With all the record-setting, cork-popping good news coming out of the home building industry these days, it's hard to imagine there's a downside for builders or consumers.

But there is.

Both overall nationwide and specifically in the really hot new housing markets, there's a serious shortage of manpower and materials.

"It's two problems, really," said Gopal Ahluwalia, director of research for the National Association of Home Builders. "A shortage of skilled labor for one, which is affecting both the time it takes to complete a home and the cost."

On Wednesday the U.S. Census Bureau reported that new housing starts climbed 3.8 percent in January over the previous month, setting the highest rate in over a decade. The gain comes on the heels of a nearly equal increase registered in December, and a record setting year for all of 1998.

Single-family housing starts rose 1.2 percent to a 1.39 million-unit rate, while multifamily starts rose 13.9 percent to a 410,000-unit rate.

This residential construction boom -- the kind developers and builders haven't seen since the real estate feast of the mid-1980s -- is fueling skyrocketing labor costs due to a shortage of skilled trade workers and pushing up materials costs.

"It's all the skilled trades," Ahluwalia said. "Carpenters, electricians, plumbers ... the shortage adds to the cost of building a home, and when the home has already been pre-sold, it eats into profits for the builders."

In Southlake, Texas, a suburb of Dallas-Fort Worth, Cadence Custom Homes, for example, sold a 4,000-square-foot home for just under $400,000. Today, the same house would sell for $460,000.

Executives at cadence said it was all labor costs.

Last year, housing starts in the Dallas area hit its highest since 1983 -- almost 29,000 in a Metroplex of just 4 million. According to American/Metro Study of Dallas, housing starts in 1999 will top that.

In a market with less than 3 percent unemployment that means contractors are paying through the nose for workers -- skilled and otherwise.

"I've seen a definite shortage," said Phillip Dobson of Dobson Custom Homes in Spring Hill, Fla., who is planning jobs further ahead of time with his contractors these days. "There's the fear of (contractors') unavailability."

In Florida, the state's Bureau of Labor Market Information shows that the demand for construction workers is increasing fast. Last year, more than 15,600 jobs were created in the construction field, an increase of 4.6 percent, according to the state. The majority of those extra jobs 12,700 were created in the specialty trade fields.

Ahluwalia said the problem is most critical in markets like Dallas, Atlanta, Denver and Phoenix, but all markets are feeling the pinch.

Ahluwalia said that the increase in commerce for factory-made homes is one saving grace, while in the long term, the NAHB's Home Builders Institute is scrambling to find and train skilled craftsmen and tradesmen.

"But that won't happen overnight," Ahluwalia said.

Published: February 19, 1999

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