Posted in Architects
The Supply Question
Recent months have brought significant improvements to all segments of the housing industry. Spending for residential remodeling rose 10.8 percent in 2012 and continues to climb. With exceptionally low interest rates kicking off the year, sales of newly built, single family homes are at their fastest pace since 2008. The AIA’s Architecture Billings Index reached 54.2 in January—with scores above 50 indicating an increase in billings and scores below indicating a decrease—signifying its strongest growth in five-and-a-half years, and all sectors of the supply chain have been adding jobs.
Things are looking up. But as housing comes back to life, echoes of the recession are presenting new challenges. Current market conditions suggest the revived industry may encounter shortages across the board.
“While we can’t expect to see double-digit sales growth every month, consumers are definitely coming off the fence as prices start to rise, and builders in some cases are having a tough time keeping up,” said Rick Judson, chairman of the National Association of Home Builders (NAHB) in a press release at the beginning of 2013, regarding the demand for new homes. “Challenges related to credit availability, poor appraisals, dwindling lot supplies, spot shortages of skilled labor and rising materials costs are all weighing on the recovery process.”
To address these difficulties, manufacturers and associations are at work doing what they can to foster growth and satisfy industry demands.
Product Supply and Availability
Several years ago, many manufacturers started the long and painful task of right-sizing operations and infrastructure to accommodate depressed demand levels, seeking to balance supply by region with customer demand for products. As a result, recent increase in demand has caused a ripple effect, impacting the availability of building products across the country.
“Building material prices have shot up,” David Crowe, chief economist for the NAHB, told Engineered Wood. “Many manufacturers of materials had shut down facilities. The capacity to produce dropped during the recession and that capacity hasn’t returned, so builders are seeing rising material prices and a slower building process.”
While it’s impossible to deny the challenge this has presented, manufacturers are beginning to respond to the increased demand, ensuring their customers’ needs are met as the market mends.
LP Building Products, a leading manufacturer of engineered wood building materials, recently announced plans to reopen its Clarke County mill in Thomasville, Ala. Ramp up of the state-of-the-art facility has already begun, and the mill will reopen its doors during the second quarter of 2013. The facility will be producing LP® LongLength® OSB Sheathing, LP® TopNotch® Sub-Flooring and LP® SuperStruct® Furniture Panels. The manufacturer will also increase the production sub-flooring out of its Hanceville, Ala., mill.
“Forecasts across the industry indicate the market is beginning a slow comeback, and LP Building Products is committed to ensuring supply for its customers during this time,” said Judy Musgrove, director of marketing. “Ramping up production in Clarke County and Hanceville allows us to continue to meet the demand of customers across the Southeast.”
Transportation and Logistics
As manufacturers start to bring up production facilities, there is a very real concern about having the trucking infrastructure to meet those needs. The logging infrastructure—including both the logs themselves and the trucks used to move them—has shrunk based on demand and has the potential for a slower comeback than the market itself. There is also a shortage of flatbed trucks across North America, which can make it difficult to move product faster everywhere in the supply chain.
While the American Trucking Association’s (ATA) seasonally adjusted For-Hire Truck Tonnage Index, which represents 67 percent of tonnage carried by all modes of domestic freight, has been increasing slowly and steadily in 2013, motor carriers continue to struggle to find qualified, professional drivers. The ATA estimates that at the current trends, the shortage could reach as much as 239,000 by 2022.
Despite these challenges, the for-hire trucking industry has seen an increase in jobs, with 6,500 added in January followed by another 5,600 in February. Payroll employment in the industry has also been steadily climbing since March 2010.
The NAHB recently released a survey indicating growing labor shortages as another obstacle facing the reviving market.
“The survey of our members shows that since June of 2012, residential construction firms are reporting an increasing number of shortages in all aspects of the industry—from carpenters, excavators, framers, roofers and plumbers to bricklayers, HVAC, building maintenance managers and weatherization workers. The same holds true for subcontractors,” said Crowe in a press release about the survey.
“We asked builders if they had labor shortages and, if they did, what the consequences were. They said they have had to raise wages and the money paid to subcontractors, making it cost more to build a house,” Crowe told Engineered Wood.
The organization attributed part of the reason for the labor shortages to the fact that many skilled residential workers were forced to seek employment outside of the industry during the recession and are no longer currently available. “What used to be high-paying, skilled jobs vanished as builders across the nation went out of business or were forced to let workers go,” said NAHB chairman Judson in a press release regarding the survey.
APA – The Engineered Wood Association President Dennis Hardman echoed Crowe’s sentiments. “There were 2.2 million construction jobs lost between 2007 and 2011, and a recent survey shows that 51% of home builders are concerned about the lack of skilled labor. At APA we’re stepping up our educational efforts using social media and tools like YouTube videos to get the word out on proper construction and installation techniques.”
Other organizations are making strides to help meet the growing demand for skilled labor as well. The Home Builders Institute (HBI), in partnership with the NAHB, provides career training and job placement in the building industry. HBI offers portable pre-apprenticeship training programs in a variety of skilled trades that can be customized to meet different communities’ workforce needs. Approximately 80 percent of HBI’s student graduates are placed in jobs in the building sector, according to the NAHB.
“We are ramping up our efforts to train diverse populations and place them in jobs to meet the growing demand of the building sector,” said HBI President and CEO John Courson.
Looking to the Future
As the economy recovers, existing home sales are expected to pick-up as the house price recovery allows homeowners who have been forced on the sidelines by negative equity to get back into the market, according to a press release from Freddie Mac.
“Across the nation, most local housing markets have room for sustainable growth, particularly in home construction and sales. As the broader economy heals, expect to see more good news with house prices continuing their recent upward trend, and home sales and housing starts continuing to post strong growth rates. The macroeconomic recovery though 2011 helped to forestall further erosion in the depressed housing market. In return, housing is now ‘showing some love’ by contributing to economic growth, perhaps by adding close to 0.5 percentage points to 2013 GDP growth,” said Frank Nothaft, Freddie Mac vice president and chief economist.
The NAHB estimates the construction of 1,000 single family homes generates more than 3,000 jobs, approximately $145.4 million in wages and more than $89 million in federal state and local tax revenues. Freddie Mac has projected a total of 950,000 housing starts in 2013 (about 22 percent higher than 2012), which is a positive sign for the economy as a whole.
Check out our infographic for a quick overview of the state of the industry.
This information and the websites identified above are provided solely as a convenience to the reader. They are not intended to state or imply that the editors of Engineered Wood or LP Building Products sponsor, recommend, endorse or are affiliated or associated with the companies or products listed.