10 Strategies for Managing the Coming Labor Shortage

A labor shortage is looming and the only thing more bothersome than the potential calamity itself is the industry’s unwillingness to do anything about it. What is now merely a spot shortage in many locations has the potential to become a genuine crisis that drives up cost, lengthens schedules, and undermines quality.

Following our six-year housing recession, easily the worst since the Great Depression, trades left the industry in droves. For most trades, there was no work, and for what work existed, they struggled to work profitably as the industry went in search of the bottom for labor rates. That was a natural economic phenomenon, and a strong argument can be made that for housing prices, material cost, and labor rates alike, the mechanism had to be reset. As one of my old mentors, Dave Ebling, always warned, “Volume covers a multitude of sins. When the growth stops, you’ll find out the baby’s ugly.”

The go-go years of excess stemming from what seemed like never-ending growth produced a super-sized nursery full of ugly babies. Money came easy for developers, builders, and consumers alike, and from the early 1990s to 2006, cost was a second-order concern as the game became who could build the most, the fastest. Profits flowed from land appreciation, sales price inflation, and volume growth — not the house itself. When the fall came in 2006, it arrived with unprecedented speed and severity. By 2007, it had extended to virtually every market in the country. As many as half of all home builders were wiped out. I have yet to see estimates for trade contractors, but they had it just as bad, if not worse.

Now, as housing markets all across the country come back to life, we are hearing about labor shortages. A central Florida builder wrote me a few weeks ago how a bidding war had broken out for framers and drywall contractors in the area. I’ve also heard of shortages in many Texas cities recently, and just last week in both Nashville and Charlotte.

10 Ways to Manage a Labor Shortage

1. Lean the plans. A very thorough plan review with suppliers and trades to establish every important detail is essential to reducing time and communication burdens for all parties. That helps earn you “most favored builder” status.

2. Lean the product. We have yet to see a house at any price point that cannot be simplified. Along with making it easier and quicker to build for the trades, the added bonus is reduced cost, enabling you to pay more for labor.

3. Lean the process. Form a few small groups of your trades and your own staff and ask for no-tears answers to this question: How can Ace Homes be easier to do business with? Then do it.

4. Learn to schedule. In a perfect world, we’d go straight to No. 5, but all six of TrueNorth’s consultants spend the great majority of their time in the field and each reports the art and science of scheduling, with a few notable exceptions, has deteriorated significantly during the housing recession. The negative impact on the trades is huge.

5. Lean the schedule. Presuming you have developed basic scheduling competence, now eliminate all the wasted time and effort. Start with the elimination of wasted or otherwise unnecessary trips, something the builder predominately controls.

6. Lean the suppliers and trades. The right number of suppliers and trades is almost always less than you have, and when facing labor shortages, the best strategy is to sole-source trades that will treat you as their No. 1 builder. This works if, and only if, you find the right trades with established financial strength and all the other factors of maintaining quality, delivery, schedule, and service.

7. Develop the supplier-trade relationships. A bright 30-something builder recently said to me, “We don’t really treat our trades all that well.” In most markets, that will be a prescription for disaster. Now is the time to develop and deepen trade relationships to the degree that you are without question, the builder of choice.

8. Componentize wherever possible. If you were not sure that trusses and panels made sense in the past, that calculation will likely change. You may find the same for stairs and door assemblies. Anything that can be done offsite, consider it.

9. Develop the trades. When was the last time you participated in any event at a local vocational-technical school? When was the last time your local HBA/BIA got involved in a plan for trade development? If Ford saw their workforce frittering away and more and more barriers being raised to finding more workers, what would they do?

10. Get politically involved (to legitimize the workforce). If builders and the NAHB don’t start raising Cane about labor shortages and campaigning for a legitimate, controlled, well-managed guest-worker program, who will? Of all the industries affected, we may have the most to lose.

One builder told me he is not concerned because “they will show up again,” but I think that assumption is both naïve and risky. Who will show up? What skills and experience will they possess? Considering that pretty much the only thing we get from politicians is how they are going to make it more difficult for non-citizens to enter this country, this situation suggests dire consequences for home building. Yet, no one is talking about it. Send me an email if I missed it, but I have not read a word about this issue in the industry magazines or from NAHB.

The reality is, Hispanic-origin workers make up a large portion of crews in concrete forming, finishing, framing, drywall, and landscaping, and are significant in a number of other trades. Talk to any owners of these trade contractors and they will tell you that they simply don’t get many non-Hispanics seeking work. As states pass more legislation to aggressively pursue document checking of such workers, increase enforcement, and deportation, it all gets worse. So what’s going to happen?

I see three choices. First, leave it alone and let the bidding wars begin — not a very Lean approach but a rather interesting concept; let the free-market economy dictate the allocation of the workforce, which is somewhere between significantly and predominately illegal (no one knows for sure). Second, raise wages to the level where non-immigrants are attracted to these trades. I will let you all ruminate on the implications of that one, but it would sure get builders fired up on the issue. Third, initiate a “guest worker” program that allows non-citizen workers to get here legally, and stay here while legitimately employed.

Before you brand me a flaming lefty just for simply suggesting option No. 3, I am a passionate member of the “Party of the Totally Disenfranchised,” and on any given day I can be just as disgusted by the Democrats as I am by the Republicans. So don’t start with the emails on that, please. What I am raising is an issue that has the potential to go nuclear and mess with a lot of the efforts builders have made over the past six years to become truly efficient. It plays well on TV and radio these days for politicians to proclaim, in so many words, their intention to throw “those people” back across the border while no one engages in serious consideration of the consequences for our industry and many others, including hospitality, healthcare, and food processing, to name just a few.

The problem is that politicians on both sides of the aisle won’t touch the issue, being the proverbial political third rail. The Right, by and large, rails against anything suggesting a non-resident set foot in this country, even if it is to pick crops, dig ditches, or clean up after old folks in retirement homes — jobs that our own citizens don’t seem to want to do. Remember what happened when George W. Bush suggested a guest worker program? He was promptly skewered by his own party.

And on the Left? These politicians bow to union opposition to guest worker programs because organized labor sees these workers as a threat, even though they take jobs that are rarely, if ever, unionized. In the end, virtually all politicians are completely gutless to raise the issue, because to suggest some process to allow non-citizens to work in this country will promptly get you labeled by pundits on websites, blogs, TV, and radio as un-American and a hater of freedom, democracy, and probably your own mother — all by nightfall.

Meanwhile, take heart. There is a fourth option for those few builders who possess the mental fortitude to immunize themselves from labor shortages. See the sidebar for 10 specific avenues to pursue. We’ll go into greater detail on each of these in the November issue.

It is eminently predictable that neither Obama nor Romney will touch this issue in any substantive way during this election campaign. The pundits won’t bring it up, needing more time to rant about more important issues like birth certificates and tax returns. Perhaps someone will take a stand in your state and local elections, but what’s needed is Federal-level resolution. This is not a Left or Right issue. For us, it is a home building issue — the proverbial “elephant in the room” — and we’d better start pressuring our political leaders to do something about it. If not, I predict within a year there will be a lot more pain, gnashing of teeth, and blame-tossing as the trade shortages exacerbate and we all wonder what hit us.

If you have strong feelings about this labor issue (or better yet, solutions to the problem), please email me at scott@truen.com.