Immigration reform: Building costs could soar
Up to 40% of home building is done by undocumented aliens. But no one's talking about what a crackdown could do to new home costs.
By Jon Birger and Jenny Mero, FORTUNE

(FORTUNE Magazine) - For the home building industry, the immigration debate raging in Washington is anything but abstract. It's the biggest issue nobody wants to talk about.

Frank Fuentes, president of the Hispanic Contractors Association, queried his 20 largest member firms about speaking with FORTUNE, and not one was willing.

Latest home prices
Real estate survival guide
The great housing bubble has finally started to deflate -- here's how to weather the fall. (more)

"They're scared to death of being raided," says Fuentes.

By FORTUNE's estimate, up to 40 percent of new-home construction in the U.S. is being done wholly or partly by undocumented immigrants. Fuentes suspects the percentage in his home state of Texas is closer to 80 percent.

According to a study by the Pew Hispanic Center, 36 percent of insulation workers, 29 percent of roofers, and 28 percent of drywall installers are "unauthorized workers."

Big builders don't employ construction workers, legal or illegal. They hire subcontractors that in turn hire the workers who do the actual sawing and hammering.

"The entire home building business is outsourced," says A.G. Edwards analyst Greg Gieber. It's unclear whether this setup will protect builders should the feds start enforcing immigration laws more vigorously.

In May, Fischer Homes, a leading builder in Kentucky and Indiana, was raided by U.S. Immigration and Customs Enforcement (ICE), and four Fischer supervisors were charged with harboring illegal aliens.

Court papers filed by ICE accuse Fischer of using subcontractors "to provide a layer" between it and some 75 illegal workers. That layer, the feds contend, "does not relieve Fischer of the responsibility to ensure that their contractors are employing a legal work force."

A crackdown on undocumented workers would shrivel an already tight construction labor market. Lee Wetherington of Lee Wetherington Homes in Sarasota, Fla., estimates that 70 percent of the workers employed by his subcontractors are Hispanic immigrants.

"If for any reason we lose that work force, you're going to see the time required to build a house double or triple and the cost of new homes increase 30 to 40 percent," Wetherington says.

If developers find they can't pass along those costs, they may pull back on construction - and fewer new homes could ultimately boost prices of existing homes.

Wetherington insists that there just aren't enough native-born workers available to meet demand and points to Sarasota County's 2.3 percent unemployment rate. His company built 300 homes last year. Without immigrant workers, "we'd have been lucky to build 75," he says.

Wetherington does not know how many of those workers are undocumented, but he suspects it's the majority. He recalls an incident last year when the arrival of workers' comp officials spooked laborers into thinking an immigration raid was underway.

"Everyone scattered," he says. "The entire site just cleared out."

-----------------------

Where the growth (still) is in real estate. More here.

Small businesses face immigration hit. Full storyTop of page

YOUR E-MAIL ALERTS