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The Case for Construction

How Homebuilders Ensure ‘Community and National Resilience’ as Essential Businesses

With 225 million people under state-mandated “stay-at-home” orders, homebuilders in most states are hammering away as “essential businesses.” But in the midst of a pandemic, what makes them “essential” may go beyond the homes they’re building.

As the coronavirus has spread, cutting its path across the country, its destabilizing socio-economic impact has forced state and federal governments to come to an awkward reckoning of what is what is “essential” and “non-essential” in the American workforce.  By April 1, governors in at least 35 states, as well as Puerto Rico, Guam and the District of Columbia, will have imposed mandatory stay-at-home orders affecting more than two-thirds of the U.S. population.  Among those states, as many as 44 classify residential construction as an essential business.

But why?

There is no denying the immediate need for homes.  The start of 2020 saw a short supply of homes choking the housing market and driving up prices.  The record low found the U.S. housing market missing as many as 3.3 million homes, according to a report by Freddie Mac. Still, the “essential” nature of residential construction may be more complicated, more far reaching than “see a need, fill a need” as examine its economic contributions.

Defining ‘Essential’

On March 28, the Department of Homeland Security’s (DHS) Cybersecurity & Infrastructure Security Agency (CISA) issued an advisory memo.  It shed light on which businesses make up the “essential critical infrastructure workforce.” While the 15-page document is careful to disclaim any authority as a “federal directive or standard,” it does give clarity to what government agencies mean when they talk about “essential businesses.”

“Essential,” in general, refers to businesses whose operations will help ‘ensure community and national resilience in COVID-19 response.’

Among them, CISA calls out homebuilders.  Residential investment, afterall—which includes the construction of single and multifamily homes—makes up as much as 5 percent of the nation’s GDP, according to the National Association of Homebuilders.  “Functioning critical infrastructure is imperative during the response to the COVID-19 emergency for both public health and safety as well as community well-being,” the memo reads.  “Certain critical infrastructure industries have a special responsibility in these times to continue operations.”

“Certain critical infrastructure industries have a special responsibility in these times to continue operations.”

An ‘Engine with Many Moving Parts’

That homebuilding is a ‘critical infrastructure industry’ influencing “community and national resilience” is seen in at least two areas: the jobs it supplies, as well as its broader economic impact across the board.

“We employ between 15 and 45 sub-contractors every time we build a home,” said James Moen, President of Lexar Homes.   On average, 77 percent of construction costs are subcontracted when building a home, according to a  report by the National Association of Home Builders (NAHB).  This includes concrete flatwork, foundations, and framing; electrical, plumbing, and drywall; roofing, HVAC, and finished carpentry, among many others.

This chain of supply and demand doesn’t begin and end with homebuilders and their subcontractors. “Each of our subs have their own supply needs,” Moen said.  “This industry is like an engine with many moving parts.  For it to work, those parts have to stay engaged.”

A Backstop for a Struggling Economy

To take the analogy further, the engine is what propels a vehicle forward, what gives it motion.  Jerry Howard, CEO of NAHB, said this is similar to the effect of homebuilders on the nation’s economy.

“If you keep our demands moving forward,” said Howard said in a statement to Housing Wire magazine, “you will keep other sectors engaged…” creating an economic backstop to keep things rolling during a time when, just like all of us, the American economy is also sheltered in place. This is especially important, since we have a cautionary tale from our not-too-distant past about what happens when the housing industry ends up in mothballs.

“That was the biggest effect of the Great Recession, that industry shutting down,” said Jeffrey Michael, an economist at the University of the Pacific.  “[It] is absolutely a critical sector of the economy.”

Robert Dietz, chief economist at the NAHB, adds that the pandemic is likely to slow housing construction and reduce supply.

“That will exacerbate the housing crisis that we’re having right now,” he said, referring to a U.S. housing market that was chronically undersupplied before the pandemic began—a shortage which Housing Wire magazine reported normally increases by about 300,000 homes a year.  All of this data, still under the shadow of the mid-2000’s housing crisis, underscores the veracity of DHS’s recommendation that home construction be classified as part of the essential critical infrastructure workforce, contributing to the resilience of the nation and its communities.

“We’re still feeling what happened in 2008,” said Lexar Homes’ James Moen.  “The last thing we want to do is forget how integral homebuilders are to the strength of our nation, and let this pandemic create another type of crisis.”

Lexar Homes is proud to be an educational resource to current and future homeowners during these times of uncertainty brought on by COVID-19.  Our next article will discuss how you can navigate that uncertainty, how we can help you, and what steps you can take to convert negatives into positives when we emerge from this.  For more information, click here or call 1-888-701-6132 to speak with our specialist Madison.