(This is an excerpt from an article I originally published on Seeking Alpha on November 10, 2014. Click here to read the entire piece.)
The bursting of the housing bubble destroyed the supply chain at several critical junctures. For example, employment in the industry collapsed. While the overall unemployment rate in the industry has returned to normal, the number of employees in areas like residential construction have not even recovered to the lows of the last cycle.
Source: St. Louis Federal Reserve
This chart is the mark of a shrunken industry. While the number of employees in residential construction have grown at a healthy rate since the bottom in 2011, the numbers are not quite keeping up with demand. This is the story in the market for qualified professional staff and craft workers in the construction industry. Home builders have told this story in several different ways in their earnings reports as the housing recovery finally took hold. Some home builders have cited labor shortages as a drag on financial performance and/or operational efficiency. Here are choice quotes from the latest round of earnings reports… (all quotes from Seeking Alpha Transcripts)
{snip}
The AGCA is clearly making an appeal for improved and expanded training programs. It desperately needs to increase the supply of qualified and potential workers. The fact that the industry is losing workers to other higher-paying jobs is indicative of a greatly improved labor market. These conditions are of course great for workers. While they are bad for the bottom-line of employers, they at least suggest that the strengthening economic conditions necessary to sustain the housing recovery are still falling into place.
{snip}
The AGCA is using this survey as a platform to promote its manifesto called “Preparing the Next Generation of Skilled Construction Workers: A Workforce Development Plan for the 21st Century.” {snip}
The important message for investors in the housing industry, and in home builders in particular, is that the labor shortages may have a structural as well as a cyclical component. Home builders may face increasing labor costs for the foreseeable future until the structural problems of insufficient training and educational opportunities are resolved. {snip}
The good news embedded in these shortages is that the housing recovery continues and will likely continue to recover for quite some time. As the shortages get resolved with higher employment levels at higher wages, the economy should experience positive feedback loops, especially in those communities with the strongest housing markets.
Be careful out there!
Full disclosure: long KBH
(This is an excerpt from an article I originally published on Seeking Alpha on November 10, 2014. Click here to read the entire piece.)