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Up to the Challenge? Builders Face Down a Range of Obstacles

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Up to the Challenge? Builders Face Down a Range of Obstacles

From short-term bumps to multiyear hurdles, survey results reveal the key challenges builders face


By Rich Binsacca, Editor-in-Chief April 2, 2020
businessman jumping over hurdles to overcome business challenges
A recent NAHB/Wells Fargo Housing Market Index survey reveals current and continuing hurdles for home builders. | Image: Pikrepo
This article first appeared in the April 2020 issue of Pro Builder.

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).

 

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“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.

 

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top 5 challenges faced by home builders
No doubt, the Congressional impeachment hearings and the 2020 election season have buyers a bit nervous about the future of our federal government and its role in purchasing decisions more so than in recent years, while labor, materials, and lots are perennial challenges.

 

problems for builders attracting homebuyers
Probably the toughest challenge is not which buyer concern to address first and foremost, but that these all require attention to some degree to help get buyers over the hump, perhaps on a case-by-case basis. Growing concern over selling an existing home to qualify for a new one may drive more interest and use of iBuyers.

 

changing challenges for home builders between 2011 and 2019
A sign of the times: From the depths of the Great Recession to current conditions, especially noticeable are the increased challenges associated with skilled labor availability and building materials prices, which have swapped places with financing roadblocks during that time frame.

 

problems faced by home builders by region
Builders across the country are pretty much in lockstep about the challenges of labor and lot shortages and materials pricing, while the metrics above point to distinct differences in policy and housing affordability issues at a regional level.

 

problems faced by home builders by size
Not surprisingly, large-volume builders are far less affected by financing terms but feel more victimized by the approvals process and by student debt that keeps younger, less-affluent consumers from buying. Materials prices appear to not play favorites, underscoring the volatility (if not steady increase) of those costs at the local level and by turnkey trade partners.

 

Access a PDF of this article in Pro Builder's April 2020 digital edition

 

Written By
Editor-in-Chief

Rich Binsacca is Professional Builder’s editor-in-chief. He has served as an editor and frequent contributor to several housing and building construction-related print and online publications, and has reported and written about all aspects of the industry since 1987.

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