Thinking of Buying or Building a New Home in Phoenix? Hurry Up and Wait.

Houses under construction in Gilbert in 2011.
Houses under construction in Gilbert in 2011.

As Arizona's housing market continues its recovery, homebuilders are struggling to find enough skilled workers to keep up with the demand for new houses — and that's leading to costly delays.

Arizona employed 244,300 construction workers at the peak of the housing boom in 2006, according to the Bureau of Labor Statistics. Today the state employs fewer than 140,000 construction workers, a 57 percent decrease.

"There's clearly a labor shortage," said Greg Burger, chief operating officer of RL Brown Housing Reports, a Phoenix-based firm that tracks the local housing market. "That labor shortage is going to continue for some time, because the demand for new houses is strong and will continue to be strong not only this year, but likely for the next several years."

The labor shortage has led to new houses taking longer to build. According to an analysis by RL Brown, it is taking an average of seven months to build a house in Maricopa County and eight months in Pinal County.

In some parts of the Phoenix metro area, buyers are being told it could take 10 months, or even up to a year, for a home to be built.

Not surprisingly, the larger and more luxurious the home, the longer the wait. As an example, Burger cites houses built by luxury builder Toll Brothers, which are taking eight and a half months to complete, on average.

"What we're going to see, in my view, is an extended build time-length for some time, until we get that subcontractor base or that labor base back up to a level that can sustain the type of increase in new houses that we're going to see," Burger said.

Thinking of Buying or Building a New Home in Phoenix? Hurry Up and Wait.
RL Brown Housing Reports

Because of the labor shortage, builders are paying higher wages to recruit and retain workers. As a result, it costs more to build houses and often those costs are passed along to buyers.

Elliott Pollack, an economist and CEO of Phoenix-based Elliott D. Pollack & Company, said he has heard anecdotal stories of contractors who try to get crews to drop a job to come work for them by offering cash bonuses.

"But the crews can't leave, because they just took bonuses to go to the site they're on," he said.

Homebuilders, contractors, and economists point to several reasons for the shortage. One reason is that during the recession, many workers changed careers or left Arizona to search for opportunities elsewhere.

Pollack says another reason could be that some undocumented workers who came to Arizona to look for construction jobs might have returned to their home countries when the recession hit. A report by the Pew Research Center shows that the number of undocumented immigrants living in Arizona declined from 350,000 in 2009 to 300,000 in 2012.

"They're also not coming from the south of the border nearly as much as they did, and there are a number of reasons for that, including better conditions in Mexico," Pollack said.

But, adds Pollack, "The real issue, quite frankly, is probably E-Verify."

E-Verify is the U.S. Department of Homeland Security's internet-based system, which compares an employee's Form I-9 information to data from Homeland Security and records from the Social Security Administration. Though the federal government doesn't require employers to use the system, in 2007 the Arizona State Legislature passed a law that does precisely that.

Supporters argued that E-Verify was necessary because undocumented immigrants were taking jobs from American workers — a notion Pollack described as "nonsense."

"If they were stealing jobs, those jobs that are now going vacant — where are the Americans to take them?" he asked rhetorically.

Jim Belfiore, president of Phoenix's Belfiore Real Estate Consulting, said the passage of immigration laws like SB 1070 prompted some undocumented construction workers to leave Arizona. But he said "a much more dramatic effect" was brought on by the recession and the bursting of the housing bubble.

"There wasn't a need for laborers in 2009, when anti-immigration legislation was going through in the state of Arizona and in other places," he said. "The state was in a situation where it had excess labor, and now we're in an entirely different situation. Now we have excess jobs."

Belfiore said that based on the number of permits that have been issued for new homes, he predicts more houses will be built over the next 24 months. If the labor shortage persists, prices likely will rise.

Last year, an estimated 16,900 permits for new houses were issued in the Phoenix metro area, up from 11,700 the year prior, according to the U.S. Census Bureau.

This year, Belfiore's group predicts the number to rise to 19,800 permits, and perhaps to 23,000 in 2017.

"If those projections are accurate and they come to fruition, absolutely there will be a need for additional people to work in the industry, and we're going to have to figure out how to get people to sign on and build homes," Belfiore said.

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