In a new commentary, BUILDER editorial director John McManus suggests that labor shortages and housing demand are giving framers the upper hand today when talking with builders, but those framers likely will see that advantage dissipate as builders increase their investments in new construction techniques.
Here's what McManus says at the end of his July 23 column:
... Framers, and soon after them, makers of on-site construction hand tools, architects, distributors, etc. must give up a reflexive belief in a "fixed state" of home building dynamics, and try to understand how to adapt to change, evolve their skill levels to what's ahead, and join in making the future of home building rather than trying to block the pathway there.
Framing carpenters are the widely disbursed, almost universally essential incumbent powerbase in what's at least a $45 billion annual sub-component of the new residential construction economy.
They're also ripe for disruption as such, and pushing back hard against builders who are in the early going of a move of at least some greater percentage of their processes off-site, will only hasten the pivot.
It's not that they're going to go away completely, but their days with the upper hand, setting the terms of agreement in a time of scarcity, may be numbered.
Now here is the entire column:
A typical new home--the National Association of Home Builders notes here--cost $41,123 to frame last year, which worked out to about 17.3% of total construction costs of about $238,000. Add to that, site work, impact fees, margins and such and your selling price tops $425,000 for that typical home.
This year, of course, that framing cost will be higher, and its percentage share of the total price tag will likely increase as well. Lumber and materials, as well as continued shortages of--and, therefore, higher costs of--framing carpenters will account for those expense increases.
Experts estimate that the pull of demand against constrained--and now more costly--supply adds in the neighborhood of $8,000 to framing inputs, which would push the NAHB's 2017 number to about $50,000 or so. Depending on whether you look at current new home single-family sales rates of 689,000, or annual starts rates of around 900,000, the framing component of new home development in the United States works out to be a $34.5 billion to $45 billion business.
Builders contend that stresses to supply--including tariffs--of both materials and framing carpenters hurt their ability to build affordably.
At the same time, builders have begun--in earnest, we're hearing--to explore alternatives to framing new homes on-site as they always have.
One recent USA Today article headline declared, "With construction workers scarce, homebuilders turn to robots, software," the story's author reporting:
At a sprawling factory owned by Blueprint Robotics on the industrial outskirts of this city, a house frame – complete with windows, plumbing, insulation and electrical wires – is chiseled in large panels by computerized machines in about a day. The pieces of walls, floors and roof are then trucked to the construction site to be assembled in several more days. Although drywall and other features must still be added, the process – which has been used in Europe for decades – can shave the time to build a house by as much as half.
This creates a classic "Innovator's Dilemma" for framers today. They're the incumbents. They have the upper hand--a rare phenomenon they're loathe to cede. They're in the driver's seat in today's construction ecosystem, given that there are more bidders for their services than there are workers qualified to do the jobs.
Scarcity is on their side as they negotiate terms--daily pay and other benefits.
And when they see their big customers--the builders--start exploring alternatives to the labor-intensive, often wasteful, and less precise framing that occurs on job sites, they can play hardball.
And so, we hear, that's what they're doing.
"Builders are trying off-site now because they're looking to add an arrow to their quiver as they seek operational improvements, expense opportunity, and added capacity," says an executive familiar with a recent push by a number of high-volume builders into off-site framing, panelization, and component manufacturing. "If the framers push back too hard now, they're only going to accelerate the shift of more and more work to off-site."
A view from Alan Laing, recently retired as executive VP for operations at Taylor Morrison, and now working as a consultant, reflects exactly why framing companies should not yield to the temptation to dig in their heels and make builders pay a price for such exploration.
What changes do homebuilders need to integrate into their culture and operations to optimize their supply chain, move to vertical integration or enable companies like Entekra and Katerra to be successful suppliers and generate improved business results.
Some thoughts for review and discussion
- Product development must be consumer driven to ensure the product, price and positioning create a sustainable competitive position in the submarket. This takes time and discipline and is not common practice amongst builders today.
- The construction documents must be Value Engineered for both efficient material and labor utilization, this involves prototypes, trade input etc. Again, this takes time and discipline and is not a common practice today.
- Most critically builders must embrace plan reuse and resist the temptation to “tweak” plans every time they open a new community, creating busy work for trades and suppliers.
- Sales, Starts and Production scheduling must become an integrated core competency to ensure efficient material management and labor utilization.
- Embrace trades and suppliers as partners rather than the enemy, these solutions require builders to embrace long term agreements and much improved collaboration between builders and suppliers.
Taken together this requires Builders to embrace a culture disciplined execution to ensure all unnecessary variation is removed from there operating processes. Absent this discipline the component and labor providers will become overwhelmed with the time and resources required to serve builders, simply put their design, engineering and total costs will increase to the point they will not be cost competitive or generate acceptable profits and returns.
Laing speaks well to the rigor builders should pursue if they're going to make a go of off-site, and it means a commitment to re-mapping systems, workflows, and resource allocation throughout the operations process--not simply bolting a factory process into current operational workstreams.
At the same time, framers, and soon after them, makers of on-site construction hand tools, architects, distributors, etc. must give up a reflexive belief in a "fixed state" of home building dynamics, and try to understand how to adapt to change, evolve their skill levels to what's ahead, and join in making the future of home building rather than trying to block the pathway there.
Framing carpenters are the widely disbursed, almost universally essential incumbent powerbase in what's at least a $45 billion annual sub-component of the new residential construction economy.
They're also ripe for disruption as such, and pushing back hard against builders who're in the earlygoing of a move of at least some greater percentage of their processes off-site, will only hasten the pivot.
It's not that they're going to go away completely, but their days with the upper hand, setting the terms of agreement in a time of scarcity, may be numbered.
