Below is a recap of a conversation dealing with the categories that determine the real cost for new construction of a home
Welcome. I’m David Grubb and I have with me today, Michael Grant, our host. And today we are talking about housing and the 5L’s, lumber, labor, land, loans, and legislation. Michael, give us a little background…. why are you so passionate about housing?
Why are you so passionate about housing?
David, it’s good to see you again. And I’m glad to have this conversation. You know, my passion for housing goes way back to my childhood. My father was a homebuilder, literally, he’s the guy that swung the hammer and used the hand saw, this was decades before nail guns and cordless saws. Dad was also a splendid craftsman, and he loved doing it. As a boy, I immediately had a great appreciation for what he did. And in fact, he built the house my family lived in for better than 40 years.
So, I got to see the results of his labor firsthand. And I’ve always appreciated we had that home to live in. But beyond that, I’ve always had a passion for the scale of housing, there’s a human scale that all housing has. There are many other influences that go into how the house is designed and ultimately built.
It all relates to how we live and whether we’re living in a particular climate, or we have a particularly given lifestyle, whatever it is, your house ultimately ends up reflecting who you are. It’s something that has never left me, so I relate to housing quite well.
At what age did you start helping your dad and what did that look like?
When I was 5 years old my job would be to go to the job site with my dad and pick up the nails the carpenters had thrown down. I would organize them, put a rubber band around them and hand them to my dad so he had a fresh supply of nails to use as he was framing that next day. My reward was collecting the coke bottles and taking them to Piggly Wiggly for a two-cent deposit. So that’s how I got paid.
Tell me more about the 5 L’s and how do they impact the cost of housing.
Again, the five L’s are lumber, labor, land, legislation, and loans.
The genesis of the five L’s came from an article I had read years ago, posted by the National Home Builders Association. At the time, they called it the three L’s, those were lumber, labor, and lots. It did not quite feel complete to me.
As I started doing a bit more research at Google University and the College of YouTube, I began to see that a huge amount of the cost for a housing was legislation or the law, as it related to zoning restrictions, as well as the loans that we have for mortgage money. All of those things come together to determine what that cost of a house will be. Ultimately, what can you afford.
It starts with the lot you have identified to build on. You must develop that lot to receive the house. As you think about it, you must bring in your infrastructure which is power, water, (whether it’s city water or well or community water in some fashion). You’ve got to have appropriate waste of management, either a septic tank or tap into the local sewer system.
If you’re going to use other forms of energy like gas, should you not have natural gas routed to your property, then you must put it in a propane tank. And beyond that, you need connectivity, which is the internet service that we require today for how we function and how we live. These are some of the things that you do when you’re developing a lot to build on.
What is happening to the cost of a lot?
Good question. There are very few developed lots anywhere near any major city unless you’re going into a blighted area where you’re rehabbing or gentrifying property, and you already have a lot there. Chances are good that the utilities are already routed to it.
But if it’s a blighted area that’s in transition, you may have to clean a lot of the existing house that was there, to begin with. So, there’s still added cost beyond the purchase price of the lot that the house is going to be built on. Realistically, because there are so few available lots, particularly in our major cities, you’re having to move further away from the city to buy the land and develop a lot. This is where area zoning becomes a huge issue. I’ll talk more about that later. But lot prices, particularly a lot that is convenient to the city have just continued to escalate in cost. I’ve seen it ratchet up 20-30 % annually in some areas.
How has the cost of building materials impacted housing costs?
What we’ve experienced as a consequence of COVID, in our country, has been significant. Several things happened right away. COVID had a huge impact on our culture. We were mandated “to shelter in place”. A great metaphor for being forced to stay in your homes. When that happened, when we had to stay home, we looked around and we began to take note of all those “honey do’s” that had been sitting there waiting for us to take care of for a very long time. You now had the time to get it done. You could not deny it any longer. So immediately, the big box building supplies stores were flooded with people wanting to go buy that pressure-treated material to fix their decks or the paint to repaint a room or whatever it was.
I remember very well on a Saturday morning, going to my local big-box supply store to realize they were limiting the number of people that can go into the store at any one time (remember the 6 foot distance rule). I got there at about 8:30 in the morning and I stood in line with several dozen people who were equally irritated that we had to wait to go into the store to buy what we needed.
The consequence of everybody wanting materials to complete those honey do’s at home saw prices skyrocket. Pressure-treated lumber was the first one I noticed, and it increased as much as 300% in a matter of several weeks. That was also true for dimensional lumber. And then, I saw painting materials, PVC pipe and connectors all became in short supply and the cost began to increase. I recall I needed a 90-degree elbow for a PVC pipe, and I went to three stores before I could even find it. So, it had a very, very real impact on the availability of building materials. And let’s make it a little bit more irritating. We experienced interruptions in the supply chain as the container ships were sitting out in a harbor somewhere waiting to get unloaded. Add to this the lack of workers at the various ports, it just became a huge issue.
I saw shortages in aluminum, which meant I could not get window screens. Shortages of door hardware because they were in a container ship. Also, true for plumbing fixtures, windows, and doors. Building materials, I could get in six to eight weeks were now as much as 26 to 29 weeks. Appliances I could get in 10 days to two weeks were now six months.
To add insult, supply availability has been exacerbated by what’s going on with the whole trucking industry and their inability to get products to us as quickly as we need them.
Enter, American Ingenuity
American ingenuity demands that you take what you have, and you get done what is needed with what you have. I’ve seen that many times as we have had to substitute one material for another, in order to complete our projects.
Ultimately we got the look we were after, we just had to be flexible about it. Fortunately, our clients understood that it was not business as usual.
What is going on with Labor?
That’s a great question. We lost a lot of labor as a consequence of Covid, as people were now getting compensated for staying home in a way that was detrimental. A good percentage of our labor force just didn’t show up anymore. That had a huge impact on the skilled labor that we used. Today, we do not have enough labor for all the construction jobs available in the United States by a significant number. Over 500,000 construction workers are still needed in this country. One of the issues the Home Builders Association is working on is what can be done to improve labor for home construction? That’s a process of education and incentive.
So where are the skilled subcontract contractors coming from?
There are some serious things going on, and not in a good way. For everyone young person, and when I say young, somebody who’s in their early 20s, or better, who is looking at construction as their career path, shockingly, there are five men or women getting ready to retire. We’re about to lose a significant number of very well-trained, experienced construction workers, who are also mentors.
I remember quite well when I was in high school, we were taught shop. We had training for those skills that were considered trades, and it wasn’t something that people looked at as a lesser than kind of a job. As school districts began to alter the courses that they were teaching at the junior high and high school level, there was less emphasis on the trades. But I’m seeing that come back a little bit. I know that our local high school has courses in carpentry, mechanics and other trades.
How are the current zoning issues affecting housing?
We already talked about buildable lots. We’re going to move on to the fourth one, which is legislation. At a builder’s meeting I learned one of the high school teachers actually left her position because she couldn’t find a house that she could afford. So back to legislation and how current zoning issues are affecting housing. That fourth L being legislation (you could also call it law), has impacted zoning restrictions significantly. When you have zoning that only allows single-family housing with a given minimum lot size and minimum square footage the result is that affordable housing is prohibitive. You can’t have the duplex, triplex, quad plex or apartment building that can take up less actual land and house more people. So zoning restrictions have had a huge impact on the ability of somebody who needs affordable or available housing within close reach of their jobs.
Another interesting trend to consider… If you looked at the number of houses that were built, even 10 years ago, the statistics say that about 40% of those houses were what we call starter homes. That’s your entry-level home. They were smaller, they were on smaller lots, but they were affordable. And young families were able to buy these homes and begin to build wealth by owning that house and building equity instead of just paying rent. Interestingly, today of all the new housing starts, only 7% are starter homes.
They are excluding a huge demographic, from even the opportunity to buy a home because those lower-cost homes are not available. And particularly in the city.
I had the opportunity to look at the master plan for one of the wealthiest areas in North Georgia. And I asked the mayor, where was the workforce housing? And he told me it was in an adjacent county, which was a good 30-minute drive away. I asked why? He said two reasons, the citizens don’t want it, and the builders don’t want to build it. They can make more money building high-end luxury homes. This is where thoughtful zoning can make a difference.
Let’s talk about the consequences of increased interest rates.
We’re talking about the fifth l, loans. And we’re seeing how it is working against the homebuyer, as we’ve watched, interest rates ratchet up for several years, you’re having to pay a higher percentage rate for your mortgage money, which increases the cost of the mortgage loan and the monthly payment.
So again, it’s just hurting the entry-level buyer, and the senior buyer who is now needing to downsize. They are recognizing the cost of a smaller single-level house may be as much or more than what they originally paid for a house that was three times that size. So, the cost of a loan is adding insult to injury as it relates to the overall cost of the house.
What are the solutions for people impacted by housing problems?
We’ve talked about the five L’s and kind of where we are now, what is the future?
It’s not an easy solution. But for this to really take place and begin to show some good results you must get active. Let our city council, county commissioners, and people of influence know your concern, and the positive impact housing done well will have on our communities. And then, of course, there’s always government resources that can play into this, with the different types of programs that they have, whether it’s through the Department of Consumer Affairs, HUD, Habitat for Humanity, and more local agencies that can be helpful. But you’ve got to go after it, you’ve got to be active in the pursuit of it, so you can begin to put a more broad-based diversity of housing into your communities.
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