The Contrarian: How To Adapt To A Capacity-Constrained Future
Much ink has spilled in analyses of the shortage of employees for nearly all businesses in all parts of the country. Speculation is on points to an array of causes. They include demographics, Covid fears, the government paying people not to work. Each and all of these get tagged as the culprit.
Hold that thought for a moment.
Let's look at labor participation rates by demographic contingent. We see that the two biggest areas of labor participation fall-off since the pandemic hit have occurred among women 25-54, and workers – both men and women – over the age of 65. The former group will, hopefully, recover when there is confidence kids will be in school and child care is more available. More than likely, those near-retirement workers are gone from the labor pool forever.
However, it's critical we remember the underlying trends that were there before Covid will remain:
- The prime working age cohort in the US has been growing very slowly.
- The rate of population growth is the lowest it’s been, and keeps trending down.
Fewer babies, lower immigration rates. Perhaps immigration will increase, but that’s a minefield.
So, what's beginning to become clear is that while the employee situation may get marginally better it won't improve nearly enough to revert to “normal.”
To date, our business has focused a lot of dialog on the job-site building aspects of workforce and skills constraint as a risk to our business, and whether we’ve finally reached off-site construction’s take-off point.
What gets far too little attention, in my view, is what this means for the office part of our business. Everyone who owns/runs a builder or developer is seeing their people being poached and poaching in return. Perhaps the higher salaries that result will draw more people into the industry. However, I’m not confident that will be in sufficient numbers to alleviate the problem. And with retirements in our business and a lost generation during the aftermath of the great financial crisis, there is a big hole to fill.
It’s time we rethink how our businesses are managed and organized. We’re at a juncture. Before us stretches a long-run future of tighter land markets due to growing entitlement constraints and long-term skilled worker shortages. Land shortages in our active housing markets will likely lead to higher-priced, and at the same time, more standardized products.
Fewer communities to choose from for the buyer will mean less direct competition. In turn that probably means less need for highly-customized options if the overall value proposition is fair. Maybe like car dealers, we will have some very simple option packages and color schemes, and more often than not you’ll buy what is available “on the lot” (no pun intended). We already see more builders adopt this lower-variability model.
But I believe our thinking may have to go well beyond this to all aspects of our business – accounting, purchasing, sales and marketing, land acquisition, etc. The question will be, how do we do more with fewer people, either through technology, or process change/simplification?
Not a new idea; all of us obsess over how to make our business more efficient. But it’s generally been how to make them more efficient to serve our chosen market niche. I don’t think many of us have thought about working the problem from the other direction. What would the most efficient building organization look like and what type of segments and value propositions could that serve?
It feels like heresy to suggest working backwards from organizational structure, rather than forward from consumer driven demand as a way to think about what to do/how to do it. But if land and people are the constraint, and the market is likely to be underserved in the long run, maybe we need to?
Or I suppose we could just sell houses in the Metaverse. I’m not aware of any supply chain issues there.