistake to say a "labor shortage is a labor shortage is a labor shortage." Home builders need the capacity to assemble home systems well at a cost their businesses can tolerate, with a return to their stakeholders.

This is not an ideology issue. It's an economic problem. It's understandable that builders, contractors, developers, materials and product suppliers want to go and blame the government--national and/or local--for the forces that oppose their success in business, but that's a red herring. You only need to look at how there are some companies who are wildly successful right now, doing the same business you're doing, to know that the government is not a sinister suppressor of all things wonderful in the world. An economic problem, we know, is solvable. A political one--as we've seen across administrations of all stripes through the decades--may not be.

So, let's imagine this. For a home builder to assemble on-site a home system correctly and profitably (with sufficient velocity to reduce the total duration from the moment of a deposit to the recording of full revenue at settlement), home builders need to effectively manage the process, the outcome, the time it takes to produce the outcome, and the continued relationship with the producer of the outcome.

This is where the second of the two issues I mentioned comes up. The issue of trust. The No. 1 issue of our historical era centers on a single question: who can you trust? The highest praise I have heard for anybody in the home building business, repeatedly and consistently across the years I've been covering the business is this: "He (or she) does what he (or she) says he (or she) is going to do."

We know that among the tragic legacies of the past decade's catastrophic meltdown is the profound loss of trust, and profound level of mistrust that took its place. Will a 20-year-old today choose to pay dues to get trained as a carpenter to enter a career that sheds 65% of its workers every 10 years or so? That's a pill to swallow. Will a framing company show up reliably on your site(s) to do their thing at a price-point and a timeline you know will preserve your margins for that community?

There's a good chance both can happen, but it comes down to people--mentors, construction supervisors, corporate organizations--doing what they say they're going to do, reliably, fairly, and with an eye on the cycle. The labor shortage--we'd argue--is not an ideology problem; it's an economic problem. And, by the way, Builder of Choice is not about some conference session you attend so that you can talk in consultant speak about company tactics and initiatives. It's about doing what you say you're going to do. That can and will solve the "labor shortage" in a neighborhood near you. People trust you when that happens.

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