President

Scott Sedam, president of TrueNorth Development (www.truen.com), spends most of his time working in the trenches with builders, suppliers and trade contractors. His Lean Builder blog appears weekly at HousingZone.com. He welcomes your feedback at scott@truen.com.

Trade Shortage Heats Up. Looking for Love (and Relief) in All the Wrong Places

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June 09, 2015

The shortage of qualified trade contractors is a problem that vexes the entire industry and finally people are waking up to it, largely for the wrong reasons. Suddenly trade shortages as an obstacle to growth is appearing in articles and blogs and occasionally even cited by industry market researchers and engineers. Here’s the bottom line: we have tremendous structural demand at all price points yet there is ample evidence that in each segment and especially entry-level, sales prices are too high. Compounding the problem, what retail prices a builder can push through are not covering the across-the-board increases in cost of land, labor, material, and overhead. The result is increased sales volume, with decreased profit margins. The biggest single component of this increase in most markets is the trade shortage.

It is the margin squeeze that’s finally driving awareness to the problem, but beyond the inevitable price increases in labor, there are many other impacts. The best builders understand that it’s not just about having the best trades, but also their best crews. The best crews keep you on schedule, keep the job clean and safe and provide top quality work. Those factors can add up to even more than the direct impact of increased labor costs. So you are relieved that you have secured enough labor for the next few months? Great, but that’s just a start. The best crews are still out there and someone is getting them. You have to challenge yourself, face the brutal facts and ask who gets them, and why? If not you, why not?

Builders have only three choices given that any notion of beating trades down on price is simply off the table in this market. First, they can just do nothing and write bigger checks. That will get your houses built but not make your investors happy. Second is to engage in the endless search for marginal trades who will work for less – and pay the consequences.  That’s another losers’ game. The only real strategy is to truly do what it takes to become The Builder of Choice. That is not simply treat the trades with dignity and respect, although that is an essential ingredient. This means being the builder who does things so well, so consistently, that trades want to work for you because even though you pay them no more than a competitive price – they are more profitable working for you than any other builder. You read that right.

A brief note from Henry Ford here: “If you think you can, or if you think you cannot, you are probably right.” So if you believe getting the top trades with the best crews cannot be done, you are probably right. So from here on I am only addressing those who know it can be accomplished, because they’ve seen it, or imagined it. I have seen it too many times to deny that a builder can secure the best trades and best crews through a Builder of Choice strategy, but it takes some new thinking and a lot of hard work, in the beginning. If you want to learn the essential ingredients, find your way to “Overcoming the Labor Shortage” from 11:00 to Noon, June 25, at PCBC in San Diego. There you will hear from a few special builders who have cracked this code. For a head start, email info@truen.com and enter “Trade Shortage” in the subject line and I will send you a PDF booklet of articles on the subject. I hope to see you in San Diego and your feedback on the articles is always welcome.

Scott Sedam is President of TrueNorth Development and internationally-known building industry consulting firm, and a Contributing Editor for Professional Builder Magazine. Contact Scott by email to scott@truen.com or call 248.348.1275.

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