Landmark Links September 12th – Send Help


Lead Story…. The United States construction industry has been coping with a massive labor shortage pretty much since the economy emerged from the depths of the Great Recession.  Job openings and steadily increasing compensation have not been enough to tempt young workers to enter an industry that generally pays relatively well (especially for those without a college education) but also involves manual labor.  Housing starts have increased some this year (although they are still low by historical standards), leaving the industry in an tight situation by the end of the summer.  Then, over the past couple of weeks, Hurricane Harvey devastated Houston and Hurricane Irma flattened part of Florida both of which which will exacerbate the problem substantially.  The level of sheer devastation from these storms if unfathomable.  Tens of thousands (possibly more by the time you read this) will have damaged or lost homes or worse.  I tend to joke about Florida a lot in the WTF section of this blog but I am truly keeping my favorite crazy state in my thoughts and prayers as they (and the greater Houston area) go through this.

Now the cleanup begins and the consequences of having to rebuild one of America’s largest cites and a portion of one of it’s largest and most populous states are going to be profound.  This would be a monumental effort even in a “normal” construction labor market since a massive amount of workers and resources need to be re-directed from the normal  construction economy.  Laura Kusisto and Doublas Belkin of the Wall Street Journal pointed out just how tight the market for construction labor currently is (emphasis mine):

Before Harvey, construction workers across the U.S. were already in tight supply and material costs were rising. Houston is likely to face such a severe crunch that it could affect the national economy by pushing up material costs and driving down the U.S. unemployment rate for construction workers further, according to Robert Dietz, chief economist at the National Association of Home Builders. There were 225,000 unfilled construction jobs in June, near the recent high of 238,000 recorded in July 2016, according to a National Association of Home Builders analysis of Labor Department data. In all, 10,000 to 20,000 workers could be needed to rebuild the homes damaged by Harvey alone, or 10% to 20% of the total number of residential construction workers in the Houston metropolitan area, according to the National Association of Home Builders.

Let’s dig into those numbers a bit further.  The team at John Burns Real Estate Consulting took a look back at rebuilding after hurricane Katrina hit New Orleans in order to get an idea of what to expect after Harvey (this was written before Irma made landfall in Florida, so in all likelihood, it only gets worse).  Here were their major takeaways (emphasis mine):

  1. Repair and remodeling spending will surge 9% nationally, taking labor and material resources away from new home construction. Our VP Todd Tomalak expects total 2017 disaster repair spending to reach $23 billion, which is more than double that of 2016. Those without flood insurance will tend to DIY.

  2. New home construction costs will rise for several years.

    • Government regulation and oversight will likely increase, making home construction more expensive. After three major floods in less than three years, most Houstonians no longer believe flooding is a once-in-a-lifetime event.
    • Labor costs will rise. 8 of the 14 builders we spoke with last week expect new home permits to decline for the balance of the year, primarily due to short supply of labor. All builders expected labor prices to continue increasing. Construction worker compensation rose 14% in Mississippi after Hurricane Katrina. Our clients in Dallas expect to lose workers to Houston as well.
    • Land prices likely to remain stable. The shortage of land in good locations will likely continue to keep land prices high.
  3. Real estate discounts will disappear. Prior to the hurricane, many new home sellers and apartment landlords were offering incentives to buyers and renters due to a slowly growing economy and an overbuilding of expensive apartments. Apartment Data Services, the Texas leader in apartment statistics and research, estimates approximately 10% of Houston-area apartments flooded from Hurricane Harvey, and believe most of the 70,000 vacant units will become occupied quickly. With housing vacancy certain to decline, we expect the incentives to disappear..

  4. Construction volumes will be higher than forecasted in 2018 and later. It took about five years after Hurricane Katrina to rebuild the housing stock in Harrison and Hancock counties.

The logical conclusion is that it’s likely about to become more expensive to build or remodel a home as the labor market continues to tighten up in the coming months.  I have two main takeaways from this:

  1. How mobile is the construction labor pool in 2017?  In other words, will workers in California, Colorado, Arizona, Virginia, etc be inclined to go to Houston or south Florida for a few months of work in order to make higher wages that become available when a crisis hits?  The Wall Street Journal had some anecdotal evidence that they will.  If the answer is yes, this will have a ripple effect on pricing on a much more nationwide basis.  If it is no, then the impact will be an acute cost increase in the regions surrounding Houston and South Florida but relatively minimal impact elsewhere.  I’m still not 100% sure on this but am leaning towards the idea that the construction labor pool is currently more mobile than commonly thought – especially when that mobility entails leaving a high cost of living region like coastal California when better wages become available in a lower cost of living region like Houston or South Florida.  Only time will tell.
  2. In the past, a construction labor shortage would have been at least somewhat offset by immigrant labor (legal and otherwise) as jobs open up and wages rise.  That is highly unlikely to happen this time around given today’s political climate and the result will be higher housing costs.  I’m not writing this to make a political argument but merely to point out a fact: less potential workers lead to shortages and a higher cost of living when demand increases.  IMO, this is something that is not acknowledged frequently enough by either side of the immigration debate.

We have been fortunate in recent years that the Atlantic hurricane season has been relatively tame.  Not so in 2017 and it’s still relatively early.  Keep all of those impacted by these brutal storms in your thoughts and prayers.  Houston and south Florida will rebuild but the resulting higher construction costs will likely be felt long after the sky has cleared.


False Premise? Why the notion that higher interest rates were “normal” while current ones are “unnaturally” low is false.

The Big Shift: Economic productivity is finally rising as companies begin to hire more workers in the goods producing and professional & businesses sector and less in lower productivity sectors like retail, leisure and hospitality.

Unreliable: If central banks can’t explain why inflation is so low, then why is there any faith in their forecasts?


Pick Me, Pick Me! Cities across the US are falling over themselves to be the site of Amazon’s second corporate headquarters.

Disruption: The reason that WeWork is valued so highly is that they have the potential to change the way that office buildings operate by utilizing better data.

Soaked: There is nearly $30 billion in CMBS exposure in areas affected by Hurricane Harvey.


Standout: Home ownership is hovering near a 50 year low but increasing Hispanic home ownership since the depths of the housing crisis is one of the few bright spots.

Reminder: Lower than anticipated GDP is very much a residential investment problem and is helping to keep interest rates low.

The Forbidden City: Many of Los Angeles’s most popular and iconic buildings would not be allowed to be built today.


Schadenfreude: The Juicero failed at least in part because it’s founder and CEO is a bat shit crazy, self righteous vegan (h/t Steve Sims):

Some employees say Evans’s passion for wellness was overwhelming. The founder mostly ate raw and vegan foods, and would sometimes scold non-vegan employees who ate yogurt or drank milk at team meetings, according to three former employees. He occasionally referred to dairy products as “cow pus,” they say. For a time, he also refused to allow employees to expense work meals at non-vegan restaurants, the ex-employees say.

Too Easy: Online hookup apps have taken a bite out of the bottom lines of brothels in Australia.

Hmmmmm: Three Equifax managers sold a substantial amount of stock in the company right before last week’s cyber attack which compromised the data of 143 million people was revealed.

Chart of the Day

Hello, Industrial Revolution

World GDP per capita over time

Source: Visual Capitalist 


Buy GOLD: A cybersecurity scientist has issued a bizarre warning that sex robots could one day rise up and kill their owners if hackers can get inside their heads.

Panties in a Bunch: Hurricane Irma wreaked destruction across the Caribbean and some models are sending their thoughts and prayers via racy bikini pics on Instagram, leading to claims of tone-deafness.  Let me go on the record to say that I am not offended by this.

Clowning Around: Clowns are gearing up to protest Stephen King’s movie ‘It’ over something that they call negative clown stereotypes.  Just my opinion but clowns are terrifying and deserve to be stereotyped.

FAIL: A French soccer team misspelled their own name on all of their player jerseys for the 2017-2018 season.  Spellcheck FAIL.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links September 12th – Send Help

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