Home builders tend to assume construction costs will not rise because even if they do go up, home price increases will cover the cost increases. This time might be different, as the dynamics surrounding home price and labor supply are very unrelated. Smart builders are putting big cost increase contingencies in their budgets, which makes land acquisition very challenging, as land sellers are not willing to drop prices.
With so much discussion today about the lack of construction labor, despite low levels of construction, and rising construction costs, I want to share some research from our Chief Demographer Chris Porter who projects household formations for us. Chris notes that there has been a 67% decline in immigration from Mexico, and there are 570,000 fewer Mexico-born construction workers than in 2007. We believe many of those 570,000 workers have likely returned to Mexico and will not return to the US construction industry because of:
- Significantly higher border patrol investments
- Acceleration in court-ordered deportations over the last 7 years
- Implementation of E-Verify technology by employers
- Arizona’s SB 1070 bill passing in 2010
- Economic opportunity in Mexico
To be clear, we are not policy advocates and we are not taking any position on the controversial immigration issue. We just want our clients to realize that many of the 570,000 experienced, Mexico-born construction workers are not likely to return to the US construction industry. Our builder clients are already learning this on the job site today.
