High unemployment to benefit homebuilders - Capital Economics
US Housing

High unemployment to benefit homebuilders

US Housing Market Update
Written by Matthew Pointon
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An elevated unemployment rate, alongside some relaxation in immigration restrictions, will help ease labour shortages in the residential sector this year. Admittedly, not all parts of the economy are finding jobs easy to fill, but homebuilders are currently benefiting from a high unemployment rate in the overall construction sector. While labour shortages will not be solved overnight, builders will be able to maintain single-family starts close to their current level of 1.24m annualised in 2021.

  • An elevated unemployment rate, alongside some relaxation in immigration restrictions, will help ease labour shortages in the residential sector this year. Admittedly, not all parts of the economy are finding jobs easy to fill, but homebuilders are currently benefiting from a high unemployment rate in the overall construction sector. While labour shortages will not be solved overnight, builders will be able to maintain single-family starts close to their current level of 1.24m annualised in 2021.
  • Alongside lot and material shortages, builders have had to contend with a scarcity of labour for at least the past four years. (See Update.) But one potential silver lining of the pandemic, and resulting surge in unemployment, is that workers will be easier to find.
  • After all, the share of builders reporting labour shortages rose alongside the steady decline in the unemployment rate seen from 2012 to 2019. (See Chart 1.) And, while we do expect an improvement in labour market conditions this year, at 5.2% in 2021 unemployment will still be higher than at any point from 2016 to 2019.
  • Admittedly, a high unemployment rate is not an automatic solve for labour shortages. For example, in the January NFIB survey 33% of small businesses reported that job openings were hard to fill, higher than the average of 28% in 2016 when the unemployment rate was significantly lower. (See Chart 2.) We suspect that disconnect reflects several pandemic-related factors. For example, out-of-work parents may find seeking a new job a challenge with schools closed, some laid-off workers may not want to or are unable to switch careers and it is a challenge to find new work during a lockdown.
  • Even with overall unemployment elevated, finding skilled constructions workers may be a challenge – you can’t switch from being a restaurant manager to a carpenter overnight. However, in that regard homebuilders could benefit from hiring unemployed construction workers in other sectors. Surging housing starts means there are now more workers employed in the residential sector than there were prior to COVID-19. But, at 7.4% in January, the overall construction sector unemployment rate is still higher than at anytime from late 2015 to early 2020. That should provide a decent pool of workers for the housing sector.
  • Admittedly, as the economy reopens, demand for all types of construction worker will rise. But the industry should also benefit from any relaxation of immigration regulations by the Biden administration. After all, research by the NAHB found that immigrants make up around 25% of workers in the construction industry, and as much as 40% of the workforce in California and Texas. Combined with easing lumber prices thanks to increased supply (see Update,) and a large number of housing units that have been authorised but not started, that should help maintain single-family starts at close to 1.24m annualised over 2021.

Chart 1: H’building Labour Shortages & Unemp. (%)

Chart 2: NFIB Jobs Hard-to-Fill & Unemployment

Sources: Refinitiv, NAHB, Capital Economics

Sources: Refinitiv, NFIB


Matthew Pointon, Senior Property Economist, matthew.pointon@capitaleconomics.com