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M R EP O RT | 23 EXPERT INSIGHTS Building into the Future Rob Dietz of the National Association of Homebuilders discussed how residential construction can meet the growing demand from buyers. R ob Dietz, Chief Economist of the National Association of Home Builders, is in charge of housing market analysis, forecast- ing and industry surveys, and housing policy research. Prior to joining the National Association of Home Builders in 2005, Dietz worked as an economist for the Congressional and Joint Committee on Taxation. He has testified before Congress on housing, economic and tax issues. He's a leading expert on home construction analysis and trends and has appeared on CNBC and in the Wall Street Journal. He spoke with MReport on how COVID-19 has impacted the resi- dential construction industry. M // How can the residential construction industry work to meet home buyer demand despite job losses due to COVID-19? DIETZ // One of the things that we need to understand about the current situation is this downturn is particularly different than what we saw in 2008. We enter the recession under built rather than overbuilt. We're probably short about a million homes. There is an underlying demand for new construction. The challenge of the last four or five years has been one of a particularly skilled labor shortage among other factors, including regulatory issues. The challenge here is that the industry, in April, lost almost half a million jobs, which was half of the job gain that we had had since the great recession itself. Now on the good news side, we gained about half of those back in May. The trend's moving in the right direction, but it does leave two agenda items in place: recruit workers into the industry, which will be helped by the fact that we have an elevated un- employment rate for the overall economy and then train them be- cause it is a skilled labor shortage. M // If home prices do fall, how could that impact the market in residential construction? DIETZ // I should say first, our forecast is for flat pricing over the course of 2020. We are seeing strength in the early part of the year, but let's just say hypotheti- cally, if we see some home price softness, maybe the listings swell, it will mean compressed profit margins for builders. That's going to be a challenge because there are rising input costs for building homes. We already discussed the labor issue. One of the things that we're hearing from a lot of builders is access issue to building materials and ultimately that will lead to higher prices. We are seeing a run-up in lumber prices. Now, usually when lumber prices go up, that's usually good news. It means that there's a demand for lumber and builders are ramping up production. That's what we're seeing right now. I think we'll have to watch home prices closely. The other thing to keep in mind about home prices is that the existing home equity is the down payment for most new construction sales. As long as prices are supported, and we think that will happen because we've got a deficit of housing rather than a surplus, it should help fuel new home sales going forward into 2021. "The challenge of the last four or five years has been one of a particularly skilled labor shortage among other factors, including regulatory issues." — Rob Dietz