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Real Estate

Homebuilder challenges vary by state– Here’s a look at a few major obstacles

Issues range from costly materials to burdensome regulations to an aging workforce

In April, the National Association of Home Builders/Wells Fargo Housing Market Index measuring builder confidence registered its single greatest decline with a 42-point plummet. Today, however, NAHB is exuding confidence that its members will help bring the coronavirus-disrupted country back to financial wellness.

“NAHB anticipates that housing will help lead the economy out of this period of uncertainty and is likely to rebound faster than other sectors,” said Dean Mon, NAHB chairman and a home builder and developer from Shrewsbury, New Jersey. “Pent-up demand for housing and low-interest rates can pave the way for a potential industry bounce back as we head into the summer months.”

But the view from some of the states offers thorny challenges. In California, the builders were acknowledged at the start of the pandemic-induced tumult as being crucial to the state’s stability.

“When Gov. Newsom gave his State of the State address in January, he listed homelessness and housing as his top priorities and only gave his address on those issues,” said Dan Dunmoyer California Building Industry Association president and CEO. “He didn’t talk about education or transportation or health care. When our world shifted with COVID-19, the very first executive order the governor did was to list housing as an essential business, and specifically residential housing.”

California’s homebuilding market was dominated by multifamily construction over the last two years, but recent construction has slowed.

“In the first four months, we’ve seen a decline in multifamily year-over-year,” Dunmoyer said. “But we think that’s primarily due to rent control measures passed last year, more so than consumer demand. We have pretty strong limitations on rent payment, and from that reason it limits return on investment for those who build and hold or build and sell multifamily to others who rent.”

California builders face high costs that keep some buyers out of the market.

“The price point in which we can build effectively is our challenge,” Dunmoyer said. “We build identical homes for as much as a third of the price as other states. That is because of the high fees we pay in the long-term delays we have to endure. And our prices are going up during COVID. Demand is great and people want a product – it’s just the price point at which we can deliver that is just so high compared to income levels and ability to pay.”

In New Jersey, there are a myriad of obstacles in the construction process.

“The joke is: if you could build in New Jersey, you could build anywhere in the country and be successful,” said Michael Canuso, New Jersey Builders Association president. “We have the highest property taxes in the country and, unfortunately, New Jersey consists of 565 individual municipalities that write their own zoning and planning regulations. So, the approval process for land and development and building is different in every town. And it costs different in every town.”

Canuso observed New Jersey builders also face hurdles with land scarcity, a regulatory approval process that often moves at a funereal pace, and statewide clean energy mandate that “will dramatically impact our construction costs across the board.” Furthermore, the state is still burdened with unsolved problems from the last dozen years.

“When the Great Recession hit us, New Jersey took it on the chin like the rest of the country, probably worse,” Canuso said. “We’ve had a glut of foreclosures – we’ve been consistently in the top three states in the nation in foreclosures. And we have this zombie inventory which continues to challenge the new construction. Then we get hit with Superstorm Sandy. That decimated the state and set us back dramatically for new home construction.”

In Colorado, homebuilding was declared an essential business by Gov. Jared Polis, but not everyone agreed with him.

“There were a few counties that halted all construction for a period of time,” said Ted Leighty, Colorado Association of Home Builders CEO. “We worked with those counties to create a checklist that our members are utilizing to ensure safe job sites – maintaining distance, having sanitation and cleaning stations and educating them on the safety precautions that our members take, whether they’re in a pandemic or not. We were able to kind of get those counties reopened in a matter of a month or so.”

Colorado also found itself with a supply and demand imbalance that builders have yet to resolve.

“Demand has been greater than supply since we came out of the recession,” Leighty said. “We were under-supplied going into this pandemic and we will be under supplied coming out.”

Colorado’s builders have also been challenged with rising construction costs, although Leighty believed this burden might be relieved.

“A year ago, softwood lumber was a big issue,” he said. “Those prices have come down somewhat. But you’re seeing prices of gypsum and copper creating a concern. We don’t use steel as much as the commercial industry does, but some of those things that are sourced overseas in China could portend greater increases for resource materials costs in the future. The good thing is where we source our materials: Mexico and Canada. We were very pleased that the trade agreement was signed before this pandemic hit.”

In Alabama, construction material costs are also a problem.

“A lot of the materials are sourced from countries that had sanctions and tariffs,” said W. Russell Davis, executive vice president of the Home Builders Association of Alabama. “It’s driven up some of the pricing on basic materials.”

Davis noted that Alabama does not suffer from the inventory problems found elsewhere in the country and plentiful affordable homeownership options are encouraging first-time buyers to acquire residences. But he was also worried that this picture could soon change.

“The costs have gone up due to the regulatory burden with development and codes to the point where it’s getting to be a challenge to build a house where most Alabamians can afford it,” he said. “It’s tough to navigate – everything from permitting to code inspection. From a developer perspective, the cost of regulation contributes to about 25% of the cost of a house. That’s significant.”

One area where the states have common ground is the inability to attract new workers to construction jobs.

“Labor has been an issue for quite some time,” Davis said. “Builders are managing and production still moves on, but there’s always room for more people entering the construction workforce.”

“Our average for our skilled trades is getting older and older,” Leighty said. “We’re finding ways to meet that demand in some regards. But it has inhibited our ability to meet demand over the last several years, not just this year.”

Dunmoyer noted California has a unique labor dilemma because “most of our young people are pushed into technology versus construction, both by their parents and by society.” But the pandemic created new opportunities to fill positions.

“We’re starting to see a little bit of a shift there as recently as the last 60 days,” he said. “When someone was laid off from a Marriott hotel as a chief engineer, they can come over and work on a job site. We’re even seeing this with firefighters – you can’t train virtually as a firefighter, so firefighter trainees who can’t train right now are on job sites. We are seeing a slight positive uptick because we are in business. But available labor is still a key issue for us.”

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