We typically track residential construction news on a daily, weekly, monthly and even quarterly basis. In this article, however, we’re zooming out to look at 2016 in full. From new regulations to big deals to the industry’s reaction to President-elect Donald Trump, we’ve rounded up the stories that went beyond the headlines to impact homebuilders, remodelers and developers this year and that stand to influence business in 2017.
The skilled-labor shortage continues
Industry observers have spent the year betting on the rate at which more younger buyers will enter the market, predicting when home-price increases will abate and discussing how a dose of new construction is needed to boost recovery. Underscoring all these discussions, however, is whether builders will have enough help to keep up with demand as its pace increases. In June, the National Association of Home Builders surveyed its members and found that the percentage of companies reporting shortages rose from 21% in 2012 to 56% in 2016. Meanwhile, a May report found that unfilled construction jobs were at their highest levels since 2007 — an indication that builders are having difficulty finding qualified labor.
OSHA gives the final word on silica dust
In March, OSHA handed down its final rule on silica dust exposure limits, cutting the limit from 250 micrograms in an eight-hour period to 50 micrograms. The rule also requires employers to record when workers are exposed to silica and provide medical exams in certain instances. Construction groups had been pushing back on the rule since it was announced in 2013, however, saying OSHA should have updated existing rules instead of instituting new ones.
In April, eight construction trade groups filed a petition to stop the legislation. At the resulting House Subcommittee on Workforce Protections hearing, members of those groups sounded off on what they saw as the rule’s shortcomings, saying that it is beyond the scope of many construction firms to implement and that it doesn’t consider the differences between builders, remodelers and their subcontractors. The rule went into effect on June 23, 2016, and construction companies whose workers are exposed to silica have one year from that date to implement the new procedures.
The U.S. homeownership rate hits a 51-year low
As the housing market contends with climbing prices and tightening inventory, many younger buyers have been waiting on the sidelines, short on the cash needed for a down payment thanks to the high rents and student loan debt faced by many. That trend has been a major contributor to the declining U.S. homeownership rate in recent years, reaching its lowest level since 1965 at 62.9% in the second quarter of 2016.
The rate inched back up in the third quarter to 63.5%, with 55.5% of the 1.1 million households formed during the period counted as owners versus the 31.9% that were renters. Recovery hinges on having more owners than renters, so while the homeownership rate remains low, it may be slowly ticking back in a positive direction.
NAHB report finds regulations make up nearly one-quarter of a home’s selling price
An oft-cited statistic in the leadup to the 2016 presidential election: 24.3% of a home’s selling price, on average, comprises local, state and federal regulatory costs, according to a May report from the NAHB. While the regulations’ share of overall costs matches a 2011 projection from the association, home prices have risen nearly 30% since, pushing their value from $65,000 in 2011 to $85,000 in 2016. In a campaign address to the NAHB board of directors in August, President-elect Donald Trump mentioned the statistic while pledging to reduce such regulations.
Lennar snaps up rival WCI in $643 million deal
This year wasn’t without its big deals. Making headlines was the merger of two Florida companies seeking to cash in on the state’s building boom. In September, Miami-based Lennar announced plans to buy Bonita Springs, FL-based WCI for $643 million in stock and cash. Strong job growth and increases in housing stock have made the state hot for retirees and entry-level buyers alike. Lennar ranked second on the latest Builder 100 ranking with revenues of $9.47 million in 2015, while WCI posted $438 million in revenues for year to nab the 49th spot on the list.
Lot availability plummets
In addition to a labor shortage, builders also reported low lot inventory levels in 2016. In a response to a set of special questions on the May NAHB/Wells Fargo Housing Market Index, 64% of builders said that the supply of lots in their region was low or very low for the month. While the figures have been lower — a chart from the NAHB shows that lot supply is rebounding from the market’s trough — the association noted that only 53% of builders reported similar shortages in 2005, when starts were over 2 million annually, versus 1.2 million at that point in 2016.
Builders and developers have cited limited land availability, regulatory costs and a lagging pickup in residential construction for new lots being slow to come online.
California looks to new regulations following Berkeley balcony collapse
After a June 2015 balcony collapse in Berkeley, CA, killed six people and injured seven others, the city opened an investigation into other outdoor structures that may be vulnerable to rot, turning up hundreds more requiring repairs. Senate Bill 465, a legislative outcome of the investigation, is one of the first steps taken to reduce the likelihood of another similar incident. Among its stipulations, the rule requires contractors to self-report criminal convictions related to construction and mandates a review of the state’s balcony and outdoor structure building code.
The bill’s drafting process highlighted the rifts between construction groups and lawmakers around what conditions and measures can be reasonably guaranteed to preserve public safety. "They were trying to demonstrate caring and concern for public safety but didn't entirely understand what they were trying to cure," Associated General Contractors of America CEO Tom Holsman told Construction Dive in September.
The 421-a tax break is back on the table
New York City unions and developers started 2016 in a stalemate over a wage agreement required to extend the popular 421-a tax break. Unions vied for the inclusion of prevailing wage rates, and developers pushed back. In November, the Real Estate Board of New York, along with state and union officials, came forward with an agreement that would apply a tiered wage structure based on a project’s location. Meanwhile, developers who reserve 20% of a project’s units for low- to moderate-income tenants will get a complete tax abatement for 35 years, up from 20 years previously.
The deal awaits approval by the New York state legislature and Gov. Andrew Cuomo’s final signature, though Crain’s New York Business columnist Greg David noted that time is running out for the proposal to be signed into law in 2016, and waiting until the new year could put it in jeopardy. Critics contend that it doesn’t give enough play to minority- and women-owned businesses.
First-time buyers begin to resurface
Industry observers had their eye on first-time homebuyers this year, as the group is beginning to come into the market in greater numbers than since before the recession. In its 2016 Profile of Home Buyers and Sellers, the National Association of Realtors noted that first-time buyers accounted for 35% of home sales this year, up from 32% in 2015 and the highest share since 2013. In October, economists told Construction Dive that the group was still a few years out of its prerecession 40% share of new home sales.
One big holdup to getting more first-time buyers in the market is the volume of inventory available to this price-sensitive group. Current homeowners aren’t trading up to new properties fast enough, as many are deterred by high prices and tight inventory that make homes easy to sell but hard to buy. This trend is leaving insufficient inventory in the existing homes category, which is typically where first-time buyers begin their search.
Builders are looking to fill the lack of entry-level inventory with new construction. In October, Meritage unveiled its LiVE.NOW. line of homes, which are priced from the low $200,000s with small footprints and energy efficient features. Toll Brothers teased its new T|Select line on an analyst call earlier this month. The line will have fewer features than the company’s typical lineup but will have a quicker delivery time and lower price point.
The homebuilding industry reacts to President-elect Trump
Perhaps the biggest news of the year, the results of the 2016 presidential election will have implications into 2017 and beyond. Housing, however, was largely absent from the debate during the campaign. When Trump did talk about housing, his platform — which called broadly for cutting regulations and lowering taxes — was viewed favorably for the most part by an industry reeling from rising home prices, a high regulatory environment and a skilled labor shortage. "Our membership felt very strongly that Donald Trump was going to win," Jim Tobin, chief lobbyist at the National Association of Home Builders, told Construction Dive in November.
So far, Trump has nominated retired neurosurgeon and one-time presidential Ben Carson as secretary of the Department of Housing and Urban Development, and, according to the NAHB, the association’s chairman, Ed Brady, is in the running for Federal Housing Authority commissioner. Other cabinet picks, like Rep. Ryan Zinke (R-MT) for interior secretary, former Texas Gov. Rick Perry as Department of Energy head and former World Wrestling Entertainment CEO Linda McMahon as head of the Small Business Administration will impact the tenor of the business climate for builders.