Dive Brief:

• Concerns over the ongoing shortage of skilled labor and the rising cost and lack of available lots are expected to grow among homebuilders this year as the housing market's protracted recovery continues, according to the National Association of Home Builders.

• Based on questions included in the December 2016 NAHB/Wells Fargo Housing Market Index, 82% of respondents said the cost and availability of labor would be a challenge in 2017, up from 78% in 2016 and 13% in 2011. The cost and availability of developed lots was the second-biggest concern, with 67% of respondents saying as much in 2017 compared to 60% in 2016 and 21% in 2011.

• Fees related to hook-ups and inspections was third on the list of concerns, at 61% for 2017, while the share of builders anticipating challenges from material prices jumped from 48% in 2016 to 60% this year. Those citing local and state environmental regulations as a problem stayed flat at 52% from 2016 to 2017.

Dive Insight:

Labor and lots are among the major drags on — and symptoms of — the housing market’s recovery, with NAHB Chief Economist Robert Dietz recently noting that these issues, along with the lending environment, are crucial to the industry’s health.

The shortage of skilled labor is showing no sign of abating as residential construction activity pushes forward to meet rising demand. In many cases, that means increased costs for builders as wages jump and project timelines extend.

Residential construction employment inched up to 2.65 million in December from 2.64 million in November, with specialty trade contractors making up the bulk (1.92 million) of that figure.

Higher labor and materials costs are affecting the outcome of some proposed projects. Developer BlackSand Capital announced recently that it is temporarily deferring plans for a 32-story, 246-unit condo hotel tower in the Waikiki neighborhood of Honolulu due to cost concerns and questions of waning demand.

Recent mortgage-rate increases are also expected to be a concern for builders this year, while the Federal Reserve Board’s 25-basis-point interest rate increase has done little to quell those fears as the industry seeks to meet growing demand from new, entry-level buyers who were drawn to the market in recent months by historically low interest rates.

Still, mortgage applications were up 4% last week from the week prior, the Mortgage Bankers Association reported. 

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