Each news cycle–and, boy, do they come fast and furious these days–carries extra freight for housing’s long-tentative recovery path.
Today’s geopolitical and economic salvo comes as negotiating brinkmanship around a global trade war plays out down to the wire, with jobs, investments, business models, and countless people’s capacity to prosper in the balance.
If the trap-snap of promised tariffs on steel and aluminum kick in, and the global domino effect of reprisals–Europe, China, North America, etc.–follow as almost inevitable consequence, builders’ purchase of materials and products that they install in new homes will be just like anyone of us in the United States buying anything we buy.
That is, choices will be fewer, and available options will be more expensive.
Wall Street Journal staffers William Maudlin, Bjoan Pancevski and Vivian Salama note:
“The day before an important decision I want to repeat this: Unilateral responses and threats of trade war resolve none of the serious imbalances in global trade,” Mr. [French President Emmanuel] Macron said at the gathering with Mr. [U.S. Commerce Secretary Wilbur] Ross. “A trade war is always a war lost by everyone.”
Like any of housing’s macro challenges of the day, the daisy chain of effects, impacts, and implications of worldwide trade conflict will touch our audiences in different ways. And like all of those macro challenges, ultimately some builders are either made to thrive despite them, or are going to quickly learn to turn them into opportunities, while others–maybe most of the others–will feel their dead weight in the form of lost predictability, uncontrollable expense variance, and an opaque, at best, future.
Unfortunately, today’s staccato and often polarizing news cycle clouds what’s real, and distracts people from what’s urgent.
What’s real in a holistic way is that America needs more of what residential investors, developers, designers, and builders do. There’s no question about that. Jobs are growing, the economy is growing, corporate profits are solidly positive, and the outlook–as technology improves productivity across many business and industry sectors–bodes well for investment and high expectations.
What’s urgent is that that need is growing faster–much faster–than private sector enterprises have been able to keep up with, creating a bigger and bigger gap between the housing market that’s being served, with new homes, new apartment communities, new and older single-family rentals, etc. This recent Wall Street Journal piece from staffer Laura Kusisto lays out simply the fundamental forces underlying the mismatch between supply and demand in housing.
A combination of tightened housing regulations, a lack of construction labor and a land shortage in highly prized areas is driving the crisis, according to industry experts.
Even during the deep recession of the mid-1970s and the downturn in the early 2000s, builders put up significantly more homes per U.S. household than they are constructing now, in the ninth year of an economic expansion. Only at the bottom of the 1981 and 1991 economic downturns were per-household construction levels near what they are now, according to Jordan Rappaport, an economist at the Kansas City Fed. He says the only period when the U.S. might have built fewer homes by population was during World War II.
The headwind forces that plague builders today are real. Materials prices–potentially further unhinged by trade convulsions–expenses and lack-of-predictable supply for skilled labor, lot and land development costs and time delays, etc. are real, and as we’ve observed, each of those forces exerts an unevenhanded measure of challenge for each of the going concerns in the home building and development business community.
Each going concern has a self-preserving charter–with accountability to its own stakeholders, not to a wider secular community of businesses. But today’s dilemma for housing’s individual businesses is that if they don’t together address the hardest of business problems–how to make new inroads into the rapidly-expanding un-served market of people who need access to housing options, and how to attract the best and the brightest of new talent into the building and development field–then the risk and loss will be general.
One could then extend the French President’s statement, “A trade war is always a war lost by everyone,” and suggest that failing to solve building’s hardest two problems will ultimately come to no good for any stakeholder in the business.
Don’t get distracted by materials prices now. They’re the red-herring, masking bigger much bigger challenges for builders large and small.
