NAR economist: “major housing shortage” in the US

The chief economist for the National Association of Realtors suggests there is a major housing shortage:

“A major housing shortage exists in this country,” Yun said in a statement. “It is therefore disappointing to witness in March the continued lackluster performance in new-home building, which was the second lowest activity over the past six months. Home prices have risen by 41 percent and rents have climbed 17 percent over the past five years at a time when the typical worker wage has grown by only 11 percent. To relieve housing costs, there simply needs to be more homes built.”

My first thought on this reading this: builders and developers are still skittish from the 2000s housing bubble. Instead of risking overextending themselves, compared to the past they are now focusing on more expensive homes or rental properties. Oddly though, I have seen little media coverage regarding builders and developers. They may be a secretive bunch generally but why isn’t there more scrutiny of their actions and motivations?

My second thought: if there is indeed a housing shortage, what does this say about the state of the economy? A booming construction sector is often related to a good economy. It doesn’t necessarily have to be this way in the future, particularly if there is a shift away from sprawl and homeownership of detached single-family homes, even if it was true in the post-World War II era.

Finally, who might be held responsible if there is indeed a housing shortage? It is hard to rally potential homebuyers into a cohesive group. Is there a way to prod politicians and business leaders to act and if so, could their actions even effect much change?

“Politics of pavement” amidst the start of construction season

Commuters and taxpayers may be unhappy with annoying roadwork but as this summary of upcoming projects in the Chicago region reminds us, roadwork is political:

With no state budget in sight as Republican Gov. Bruce Rauner feuds with Democrats, the idea of a capital plan to fix infrastructure seems as likely as unicorns in hard hats.

That disconnect is not only strangling transportation funding in Illinois, it’s also thwarting a pet project of Rauner’s — adding tolled express lanes to I-55 in Cook and DuPage counties…

For the Illinois tollway, money’s not a problem. But the agency is locked in a dispute with the Canadian Pacific Railroad over land it wants for I-490, a ring road around the west side of O’Hare International Airport.

If Canadian Pacific wins support from federal regulators in a pending case, it’s a potential catastrophe for the tollway.

Roads are power? Any major infrastructure project involves lots of money, voters, and jobs. Additionally, in a country where driving is so important, construction on major roads is a big deal.

So, is anyone winning the political battle through roads in the Chicago region? Big city mayors like to claim that they are different than national politicians because the mayors have to get things done. The same may be true for governors on infrastructure issues. Presumably, limiting the political battles over roads helps everyone win as costs are reduced (prices for big projects only go up over time) and residents can start experiencing the benefits sooner.

Haunted McMansions vs. creepy unfinished construction sites

I posted Wednesday about a claim that McMansions appear haunted because of their poor architecture but I think unfinished construction present their own horrors. See this suburban example:

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This is an early evening image of a new residential construction project not too far from our house. All that is standing at this point are elevator shafts. Imagine being trapped in such a project late at night with shadows and wind. There are piles of debris and materials all around. The only escape may be to climb up…shafts that go nowhere. It could be an outdoors, David Bowie from Labyrinth sort of scene. All within sight of a wealthy suburban community with nice homes and lively commercial areas. Yet, it is difficult to imagine how someone might end up in such a situation where they are wandering around such a site.

In contrast, McMansions and other homes may be easier to consider haunted because we associate warm, fuzzy feelings with single-family homes and creepy or evil beings and happenings seem to be such opposites. From the beginnings of the American suburban single-family home, this space was to be a domestic refuge from the outside world or any other intrusions.

But, an empty construction site or unfinished project presents different problems. Is there anyone around? Was the project abandoned for a good reason or some unknown or unspoken reason? Are these ruins or a work in progress? In the end, does the unknown – the construction site – or the familiar – the single-family home, however weirdly designed or old it is – present a more problematic situation?

Recession decimated construction workforce

Here is another sign the construction industry has not fully recovered from the economic crisis: the number of construction workers is still low.

The new-construction housing market is slowly recovering from the turmoil of the recessionary years, but builders haven’t been able to pick up where they left off. More than 2 million skilled labor jobs were lost to the economy, and many of those workers are gone forever…

Nearly 30 percent of the construction workforce disappeared during the Great Recession, reports FMI Corp., a Raleigh, N.C., provider of management consulting, research and investment banking to the construction industry. Among its ranks are plumbers, electricians, roofers, bricklayers and carpenters.

The shortage seems to be worsening. According to FMI’s 2015 “Talent Development in the Construction Industry” survey, 86 percent of respondents reported shortages of skilled labor. That’s up from the 2013 survey, in which 53 percent of respondents reported such shortages.

It may take a long time before the housing industry approaches where it was in the early to mid-2000s. In the meantime, those workers have to do something and/or go elsewhere. Even with all the political talk about helping workers, I don’t remember anyone suggesting plans for helping construction workers in the same way that politicians have discussed manufacturing workers.

Additionally, I wonder what it takes to ramp up with a lot of new workers if the housing industry starts booming again. Businesses today tend to shed workers when times are bad, add when the economy picks up, and disregard training and upstart costs. However, it is not always simple to just hire large numbers of laborers.

Rising development costs in American cities

It is getting more and more expensive to build new developments in American cities:

Land costs in the urban cores have dramatically escalated, making it difficult for developers to find developable parcels that pencil. Adding to the issue of expensive land prices, in December 2014, the Wall Street Journal reported that construction costs are rising faster than the inflation rate: the U.S. Labor Department’s consumer price index had risen only 1.3 percent above the previous year, while the construction index was higher by 5.2 percent.

Land is scarce and expensive

In most major U.S. urban markets, the cost of land has risen aggressively, in line with the greater demand for urban living by millennials and empty nesters. In Los Angeles, for example, land for industrial developments—many of which are changing from industrial use to residential mixed-use—have averaged approximately $23 per sq. ft. at the beginning of 2014 and  by year‘s end, asking prices were as high as $32 per sq. ft. There has been and continues to be keen competition for every developable site, with the urban core expanding into previously blighted areas.

Current shortage of construction professionals and skilled labor

Construction employment was disproportionately affected by the recession. As a result, many construction professionals—both labor and management—left the industry. Across the country, there are 1.4 million fewer people employed in construction than there were at the peak in 2007, according to the U.S. Bureau of Labor Statistics. Many in the construction industry who lost their jobs during the recession have found new careers, and many skilled tradesmen left the industry all together. Compounding the shortage is the lack of high-quality training available to young people entering the construction workforce today…

Materials costs have little impact

Countering some of the rise in construction costs is the fact that most materials costs, apart from glass, have not greatly increased. Associated Builders and Contractors Inc. reported in April 2015 that, although concrete products prices are up 4.1 percent on a yearly basis, total input prices have fallen by 3.6 percent since the same time last year. For example, iron and steel prices are down 11.5 percent and softwood lumber prices are 7.4 percent lower than one year ago. Current crude petroleum prices are down 55 percent and crude energy materials prices are down by 43.7 percent from the same time last year.

If this is the case, this could have negative consequences in a number of areas including: it might take more to get the construction industry going to overcome these costs; this limits the incentives for developers to construct cheaper or affordable housing (such as starter homes); and only the really wealthy can purchase and utilize urban land.

Architects on how they save money when building their own homes

Here are three money-saving tips architects use when constructing their own homes:

1. Prioritize—Duh.

“We worked really hard to get to the essence of what was important to us,” Jeff Stern, from Portland-based firm In Situ Architecture, tells WSJ, “rather than starting the process wanting it all and having to compromise.” For Stern, splurging on super energy-efficient triple-glazed windows meant incorporating a mix of budget-friendly solutions like concrete floors, fir cabinetry, and plastic laminate countertops.

Thomas Gluck of NYC-based firm Gluck + Architecture gave the exterior of his Tower House a tinted-glass treatment usually only used for commercial projects. “Even though the glass itself is inexpensive, the technique of applying the tint can be costly,” WSJ’s Nancy Keates writes. Still, this was a calculated risk that’s central to the design of the home; the dark glass exterior allows the structure to blend in with its woodsy surroundings. Inside the home, he kept the design and finishings simple…

2. Find off-price steals—it’s like bargain-hunting at T.J.Maxx but for building supplies.

According to David Wagner of Minneapolis-based firm Sala Architects, considerable savings can come from purchasing materials that are discounted for negligible imperfections. For example, the white-oak flooring he used for an 1,000-square-foot addition to his house was a few grades lower than what most clients demand, but he knew that “the flaws were just some ‘character knots’ in the wood.”

3. Think ahead—anticipate how design decisions will affect labor cost.

For his ultra-modern T-shaped home, architect Marc Manack from Silo AR+D in Fayetteville, Arkansas “made the infrastructure as easy as possible for contractors” by grouping utility hookups and connections together in an easily-accessible location. And because Manack did not plan for any “ornate millwork” or “high-end finishes” in his design, he was also able to reduce labor costs by hiring rough-in carpenters instead of more expensive, highly-skilled carpenters.

This helps get at two questions I’ve had about architects, builders, designers, and others that help people build and design homes:

1. Do they give their clients all the options like the cheaper ones they might use themselves? Or, do they look at the money available and present fewer options at each design decision point? Presumably, some clients only want the nicer/perfect items or labor but others might not. I suppose this might be something to negotiate or know in the beginning. Plus, we probably have different expectations: a builder, especially one who constructs large numbers of housing might have lower levels of quality compared to an architect.

2. Do the professional’s tastes actually align with what they design or recommend for clients? On one hand, authenticity is a big deal in the creative arts. On the other hand, the professional needs to have some flexibility in designing things that aren’t exactly what they would choose themselves. Again, this might be clear in the hiring and design process in the beginning.

Where are the ubiquitous Chicago pothole stories?

As we emerge from winter, I thought today that I haven’t seen many pothole stories in the Chicago media. These are typically a staple of news coverage – see examples here and here. Here are some reasons why there may not have been so many stories this year:

1. The communities in the Chicago region did such a fine job filling potholes in recent years that the problem wasn’t so bad this year. This could be true; there are ways to address potholes that solve the problems for the longer term. Yet, the problems were acute in recent years and it sounded like municipalities were trying to fix things as quickly as possible plus there were added costs with salt supplies.

2. Other concerns have dominated the news. Perhaps it was the cold weather and snow cover. Perhaps the transportation news was dominated by future construction on areas like the Jane Byrne Interchange, I-90, and the proposed Illiana Expressway.

3. The weather has been so cold that potholes haven’t really formed yet since the roads were not thawing and freezing. Perhaps the potholes will really start emerging this week.

4. Perhaps I missed all the pothole stories?