Good help is hard to find, especially right now. According to the Bureau of Labor Statistics, job openings are up to a high of 10.9 million on the last business day of July, an increase of 749,000. It’s no surprise to anyone who has been paying attention, of course -- there are “Help Wanted” signs everywhere you look, and most job postings are offering sign-on bonuses in hopes of attracting talent.
This many missing workers doesn’t just mean a few inconveniences, it spells a huge amount of trouble in a whole lot of industries. The labor shortage is serious, and the ripples from it are getting wider. It probably comes as no surprise that the most increase in openings can be found in healthcare and hospitality/food service, but finance is also needing more warm bodies. Hires overall are relatively stable, at 6.7 million, but have decreased in retail, manufacturing, and education.
Those are the raw numbers, but the severity of the current hiring crisis and subsequent worker shortage and their impact on the real estate market cannot be understated. It’s taking a huge toll and has been since the start of the COVID-19 pandemic. With an unemployment rate of just 5.2% nationally in August, it’s hard to blame unemployment or a lack of job seekers for these open positions. Many states stopped unemployment benefits mid-summer, and even they have yet to absorb the many excess open positions.
All roads lead to real estate
Although there are a few sectors that have been extremely disrupted by the pandemic labor shortage, the problem is really systemic and it touches everything, especially the real estate market. We already know that there are serious shortages in construction labor, transportation, and warehouse workers, but their impact in real estate is enormous.
For example, housing completions are down 4.5% from July 2021 to August 2021, and privately owned housing units authorized, but not started, are up a whopping 47.6% year over year (3.7% from July 2021 to August 2021). There are a number of factors at play here, mostly related to labor, the most pressing being that there are not enough materials to start projects, caused by both manufacturing shortages and supply-chain issues, which go back to a lack of human capital to create, unload, transport, sort, store, reroute, and sell everything from lumber to paint and shingles.
What housing is available is being snatched up practically as fast as it can be listed, with existing single-family home supply averaging about 2.6 months in August 2021. According to Realtor.com, 6.1 months worth of new homes are listed for sale, but more than 90% of those are either under construction or haven’t even broken ground yet. All this crazed buying is pushing real estate prices through the roof, with no relief in sight as the construction industry continues to experience unpredictable slowdowns.
The Millionacres bottom line
Although the hiring crisis has touched every industry and made huge headlines in hospitality and restaurants, the fact is that there has been an ongoing labor shortage in construction for years and years, which has enabled the massive housing shortages we’re seeing today. According to Freddie Mac’s figures, the U.S. was deficient 3.8 million housing units as of Q4 2020 as a result of years of housing shortages piling on top of one another, due to a lack of construction labor since the Great Recession.
Now that we’re also short on building supplies, which is also in part due to pandemic-related labor shortages and COVID-19 related slowdowns for safety reasons at manufacturing facilities, we’re just digging a deeper hole in much-needed inventories. Everybody knows what happens next: prices go up (currently 8.6% year over year) and time on market goes down (down 10 days year over year). But, with the Feds teasing the idea of a rate hike coming, that median sales price of $363,800 for an existing home (in August 2021) is about to get a lot more expensive in terms of monthly payments.
Will we see the market cool because of prices and lack of supply? That’s hard to say. Every time I think prices have reached a point where the market won’t bear more, the market shows me how wrong I am.
What I do know, though, is that we’re facing a serious crisis in affordable housing, and that’s going to feed directly back into the hiring crisis. Where people can’t afford to buy or rent for what they earn, they don’t stay. It’s a very simple concept. So, these high-dollar cities where inventory is low, rental units are skyrocketing, and wages are stagnant, well, businesses there are going to need to find more ways to automate entry-level jobs because no one will be able to afford to stick around to do them.
It’s a real estate problem, it’s a labor problem, it’s a huge problem for anyone who invests in multifamily, retail, industrial, or any other sort of commercial properties that rely on local supplies of labor and demand to continue to thrive.