Housing Market: Residential Construction is Limited by Worker Shortage

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By Rich and Kathy Fettke and Kathy Fettke. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Transcript:

Kathy Fettke: The U.S. needs millions of homes to meet the current demand for housing, and is depending on builders who can’t find enough workers to do the job. According to one source, the industry needs to hire 1.5 million more construction workers from now through the year 2023. So where have all the workers gone?

Hi I’m Kathy Fettke and this is Real Estate News for Investors.

The construction industry is in hyper-drive right now to satisfy a critical demand for new housing and for upgrades to existing homes. More people are working from home making “home” a much more important part of our lives. It’s a perfect time for builders to expand their businesses but they are limited by the number of workers available.

Where Are All the Construction Workers?

Solar installer, Matthew Messer, is the owner of New York Solar Maintenance. And he says he’s out in the field working seven days a week because business is booming and he can’t get enough help. He told CNN: “The phone is ringing off the hook. I am expanding as quickly as I can, but right now that’s governed by the amount of skilled technicians I can bring in.” (1)

The Associated Builders and Contractors issued press release saying that construction companies need to hire 430,000 more workers in 2021 than they had in 2020. And almost one million more workers over the next two years. The analysis of data from the U.S. Bureau of Labor Statistics also shows that every $1 billion spent on construction spending generates an average of 5,700 construction jobs.

Three Growth Scenarios

ABC also used data from economic consulting firm, Markstein Advisors, which shows a construction industry workforce of almost 8 million last year. (2) And with an estimated $1.45 trillion in construction spending in 2021, the firm determined that another 430,000 workers are needed. The analysis included three growth scenarios, and the one with the highest growth rate calls for many more workers.

The first is a “base case” scenario and is thought to be the most likely to occur. That is based on $1.43 trillion in construction spending last year, a 1.3% growth rate for 2021, 3.5% in 2022, and 4.5% in 2023. That’s an average of 3.1% per year. When it’s applied to the size of the workforce in 2020, the result is an employment demand for 430,000 more workers in 2021, and a total of 1.28 million for all three years.

In the second scenario, ABC considered a slower growth rate of 1.3% per year. That resulted in a three-year demand for 816,000 more workers. And in the third scenario, ABC calculated employment demand for a high growth rate scenario. The average growth was 8.1% which resulted in the need for almost 2 million more workers during that three-year time span.

Some of the factors that ABC considered in this analysis include higher costs for building materials and labor, along with several other variables. They include:

  • A shift toward high-end residential construction which costs more but doesn’t require that many more worker hours
  • The adoption of labor-saving technology due to the worker shortage
  • More efficient scheduling of workers and better logistics for building materials
  • Increased use of prefabricated pieces that reduce the amount of labor that’s needed
  • And, the folding of smaller, less efficient construction companies.

Employers Offer Higher Wages

The analysis was also based on 2020 wages, which are going up in an attempt to attract workers. In the CNN article, Messer says he offered $18 to $22 an hour but no one applied for those jobs. He boosted that to $23 an hour, and still -- nothing. He says: “I increased it to $25 and they’re starting to trickle in right now. It was a dramatic increase, but in order to grow the business, I need technicians.”

Although the pandemic had an impact on the labor shortage within the construction industry, the housing crisis in 2008 and the recession that followed had much more of an impact. According to the Journal of Light Construction and the U.S. Census Bureau, more than 60% of the workers that were displaced during that crisis, also left the industry for good. That helped create the labor shortage, combined with what the Bureau says is a “persistent drop in the hiring of younger workers into construction jobs.” (3)

Attracting Young People to the Industry

One big change in school curriculum that works against the industry is the lack of “shop classes” that were once so popular. As CNN points out, they were part of the normal class offerings in high schools across the country. Now they are “few and far between.”

ABC is working on boosting interest in a construction career. Bellman says: “We want to go out to every area where we can attract top talent. Once we get them into the industry, we’re educating and upskilling.” Bellman says the idea is to increase retention.

ABC says the organization and its contractor members invest a total of $1.5 billion a year in workforce development initiatives that include job training. CEO Michael Bellman said in a statement: “Now is the time to consider a career in construction, a vocation that offers competitive wages and ample opportunities to both begin and advance in an industry that builds the places where we work, play, worship, learn and heal.”

But there’s a high turnover rate in the industry. The Bureau of Labor Statistics says the average monthly turnover in the last decade has been 5.2%. That’s quite a bit higher than the overall average of 3.6%.

With too few humans to fill the shoes of workers, the industry is now turning to technology. That’s opening up positions for tech workers, who may ultimately fill the need of the industry as it tries to keep up with the housing boom. In the meantime, competition for workers, and for the hiring of contractors will continue to have an impact on home construction.

Check for links in the show notes at NewsForInvestors.com.

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Links:

1 - https://www.cnn.com/2021/07/08/economy/construction-worker-shortage/index.html

2 - https://www.abc.org/News-Media/News-Releases/entryid/18636/abc-the-construction-industry-needs-to-hire-an-additional-430-000-craft-professionals-in-2021

3 - https://www.jlconline.com/article/constructions-exodus-of-labor_c

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