In today's hot real estate market, one might think homebuilders are living a dream. But being a builder in Saskatchewan isn't easy money.

"The sales environment these days in Saskatchewan is strong, and in Alberta is extremely strong," says Joel Teal, president of land and housing in Saskatoon for Dundee Developments, a land developer in both provinces and a homebuilder in Saskatchewan. "It's the delivery end that's the challenge."

Dundee's home building arm, Homes by Dundee, has built more than 10,000 homes in Saskatchewan. Teal says the job is never easy and the industry faces myriad difficulties each year.

The biggest challenge facing the industry is a labour/trades crunch.

Ken McKinley

"We're constantly worried about keeping our quality trades, because the volumes have gone up and the availability of trades seems to have gone down," says Teal.

He blames the migration of tradespeople into other industries, retirement, natural attrition and not enough people entering the industry to replace those leaving.

The labour shortage in Saskatchewan is also because Alberta is just next door, says Ken McKinley, executive director of the Saskatchewan Home Builders' Association.

"Alberta builders do advertise and come into town and interview trades and try to convince them to go to Alberta on a constant basis," exacerbating Saskatchewan's perennial problem of losing skilled people.

The second-biggest problem for Saskatchewan builders is locating developable land.

Teal says not only is it hard to find, but the land also costs more, and getting development approval seems to be more difficult than in the past.

Multi-family plots in particular are challenging to secure. McKinley says with recent pressure on land supply, private developers and the City of Saskatoon actually ran out of multi-family plots last year.

"The City of Saskatoon lost future taxpayers in their city because the big multi-builders that, of course, have a machine to feed in a hot market, looked into the rural areas around the city and bought up land galore."

Dundee is one company extending its reach to the rural realm. "We have taken some initiatives to acquire land outside the major cities we're operating in," says Teal. "In a modest way ... we are moving in that direction."

If land and labour woes aren't enough, homebuilders also have to face rising supply costs. A March report from the Canadian Home Builders' Association warns that since many building supplies such as insulation, shingles and vinyl, are petroleum-based or have a high energy content, sustained high energy prices may put upward pressure on building supply costs.

In addition, the report cautions that hurricane rebuilding efforts in the U.S. Gulf Coast Region, combined with a projected U.S. housing start level of more than 1.90 million units in 2006, may push North American lumber and oriented strand board (OSB) prices even higher.

"Just add it to the list of my worries," says Teal. "Cost control is a constant. And you never know what the wild card is going to be. You know, there was a time when we had some lumber shortages because of the spotted owl in the northwestern United States.”

(Millions of acres of forest were closed to logging in the 1980s because the habitat for the endangered species of owl was at risk.)

But predicting an event that causes a spike in demand is an impossible task, Teal notes, and builders have no choice but to absorb the shock. "It's just another stick on the camel's back when you're trying to keep housing affordable for your customers."

Teal might be reassured by McKinley's projections. Although he says hurricane rebuilding efforts will put some upward pressure on prices, the effects should trickle into the market slowly since the rebuild will likely occur over 10 years.

"The size is enormous," says McKinley, of the 200,000 to 300,000 homes that need to be rebuilt. "But when you do 2.3 million units down there (in the U.S.), another 30,000 or 40,000 just isn't that many more each year."

So facing land issues, labour shortages and cost increases, what is a builder to do?

"If you've got buyers and you have to deliver, you start looking at innovative ways to reduce the labour component or maximize efficiency," says McKinley, pointing to component building as one solution.

"I haven't seen too many move yet, but many builders are investigating how to build component parts of their houses and just ship them to site. In other words, do a manufactured-wall system for different lengths of walls, and then just incorporate it into the site build."

To date, says Teal, his company isn't thinking of component building again (many years ago they did something similar). But something that might come full circle is the once-used practice of having trades on staff instead of sub-contracted.

That method was deemed not the most efficient in the late 1960s, but Teal says it can assure builders a supply of trades and quality control, and he has heard some builders talk about bringing it back.

Another way builders can establish more control, says McKinley, is taking an "artful approach" when dealing with consumers.

Typically a builder gives a set price to a homebuyer on signing.

But McKinley says a normal build that might have taken four months five years ago, now might take up to eight months, exposing the builder to potential supply price fluctuations and other increases, and the carrying cost of money must be factored in. So some builders today, he says, tell the buyer: " 'OK, we need a margin of so much, and we know prices may be out of control, so we will give you a final price 30 days before you move in.' "

What does all this mean for the home buyer?

Bottom line, says McKinley: The consumer pays more. Increased costs of longer-lasting infrastructure such as roads, pipes and fire hydrants, along with builder costs and uncertainties are all incorporated into new home prices.

"We're in business to make a profit, and we have to make a profit because we know the costs aren't going down," he says. "So the consumer, yes, has to realize that they pay for all these increases. And we can see that; the price of housing keeps going up. It's all got to be passed on."

(Nicole Strandlund can be reached at nicole@businessedge.ca)