Bloomberg News

Arizona’s Homebuilding Revival Sparks Bidding Wars for Workers

June 20, 2012

Arizona’s Homebuilding Revival Sparks Bidding Wars

Construction workers pass a bundle of shingles on the roof of a home in Phoenix, Arizona. Photographer: Joshua Lott/Bloomberg

While D.J. Hughes hunts for carpenters to join his team at a Phoenix-area house-framing company, competitors are tracking down his workers at building sites and offering them more money.

“Everybody is trying to pull crews from everyone,” said Hughes, 43, a project manager for J.L. Baugh Construction in Gold Canyon, Arizona, who admits to a couple attempts at poaching framers from rival contractors. “I’ve been doing this for a quarter of a century and this is the biggest shortage of skilled laborers I have ever seen.”

After being decimated by the housing crash, Arizona’s builders are now scrounging for workers as demand for new homes climbs. Building permits are at an almost three-year high, creating a scarcity of framers, roofers and masons, many of whom moved elsewhere when work dried up. Laws aimed at curbing illegal immigration only added to the shortage by pushing experienced laborers out of the state.

Construction jobs, which also include commercial and government projects, increased 9.3 percent in May from a year earlier to 120,300, the biggest gain of any industry in the state, according to Arizona’s Office of Employment and Population Statistics. Nationally, industry employment rose 0.4 percent.

The average hourly wage for construction workers in Arizona increased to $20.72 from $19.53 a year earlier, according to the state agency.

Price Plunge

Arizona was among the areas hit hardest by the U.S. housing crash. Home prices in April were down about 47 percent from the peak in 2006, more than the 31 percent decline nationally, data from CoreLogic Inc. (CLGX:US) show. The state ranked second in the rate of foreclosure filings last month, according to RealtyTrac Inc. Building jobs have declined by more than half since 2006.

“The industry is so wound down that it’s hard to flip the switch on and build as many homes as there is demand right now,” said Ben Sage, director of the Arizona region for Metrostudy, a Houston-based firm that tracks new construction. “The subcontractors are scrambling for workers.”

New-home demand in Phoenix is climbing as cash-wielding investors elbow out traditional buyers for a dwindling supply of existing properties. The inventory of previously owned houses for sale in Phoenix dropped 54 percent in April from a year earlier, according to a report by Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business. That helped push the median price for single-family homes up 25 percent to $140,000.

43% Jump

Purchases of new houses surged 43 percent in April from a year earlier, according to the report. The median price for new homes rose 4.6 percent to $207,000.

Reed Porter, chief executive officer of Trend Homes in Gilbert, Arizona, said he expects his company to build 200 houses this year, twice as many as in 2011.

“So far, we’re keeping up with demand,” he said. “If demand continues to increase, clearly we’d need more skilled workers.”

While widespread worker shortages are unlikely as the U.S. unemployment rate sits above 8 percent, some local markets may find themselves in situations similar to Arizona’s biggest city, according to David Crowe, chief economist for the National Association of Home Builders. Building permits nationally climbed to the highest level since September 2008 in May, the Commerce Department said yesterday.

Extreme Case

“Phoenix may be an extreme case,” Crowe said. “We may see this more frequently in other markets as housing recoveries occur where labor supply is diminished.”

Shares of U.S. homebuilders have gained 35 percent this year as earnings improved and orders increased. Homebuilder confidence climbed in June to a five-year high, the National Association of Home Builders/Wells Fargo index showed this week.

“Based on the orders we’re putting forward, and the same with our peers, employment in this one industry, construction, which has really been lagging, has got to be growing in the next few quarters,” Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc. (HOV:US), said on a conference call with analysts on June 6. His New Jersey-based company, which operates in 16 states, including Arizona, reported a 52 percent jump in orders in the three months ended April 30.

“I’d be lying if I didn’t say that we will see pressure on the labor side around the country,” Hovnanian said.

Closing Offices

In Arizona, single-family home building permits rose 63 percent in April from a year earlier to 1,575, the highest since July 2009, according to data from the U.S. Census Bureau.

Some builders have shuttered sales offices in less desirable areas and are concentrating on the most productive communities because of the shortage of workers, said Orr of Arizona State.

Companies in the region “are waiting for contracting firms to hire more people before they take more orders,” he said. “The lack of skilled labor is holding back the production of new homes.”

Downtimes of a few days at construction sites are becoming more common as builders wait for crews to finish other jobs before starting work, according to Porter of Trend Homes.

The average time to complete a house in the area is four months, twice as long as it took in February, said Jim Belfiore, president of market researcher Belfiore Real Estate Consulting in Phoenix.

“A lot of builders were caught on their heels,” Belfiore said. “They were caught by surprise with how rapidly the demand situation turned around.”

Glenn Gittus, who started a framing company in May, four years after he sold his previous one, said experienced laborers are hard to find because few locals are entering the trades.

‘Knife Fight’

Workers who moved into the foreclosure rehabilitation business are returning to new construction because wages have jumped about 20 percent during the past couple of months, said Gittus, a former senior vice president in charge of construction for Scottsdale, Arizona-based Meritage Homes Corp. (MTH:US)

“It’s a knife fight out there trying to get crews,” Gittus said. “You better hope you have a good relationship with your crew foremen and treated them right in the past, because that’s why my guys are knocking on the door.”

Gittus, who wants to add about 30 framers to his 20-person team, said he’s being careful not to hire too many employees because the Phoenix area’s “mini boom” is likely to last only a year or two until investors renting out properties dump them onto the market. His previous firm had about 350 framers.

Immigration Laws

Laws in Arizona, which depended on workers from Mexico to assemble many of the houses that sprouted during the boom, will make it more difficult to lure back skilled immigrants, Magnus Lofstrom, a policy fellow at the San Francisco-based Public Policy Institute of California, said in a telephone interview.

Arizona’s population of unauthorized immigrants aged 18 to 64 fell by about 17 percent as a result of the Legal Arizona Workers Act, according to a study co-authored by Lofstrom. The law, which took effect in January 2008, requires companies to check employees’ legal status with a national verification database.

A 2010 law, known as S.B. 1070, makes it a state crime to be in the U.S. illegally and requires police officers to check immigration status when they arrest or stop someone and have “reasonable suspicion” that the person is undocumented.

In the short term, the labor shortage will slow the pace of construction and push costs higher for homebuilders, according to Lofstrom. Eventually, wages will rise and workers will move into the state to fill the jobs, he said.

Refusing Work

Mike Summers, general manager of Top Quality Masonry in Phoenix, said few workers are willing to endure long hours in Arizona’s blazing heat. While he’s had success recruiting laborers from halfway houses, finding tradesmen who are skilled at building block fences that separate homes has proved difficult.

“We are turning work away because we can’t man it,” said Summers, whose business increased 50 percent last month from a year earlier. “I’m doing some work for a builder who has slabs there for a framer and it will be seven weeks before they’ll have a crew on it. Everybody is in the same boat.”

The Home Builders Association of Central Arizona is helping to address the shortage by developing construction programs with a local vocational-technical school, said Connie Wilhelm, the group’s president. While the next wave of flooring, painting, stucco and drywall workers can be taught quickly, framers, plumbers and electricians will take longer, she said.

“What we are trying to do is solve a long-term problem because we are in a desirable market,” Wilhelm said.

Hesitant Return

Training takes time. Hughes, the Gold Canyon project manager, needs crews that are ready to go.

He called three former foremen last month who returned to Mexico four years ago when local construction jobs slowed. He persuaded one of them to come back. The others, who also have proper documentation, are hesitant because they don’t like Arizona’s immigration laws and are worried that the market will fizzle out, he said.

Hughes also wonders how long the demand for workers will last.

“It’s busy,” Hughes said. “But everybody still has their hands behind their back, crossing their fingers that this continues.”

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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Companies Mentioned

  • CLGX
    (CoreLogic Inc/United States)
    • $30.09 USD
    • 0.12
    • 0.4%
  • HOV
    (Hovnanian Enterprises Inc)
    • $4.63 USD
    • 0.04
    • 0.86%
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