19,000 ‘Lost’ Due To Fewer Workers

The continuing labor shortage currently strangling home builders is responsible for billions in lost production, a new report from the National Association of Home Builders (NAHB) concludes.

The NAHB pegs the economic impact from the lack of skilled labor at $10.8 billion in terms of higher carrying costs and longer construction times. That’s more than twice the current size of the single-family residential construction market — and enough to build an extra 19,000 houses, estimates Chief Economist Robert Dietz.

The study, on behalf of the Home Builders Institute and the University of Denver, is the first to detail the financial burden the lack of skilled labor places on builders, and, consequentially, their customers.

The labor shortage has extended construction times by nearly two full months across all segments of the business, according to the study. But smaller builders — those erecting fewer than 100 houses annually — are feeling the pinch the most.

It now takes those smaller outfits nearly 2.4 months longer to build a house, while it takes almost two months longer for medium-sized builders, who put up 100-1,000 houses a year. On the other hand, the timelines of larger companies building 1,000 or more houses a year remain only slightly extended, and are approaching pre-pandemic efficiencies. 

As a result of the labor shortage, the report maintains, the cost to build a single-family house is $2,639 higher. Higher wages also have had a profound effect on house prices — and those have risen dramatically.

Wages have jumped from 40% to 50% since the pandemic for small builders and 20%-30% for medium firms. But some trades have seen wages double since 2020. 

Notably, “these elevated labor costs appear to be a persistent feature, rather than a temporary spike, creating what industry participants describe as a ‘new normal,’" according to the report.

Material costs have stabilized, meanwhile, “but at significantly higher levels” than before the COVID pandemic. For small builders, costs have increased from $200 to $350 per square foot, while medium builders have faced nearly 89% increases in framing costs. Large builders report dramatic increases in basic materials, such as concrete rising from $59 to $229 per yard.

“The scarcity of skilled workers has created a cascade of financial impacts that touch every aspect of construction operations,” says economist Dietz. 

He notes the financial impacts manifest in several ways: 

• Rising wage demands have become commonplace as workers leverage the tight labor market to secure higher compensation. “This wage pressure, combined with the need to retain skilled workers in a competitive environment, has forced builders to increase their labor costs substantially,” Dietz says. 

• Reduced competition among subcontractors has further exacerbated the situation, as fewer options lead to higher pricing across available trades. Project timelines have also been affected, with labor shortages causing longer cycle times and delays, according to Dietz.

• The extended house-building timelines create additional financial burdens through increased carrying costs and overhead expenses. “The combination of higher direct labor costs and extended project durations have significantly impacted overall project economics,” Dietz contends. 

• Cost pressures have forced builders across all segments to adjust their pricing strategies, with many passing increased costs on to consumers.

“This industry-wide phenomenon has contributed to rising construction costs and home prices,” Dietz concluded, “creating challenges for maintaining affordability while preserving financial viability. The universal nature of these cost impacts suggests a systemic challenge that affects the entire construction ecosystem — regardless of builder size or market position.”