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Unless homebuilding activity pulls back harder, these three factors could tighten the residential construction labor pool over the next two years
While elevated land expenses and aggressive incentive spending have squeezed giant homebuilder margins over the past couple of years, there has been one source of mild relief: construction costs. Big builders—particularly the largest ones with the most negotiating leverage—have benefited from some easing in materials and labor costs as residential construction activity has softened, especially with multifamily construction rolling over from its cycle highs.
Indeed, America's second-largest homebuilder Lennar told analysts this month that its construction costs per square foot have fallen 14% over the past three years.
But that construction cost softening may be running out for big builders. In recent quarters, giant homebuilders have slowly begun changing their tune, signaling that construction cost pressures could be making a comeback.
Speaking to analysts on September 17, Lennar CEO Stuart Miller said he believes construction cost softening in core homebuilding markets appears to be over, and labor availability is starting to tighten in some markets. Miller cited emerging construction labor pressures in some local pockets stemming from the ramping up data center buildout boom and the pullback in international immigration, the latter of which is limiting builders' subcontractor pools.
“On the cost side of our world, while we continue to perform extremely well, labor availability has started to become more of an issue. Immigration enforcement and enthusiastic data center construction continue to create tightness in certain geographies, while we've been able to offset labor cost increases with efficiencies from scale, the pressure on costs is certainly building.”
Reporting just a few days later, on September 22, KB Home—America’s 7th largest single-family homebuilder—isn't seeing the same tightening in the residential labor market, at least not yet. However, the big builder has seen the softening in construction costs lose momentum, as some material costs have recently risen, specifically oil-related inputs.
“The [construction cost] pressure that we're referencing is mostly on the material side. You've got fuel prices that have gone up. That's embedded in a lot of the products, but it's also a direct cost that our trade partners are living with and experiencing every day. So we expect to see that creep into some of our cost on directs and in land development as well as we move throughout. And we've also set those up as direct fuel surcharges, so when and if fuel prices pull back, we can immediately extract those out.”
“As to labor, you know, I would say what we're seeing across most markets is that [housing] starts are down. We really haven't had a lot of issues getting labor to our job sites. We are hearing stories just anecdotally about some of the labor challenges that are out there, but direct experience that's not been a big part of what we're seeing on the cost side of things.”
For today's ResiClub article, we took a quick look at three factors to watch in the residential labor market over the next two years. These factors, of course, would vary by market.
1. U.S. homebuilding was 36 times bigger than data center construction 4 years ago—now it's just 5 times bigger. In some markets, they’re competing with builders for labor.
Ever since OpenAI launched ChatGPT to the public in November 2022, data center construction has been booming… just look at this stat:
In July 2022, for every $1,000 spent on U.S. new single-family homebuilding, $28 was spent on U.S. data center construction.
By July 2026, for every $1,000 spent on U.S. new single-family homebuilding, $190 was spent on U.S. data center construction.
And to a degree, that data center construction competes with homebuilders in some markets: For electricians, construction labor, land, and certain inputs.
2. The steady stream of baby boomer retirements continues to hit U.S. employers, including homebuilders.
This decade, employers across industries have been absorbing an upswing in retirements as the particularly large baby boomer generation gradually exits the workforce.
That's been especially acute in pockets of the homebuilding industry. In part, because during and after the Great Financial Crisis, homebuilding activity was significantly subdued, which translated into an entire decade with fewer young workers entering the industry. That's made it more challenging for homebuilders to absorb the ongoing wave of baby boomer retirements. The issue is less pronounced for labor-intensive roles (there aren’t many 50- and 60-something roofers) and more pronounced when it comes to replacing senior electricians, plumbers, and HVAC technicians.
3. International migration to the U.S. went from boom to bust. If it holds, some builders believe it could impact their future labor pool.
There was a historic burst in net international migration—with much of it coming through the Southern Border—from mid-2021 to mid-2024, with a record 2.7 million net international migration between July 2023 to July 2024 alone.
Between July 2024 to July 2025, international migration decelerated to 1.3 million. However, that’s lagged government data. When we get the official net international migration figure from Census next spring, it’ll show an even bigger international migration falloff for the July 2025 to July 2026 window.
This month, Lennar CEO Stuart Miller argued that deceleration, and specifically "immigration enforcement," has created some tightness in certain of the builder’s labor markets.
Researchers estimate that around one-third of the U.S. construction workforce is foreign-born. What about undocumented? While we don’t exactly know how many undocumented immigrants work in construction, we know it’s a chunk. In 2016, Pew Research Center estimated that 13% of the U.S. construction workforce is undocumented. In 2021, the Center for American Progress estimated that 23% of construction laborers are undocumented.
If net international migration continues to be subdued in the years ahead, some analysts/builders believe it could affect the residential construction labor pool—and put some upward pressure on labor wages.
Bonus chart: Aggregate U.S. residential employment
Over the past week, ResiClub members (paid tiers) got these 3 additional housing research articles:
