Costs of Labor Shortages Continue, Houzz Third Quarter Study Reports

by Kacey Larsen

PALO ALTO, Calif.—The Q3 2017 Houzz Renovation Barometer, which tracks confidence in the home renovation market among industry professionals, reflected high quarter-over-quarter confidence for all industry sectors with readings of 62 or higher (index value relative to 50 means greater number of firms report increases in quarterly business). Among architects, designers, general contractors, remodelers, design/build, specialty building/renovation and specialty landscape/outdoor professionals, expectations for the fourth quarter are also high.

The Houzz Renovation Barometer Backlog Index increased slightly from Q2 2017 to Q3 2017, with project backlogs of five to eight weeks on average across sectors. Remodelers and design/build companies have the longest average backlogs at 7.1 and 7.7 weeks, respectively. Coupled with a positive business outlook and perhaps contributing to the backlogs are persistent labor shortages, as reported by 78 percent of general contractors, remodelers and design/build firms. Fifty-six percent of renovation firms report increasing costs of subcontractors in Q3 2017 (versus 53 percent in Q3 2016), and 54 percent report increasing project lengths (versus 50 percent in Q3 2016) due to labor shortages.

“Residential renovation and design professionals report another strong quarter of new business activity and a very positive outlook in the near term,” says Nino Sitchinava, principal economist at Houzz. “That said, widespread skilled labor shortages leave little wiggle room for businesses to absorb sudden demand pressures such as recent hurricanes in the South or more localized damage from wildfires in the West, driving up wait times.”

Hurricane Impact

Given the recent severe impact of Hurricanes Harvey and Irma in the Houston metropolitan area and Southwestern Florida, Houzz took a deeper look at conditions among renovation professionals in these areas. [Findings about the impact of Hurricane Maria on Puerto Rico were not included at this time due to very small sample size.] Within the first two weeks of landfall, the hurricanes caused 28 percent of renovation-related businesses in the Houston metropolitan area and 41 percent in Southwestern Florida to suspend business operations in these areas. Among companies that suspended operations, 91 percent of those impacted by Hurricane Harvey and 65 percent of those affected by Hurricane Irma kept their doors closed for a week or longer.

The hurricanes also exacerbated labor shortages across the region and increased project backlogs by nearly two weeks on average. Top business challenges post-hurricanes are the shortage of subcontractors (38 percent for both Irma and Harvey-stricken areas); managing cost-concerned consumers (23 and 46 percent, respectively); and managing consumer expectations (23 and 31 percent, respectively). A shortage of products and/or materials is also a top challenge for many (23 and 15 percent, respectively). Companies on the Southwestern Florida coast report more widespread shortages of products and/or materials, and companies in the Houston area have greater difficulties with managing pressures from their customers.

Renovation-related companies estimate the average total cost of repairs and renovations to homeowners to be $13,000 for the hardest-hit Irma areas, and a staggering $111,000 for the hardest Harvey-stricken areas. However, 78 percent of companies on the Florida coast and 92 percent of companies in the Houston area expect to at least fully recover financially over the next 12 months.

Other Q3 2017 Houzz Renovation Barometer findings:

  • A greater share of Southern firms reported labor shortages relative to Q1 2017 (77 percent vs. 73 percent, respectively), although shortages are still most widespread in the Midwest. Finish carpenters continue to be in the greatest demand followed by general laborers and framers.
  • Overall, firms report more widespread increases in costs of subcontractors and in deterioration of their reliability and skill levels compared to a year ago; firms report similar changes in their own employees. In line with 2016, over half of firms report labor shortages translating into more costly and lengthier projects (54 percent in 2017 vs. 59 percent in 2016), however, most firms are still able to maintain project quality.
  • Across the four regions of the U.S., Western firms continue to see the greatest backlog. However, among the top 20 metro areas, the backlog in Boston (13.2 weeks) continues to exceed the Wester metro areas, such as Seattle (12.8 weeks) and San Francisco (9.3 weeks) on average.
  • The Barometer posted year-over-year readings of 67 to 75 in the third quarter of 2017, indidcating high optimism continued year-over-year gains in the home renovation market. These scores are in line with the previous quarter readings, and the year-over-years scores for architects have improved three quarters in a row (from 61 in Q4 2016 to 67 in Q3 2017) and are now at the highest level since Q1 2016.

The Houzz Renovation Barometer study is conducted quarterly and presents analysis of responses to an online survey sent out to a national U.S. panel of architects, interior designers, general contractors/remodelers, design/build firms, and building/renovation and landscape/outdoor specialties.

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