Building homes in today’s highly regulated, labor-challenged, and consumer-driven environment is hard work for the relatively modest 7.6% net profit earned by the average builder. A recent NAHB/Wells Fargo Housing Market Index survey revealed that current roadblocks, such as lack of skilled labor, have persisted as multiyear trends, while others are likely short-term headwinds.
And, depending on where and what you build, such challenges may not align with national sentiment. For instance, the survey revealed that difficulty obtaining approvals is nearly twice as problematic in the West as it is in the Midwest (see “Regional Differences,” below). And while just 18% of builders of any size find student debt is making buyers cautious, a third of those starting more than 100 units a year suffer that experience (see “Differences by Size,” below).
“What’s noteworthy is what has changed or is changing,” says Paul Emrath, VP for survey and housing policy research at NAHB, which conducts and reports the survey. He points to a decrease in builder concerns about materials prices (following a lumber price spike in 2018), while issues related to approvals are becoming more widespread. “As we get further away from the downturn,” Emrath says, “local jurisdictions are processing more requests and may either be more careful about what gets approved and/or see it as an opportunity to revisit or update more development standards.”
That issue appears to affect larger builders more than the very smallest-volume shops. “A smaller, custom-home builder usually is dealing with a finished and approved lot,” he says, “while a larger builder is more involved in the land development process, which is a longer road” to gain approvals and incur additional costs.
METHODOLOGY AND RESPONDENT INFORMATION: Perennially, the December version of the NAHB/Wells Fargo Housing Market Index survey includes additional questions regarding the most significant problems faced by builders in the previous year, and problems they expect to face in the coming year. For the most recent study, NAHB garnered 332 responses.
Access a PDF of this article in Pro Builder's April 2020 digital edition