Speaking at the US Senate’s Banking Committee hearing in Washington DC on July 11, Fed Chair Jerome Powell said that a “series of factors” were holding homebuilders back from building sufficient housing to meet demand and were “challenging affordability.”
That “series of factors” included a skilled labor shortage, increased material costs and the government’s immigration and tariff policies.
Powell pointed to the thousands of skilled laborers who left the construction industry during the 2008 housing crash and who have never returned. “Now you have a shortage of skilled labor, so it’s hard to get people on the job…electricians, plumbers, carpenters and other people regardless of what you pay them.”
Asked by Minnesota Senator Tim Smith whether or not the government’s immigration policy may be contributing to the labor shortage, Powell responded, “That’s what we hear from homebuilders. That’s part of it for sure.” Powell then added, “Material costs too have gone up and some of that is tariffs for sure. The homebuilders feel almost like they have been hit by a perfect storm here.”
Sheryl Palmer, CEO of Arizona-based builder Taylor Morrison, told CNBC’s Capital Exchange Conference this spring, “It is really across the entire labor force…I mean some of the stats are staggering. We’ve lost productivity and we haven’t brought new kinds into the system…we just can’t physically solve the problem because we just can’t get them (houses) built.”
According to the US Census Bureau, the number of single-family homes build in May 2019 decreased -6.4% compared to the number of single-family homes built in April 2019. On a year/year basis, the number of single-family homes built in May 2019 fell -12.5% compared with May 2018.
This lack of sufficient new residential construction particularly at affordable prices is causing a severe housing shortage for work force earners. Simultaneously, this lack of sufficient new housing “continues to inflate home prices and continues to keep first-time buyers out of the market.”
This “perfect storm” is affecting rental markets as well. Monthly rents are rising at a fast clip as occupancy rates are unexpectedly high in both apartment buildings and single-family rental properties.
Senator Smith ended his comments by saying, “What I hear from businesses and communities is that the lack of workforce housing, affordable housing for people who have good jobs, is actually a real limit on economic growth.”
Thank you to the New York Times for data and comments.