256: Building Industry, Housing Shortage, Labor Shortages, Reflexivity, George Soros, Mortgage Data, Rental Increase, Construction Costs, Ed Brady of the Home Builders Institute

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It is my pleasure to welcome Ed Brady. He is the former chairman of the nahb, the national association of Home Builders and he is currently the president and CEO of hbi, the Home Builders Institute, which is a non profit affiliate, I guess of NAHB and has a ton of knowledge about the housing market, construction costs, labor shortages. They focus largely on the workforce, the skilled labor that builds homes. So we're gonna talk about all of this. He's also very involved in affordable housing projects as well. Ed, it's great to have you. Welcome.

Thanks, Jason. Great to be here.

Yeah. So, you know, we're all seeing this serious imbalance in the housing supply where there is just a major shortage of housing supply especially. And I don't know if I'd call it affordable housing, but maybe a step above affordable housing. I'll call it entry level housing. You know, Nobody's building the $200,000 homes anymore, are they? Or you know, that used to be 100,000 or 80,000 what's going on in the market and you know, just tell us what you're seeing.

Well, you hit it on the head. Affordable means different things in different places. Affordable in Northern California could be a starter home at $700,000. And affordable in central Illinois, where I'm from is 200, 225,000. Used to be 100, you're right. But in today's market, and the problem with affordability ranges across the board. One though certainly regulatory burden is a huge problem for housing affordability, density of land uses, the regulatory burden on permits and impact fees and so forth. A permit in Northern California is $170,000 before you dig a hole, before you put that spade in the ground. And so that certainly creates an affordability issue.

But also, by the way, Ed, give us a comparison. So we know California is an impossible place to do business. $170,000 in Northern California to be allowed to build a home. What does that look like in Florida markets or Tennessee or wherever? Right. Give Us some, some reference.

I'll give you. I'll give you a perspective. In Nashville, Tennessee, which we built some homes in Nashville, that same permit might be $6,000, 7,000. And so, you know, now there's different values, but the impacts and the land uses and the, the constraint on land use and so forth is really a huge impediment. But. And so it's having an impact on supply, as you suggested. So you can't build in certain markets, affordable houses. And so then you look at secondary market and you look at what it becomes. How do you keep them up to date? How do you. Or how. When do they age? Out of circulation. And so.

The issue of affordability in my space is labor. I mean, when you wait on a. I used to build houses in 90 days, and today that same house has taken 180 days. It's taken nine months, 10 months to build those homes.

I was going to say, I'm surprised you can build it that fast. Some of them are taking a year and a half plus.

Well, in certain markets there are. But the problem is you're waiting on the labor. So I got a foundation in, but I wait a month for a framing carpenter. I got the frame up. Now I wait another two or three weeks for the plumber. And so labor is a big issue. That's what we're trying to address at HBI is to provide the labor force that can build these homes and, you know, supply and demand. I mean, the less supply you have, the higher the wages go up. I'm all for higher wages for our students and for the people that are entering this industry. We're going to be competitive. We have to be competitive in the marketplace for wages. But there's a balance between affordability and what we can sell these homes for and what it costs.

Okay, so a couple things on that. First of all, I read, and forgive me, I'm not going to remember the number, but you probably know the exact number. But it blew my mind. I read an article that the average construction worker is like 50 years old now or something. I mean, you know, you think of these as a bunch of young guys that have the stamina for it to do that hard work out in the sun. But these are not young guys doing this work. Right. So what's going on with the age? Are millennials just not willing to do construction work or Gen Zers? I mean, you've got all these. My generation Gen Xers are the construction workers. Right. That's kind of amazing to me.

Part of the problem is We've lost a generation of opportunity. So we were pushing for the last two to three decades we've been pushing young people into four year universities, into higher education. And that's good for a lot of people. And they come out with good degr and good jobs.

But there's no, they don't actually. They come out with worthless degrees and big fat student.

I was going to say there's a vast majority of those four year college students that come out with a degree in whatever.

And basket weaving.

They can't get basket weaving.

Hey, come on, everybody's hiring for feminist studies, aren't they? That's like a major career.

But they can't, they can't. You're going to get me in trouble. But they can't, they can't come out with a $30,000 a year job where a plumber coming out of high school is making 35, $45,000 and in two years they're making 75. And beyond that they have an entrepreneurial opportunity to own their own business and to create wealth and to build a business and hire people. So that's part of the problem is on the aging. You know, we've had 45, 50 year olds, 55 year olds that are retiring. I like to say we're only bringing in two new tradespeople for every five that leave the industry. And so that math doesn't add up. It takes a long time to make up that. And it's not going to happen overnight. Going to be, it's going to be a decade. A long term problem on the labor crisis, right?

Yeah, yeah. Boy, that's, that's something. You know, I was interviewing someone on the show maybe a year ago and we were talking about how construction is still a pretty primitive process and you know, talking about manufactured housing and how it's just not accepted in the US which I think is wrong by the way. I think we need to change our views on manufactured housing as a society because some of it is pretty amaz actually. The manufactured homes are not, you know, double wides in a trailer park. Some of them are pretty nice. But you know, he commented, my guest commented and said, you know, the biggest advancement in construction in the last hundred years has been the nail gun. I mean what is with this industry that it's so low tech? It's pretty much the same as it's been. It doesn't change much, does it?

Well, you probably were talking to 55 year old carpenter, but let me say this, I think you're absolutely right. But there's a perception like the trades. There's a perception of manufactured modular homes. I mean I build a number of subdivisions and quite frankly we prohibited manufactured home. These are years ago. We prohibited by or by by covenants that you couldn't put manufactured homes in those communities. It has changed. Those manufactured homes are being built in a climate controlled and a productive and efficient way. And so the quality has changed. But that will take some time to change that perception. But I also think that transportation is an issue. I mean if you have. It's not cheap to build a manufactured facility to build homes. And so you have to stay within that region. And so I think there's some transportation constraints in order to make manufactured housing a much larger piece of the piece of. Having said that I've been a stick builder for 30 years and the efficiencies have increased. The you know, your four by nine sheets of plywood instead of four by eight sheets of plywood.

What does that do? Just out of curiosity.

It cuts down on the labor because instead of putting two pieces up in a crossing over a box sill now you put one sheet up and you're done.

Got it. Okay.

The efficiencies of flooring. I'm remodeling a condo or putting in flooring today. We used to put. Have to put in hardwood floors. You'd have to sand them, you'd have to seal them, you'd have to them and so forth.

Yeah.

Now it's a one stop shop with synthetic product. You put it down, it looks exactly like hardwood. Look.

Yeah, the vinyl hardwood is great. We use it all the time in our rentals. It's great.

So we are advancing, you know, technology is making a difference. I don't know whether 3D homes are going to be a prominent in my lifetime but yeah, those types of manufacturing opportunities are there. But we are slow to the game. I would agree.

Yeah. You know, when I say that it's a figure of speech. I know some things have certainly advanced of course and at least they. They build some of the houses off site and truck them in like you know, the trusses and so forth. But by and large compared to other industries it's still pretty low tech. You know it's. It's assemble the thing at the site which is hard to do versus assembling something in a factory. But you know, we don't need to go too much down this rabbit hole. It just sort of blows my mind.

Well, I do, I do think the last on the multifamily. I mean I've seen modulars go in. They stack them like Legos. I do think there's going to be some efficiencies of that. There's going to be some cost that. So I do think it's coming.

Okay, good, good stuff. So we lost kind of a generation of labor to higher education because everybody was told they should go get a liberal arts college degree that has no value in the marketplace. And you know, they got themselves a hundred thousand dollars of student loan debt with it. They got a mortgage, they just didn't get a house included. Total scam. But that's another discussion. So what is the industry going to do? I mean, the labor, how do we get the labor? Is it all going to be through immigration? Is it going to be guest worker programs? I mean, you know, the left side of the political aisle has got these wide open borders. So hey, you know, the home builders must like that. What do you think about that? How do we solve the problem?

Well, first of all, immigration is about 30% of our market are trades in this country. So 70% is not immigration. So we've got a homegrown issue here. We've got to lure the young people into this industry. And I think, but having said that, we've got a lot of people in this country that are prime candidates for this industry. We need to diversify. We need to add women to this industry. A perception that women can't do this kind of work is, should be out the door because of the things, because of the equipment and the tools and the availability of women to be able to perform these jobs. So we need to draw the women into the trades.

There are literally, I mean, you know, they're building homes. In my area, there are zero women. I never see a female on a construction site. It is, it's not even 1%. It's zero, zilch, nothing. Building the houses.

Statistically, about 9% of the workforce in construction is women. And many of that much of that is sales and office manager and owners and so forth.

Yeah, they have the nice cushy jobs in the beautiful sales offices and with the air conditioning.

Good for them. But those that don't want to go into the office, if you're a woman, you need to come into the industry. There's ample opportunity. But we also need to look at people of color. We need to look at diversifying our workforce. I mean, we at hbi, we're training at risk youth. We're training second chance individuals. We're luring women into it. We're trying to diversify what frankly is a lily white community other than the 30% immigration into the workforce? It's a lily white community. In order to be successful, we need to diversify the workforce and we're working hard on that.

What's the number on the shortage? If you could put a number on it? How short is the industry? Is it 30% short, 50% short? I mean, do we have half the number of workers we need or what's the number?

I don't know that answer. What I do know is we just published with the help of Rob Dietz, the chief economist and his team over at NAHB that we have to, we have to create 700, and I got, check me on this, 740,000 construction jobs over the next three years each and every year to keep up with the production needs.

So that's like well over 2 million.

Jobs, 2.1 million jobs that wow. To create and train for the construction industry to keep up with the demand on the housing. There's three or four hundred thousand every month empty jobs in our industry. So this is a crisis, it literally is a crisis in the industry because I've got friends, builders that are turning down business that are eight months out before they can start a home. So the production, we're not creating enough housing in this country.

And Ed, how much of this, if any, is really related to Covid?

I mean this has just been an ongoing problem way before COVID right?

Yeah, it has. In fact, you know, there's some, hate to say this, there's some positives from what came out of COVID and that is we went digital. And so we exposed ourselves to a number of different people that wouldn't have seen it. And so because we were, we're a hands on trainer. I truly believe in HBI's philosophy is 75% hands on. It's like playing the piano. You got to practice it to become efficient in it and you got to be, practice it to be better. So we're 75% hands on. Covid shut that down for a year. And so we were able to really update our learning management system, our simulations, our digital presence. And so we've actually been able to expose the industry to. I have 25,000 users on our learning management system today.

Yeah, that's great.

In March of 2020, we didn't have a learning management system, so we've been able to expose ourselves. Now that means that they get information.

So more training for people and more knowledge about the career opportunity.

That's right. And back in the Great Recession, schools Had budget problems. The first thing they cut was shop class. My generation, shop class, career technical education. And so we're bringing that back into the schools in 9th and 10th and 11th and 12th grade. In fact, we'd like to start them introducing it to them in 6th, 7th, and 8th grade because we lose them by the time they get to 9th or 10th grade. But if we can bring it back into the schools, then we'll have. It's like baseball. The more times you get up a bat, the more chances you get to hit a single. And so we need to introduce this industry to more and more people in order to get the numbers.

Yeah, yeah, no question about it. Okay, talk to us a little bit more about how we can solve the affordability problem, if you would. I was just blown away by what you said when we started that in Northern California, a permit to build a house, you know, all. All regulatory stuff considered, I'm sure not just a permit per SE is $170,000 before you can start digging. And in, I think you said in Tennessee, $6,000. That is unbelievable how much it adds to the cost of the home. What about zoning? What about other regulations? Like how much has that regulatory burden increased? You know, I just noticed it throughout my career in the brokerage side business that every year when I was in California, back in the old days, you know, there was like a new slew of regulations. You had to have low flow this, you had to change out the toilets, you had to do this, that, and the other thing, you know, it was the smoke detectors, then it's the carbon monoxide detectors, then it's the fire sprinklers and, you know, all of this stuff. And I'm not saying all of that's bad. Yes, it does improve quality of life, keeps people safer. It's better for the environment. But the problem is when you do that, it's kind of like saying, well, let's raise the minimum wage. Okay, Everybody's just going to get paid more. But what they don't show you is how many people never get hired. Right? So it's, you know, it increases the homelessness problem, doesn't it?

How are we going to solve the affordability issue? It's. It's a collection of a lot of things, but you have to start with regulatory. You have to start with the density. New Hampshire, Not. I'm not picking on New Hampshire, but their codes. You can't build on anything less than an acre.

In Illinois, suburban Illinois, you might be able to put 18 units an acre. Just look at the same cost. And so we have to cut down on our regulatory burdens. Back to the permits and the inspections. I had 29 inspections in Nashville, Tennessee on one home. So you have to inspect the layout, you have to inspect the foundation, you have to inspect. All that costs time and money.

Yeah, you gotta wait for the inspector before you can continue the project.

Right.

At each stage.

And then the things that they're putting into the codes, look, there's a lot of good energy efficiency standards and things that are, that are in place. And I think we have to consider all of those. But you also have to consider the cost benefit analysis to what you're putting in those codes. Sprinklers. I'll be at first to say I like sprinklers, but it's an insurance issue. You're not saving lives in sprinklers with houses based on the cost. And so you have to look at those and say cost benefit. Now, one life is too many, don't get me wrong.

So we have to be conscious, but.

You don't know how many lives are kicked out onto the street because of these regulations. How many people are sleeping in their cars because homes have become so expensive that as soon as they lose their job, they're out on the street. That's what nobody talks about. You know, I always say, Ed, you can't hear the dogs that don't bark and the dogs are barking. You know, I mean, people have to listen because it creates a whole nother problem. Nobody's. Nobody's accountable.

That's one thing I'm very proud of with our work with NHB and the other advocacy groups in real estate, the Realtors association, the Multifamily Council. Everybody's advocating for the things you just talked about to make sure that there's balance between cost benefit analysis and who is looking out for those that can't afford every thousand dollars in cost increase. You lose so many buyers that can realize part of the American dream. We have to be cognizant of that.

Yeah, we sure do. Anything on the financing side, that's probably not your area, but I just thought I'd ask if you want to talk about anything financing related.

Well, no. I just attended the mortgage roundtable that NHB puts on every year. And as I said earlier, or you said, maybe I'm on the Federal Home Loan bank of Chicago board, on Enterprise Community Partners board. And we, we do a lot of housing finance. We do a lot of affordable housing finance. I concentrate a lot of effort on single family home ownership finance. Down payment assistance and so forth. We're going to have to look at one of the big things that again has been talked about but we haven't moved on, is credit scores. Right. And who can qualify for a loan. Credit scores don't take into account rent. And so if you're renting three months, it's changing though. Yeah, excuse me, three years. It is changing, but we have to really elevate that in order to bring more people into that market.

Same with utilities. You know, they might report on your credit if you default and don't pay, but when you do pay, they don't report. So they're only showing you when you're a bad guy, never when you're a good guy, you know, unfair.

The ability to pay is, should and, and would be the criteria. And if you have the ability to pay, you have a good paying job, then that should be more weighted. And so housing finance, historically low rates right now, more affordability as those start ticking up. I also say people of color have a disadvantage for a lot of reasons. And so we need to try and level the playing field in housing finance. And some of those things that we just mentioned should do that, should help benefit from that.

Tell me about the disadvantage there regarding race. What were you going to say about that?

Well, I mean, the credit scores, if you're, if you're a renter and frankly you didn't come from a family of wealth, you're less likely to have a down payment. So we need down payment assistance. Just because you don't have the down payment doesn't mean that you can't afford to pay that mortgage. And so the people of, you know, people of color is 40, I don't, don't quote me here, but 48% home ownership rate. Why 73%. So where's that disparity and why is that?

The thing that concerns me though is, you know, you get into like the Community Reinvestment act, which, you know, a lot of people blame as causing the Great Recession or really the Great Recession was really a two part thing. Right. But, but the, the mortgage meltdown part of it by, by sort of pushing these lenders to just give loans, especially on race.

Right, absolutely. But that was underwriting. They were pushing, they weren't doing underwriting.

Right.

And I would never suggest that we go back to, you know, no document underwriting and you don't have to have a job to qualify. But if we do it right and we build those.

Increase across the board the wealth in this country and provide assistance for Those that may not have had that background and had the down payment that can still afford then over decades. It's not going to happen overnight. Over decades, we'll build wealth in those communities, and that in itself will help alleviate some of the problem.

Yeah. Do you have an idea as to where the homeownership rate should be as a percentage? I personally don't agonize about this, and I don't think it needs to be that high. You know, George Bush kept beating that drum, and I think it led us into the Great Recession to some extent. But, you know, people differ with me, definitely. Right. And I'll tell you what changed my mind, Ed, that's interesting maybe, is maybe you remember seeing this article. I think it was the COVID of Time or Newsweek back about 10, 12 years ago, probably now, and it profiled. It made me think of this in a different way, that all these areas with high homeownership rates actually also had high unemployment rates because people didn't have the flexibility to be able to move for work. Right. For job offers. And. And, you know, I. I started saying after that, the best thing you can have on a resume is mobility, being able to move to where the jobs are. So I'm not sure that everybody needs to be a homeowner. I do think everybody should be a real estate owner, an investor. You know, they don't need to own the home in which they live, necessarily.

And you can help there. I had dinner conversation last week on this. Been in it for 33 years. I think somewhere around the 64, 65%. I've had some pundits that say it should be 60. I've had some think it should be 70. I think that is kind of. But. But I agree with you. Not everybody should own a home. It's not for everybody. There's. There's things that you, you know, you need to have in order to own a home. I think it should be accessible to everybody.

Yeah.

We could not push people into home ownership with this false promise.

Right, right. And to go back to your prior thoughts, you know, the whole FICO score system is just totally outmoded. I think it's terrible that they don't report rents now. You can do that now. There are some programs. I've done some shows on it. Nobody's really doing it yet. Right. So hopefully that'll catch on. Utilities, same thing that should be reported so that people can improve their credit score by, you know, having reporting of bills they're already paying. Okay. But just the whole way that system.

Works is just I'm a proponent of financial literacy too. I mean, you know, housing counseling, it works for first time buyers regardless of your background. And you really shouldn't own a home if you don't have that simple aptitude for financial literacy. And we were pushing people into that. And so we've got to be careful. It's not for everybody, but it is part of the American dream that people want to aspire to and certainly should have access to if they aspire to it.

Yeah. Ed, is there anything we didn't hit on that you want to share with people? Any questions I didn't ask you?

Yeah, I don't know if I answered your question on Covid. Jason, I think we had some opportunities to expose but Covid, we were essential as a construction industry. We were essential during the pandemic and that kept a lot of people busy. And fortunately we've had a really boom economy in the housing as you know, building a lot of units, we can't build them fast enough. I think the construction industry is a safe place to work and so we need to expand opportunities for the training of these opportunities for people to get into it. And Covid did push some of that back in the sense that they couldn't come to our sites, they couldn't train, and you can only do so much online. To your point about innovation and technology in the construction industry, you got to know how to operate tools and be efficient in tools and safety. Safety is a huge aspect of what we train. So I didn't necessarily answer your Covid. There's been pros and cons to what's happened in Covid. But I will say this, my last is if we invest, we talk about infrastructure, we talk about this, this build back better. If we don't invest in our young people in this country, we're going to continue to have some of these problems. Not only production problems, but civility problems. We have been fighting racial equity in our business for a long time at hbi. But what is the best way to keep people productive? Give them a meaningful and skilled training so that they can be a productive part of society. We as a country need to invest in our young people in that way too, not just higher education.

I couldn't agree more. I'm glad the cat is out of the bag on what I call the university debt enslavement complex.

Because I always.

Say if somebody graduates from high school, goes into a plumbing business, become plumbers and own their own business, their friend went to four year college, came out with $100,000 worth of debt and they got a $45,000 a year job. It's going to take them years, if ever, to catch up with the income levels of that plumber.

I agree. And that just shows you how much we need skilled labor in this country. There is an extreme shortage because people have been lied to. They've been, you know, they've sort of shamed these careers to say that, you know, it's bad to be a blue collar person, a blue collar worker, and oh, you got to work in an office and be a white collar person and you know, know, it's just not for everybody. Right. There are different people, different strokes for different folks and there's absolutely no shame in doing that. And you're absolutely right, Ed, that plumber is going to make a lot more money than that college graduate.

And look to your, to your listeners who investors in real estate, you're always going to need a plumber. There's always going to be fixes. And the cost continues to go up with the lack of plumbers. And so, you know, to keep our properties and our investments from going into obsolescence, we need to maintain them in the skilled trades are the answer to that. You're not going to innovate your way through, you know, cast iron pipes being replaced with modern technology. So it's an ongoing problem. And certainly to your listeners and your investors in real estate, it's a shortage that won't take care of itself.

No, that's absolutely true. And listen, I just want to say before we wrap it up, you know, I'm not totally against college as long as it's like a STEM degree. Right? You know, if it's, if science, technology, engineering, you know, medicine, you need to go to college and get a degree. And those are super important jobs, but they pay well, so. And people are hiring for them.

And I gotta, I gotta say, full disclosure, I went to a nice liberal arts school. I came out with a nice broad base. But that job, practical job, you know, getting something in the job experience makes a huge difference. Coming out with a degree may have given me a little bit of a, a head start on where I wanted to go. So look, there's enough for everybody to go around liberal arts, you know, base STEM programs, but I think we just need to concentrate on the population and what the needs are and fill those needs instead of forcing the issues.

Absolutely. Well, Ed, give out your website and tell people where they can find you.

Go to hbi.org, google Workforce Development will probably pop up we have programs all over the country, we're in 50 states and we'd love to to help you out. If you have somebody that's interested in the trades, don't know where to start, start with us.

Good stuff. Ed Brady, thank you so much for joining us.

Thanks Jason.

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