Construction Labor Shortage Presents Challenges to Some Developers, Builders

Construction Labor Shortage Presents Challenges to Some Developers, Builders

Apartment industry developers may take comfort that more construction workers are on the job. The unemployment rate in construction dropped to its lowest April level in seven years as contractors added 32,000 to payrolls for the month in 2014, according to industry data.

Construction employment has now reached 6 million, the highest level since June 2009, says the Associated General Contractors of America. Top that with recent National Association of Home Builders (NAHB) testimony on Capitol Hill that housing stands poised to serve as an engine of job growth, and the tool kit sounds pretty full.

However, some apartment developers and builders say that a construction worker shortage that was realized about two years ago still lingers. When asked at March’s 2014 Crittenden Multifamily Conference in Dallas about construction challenges today, one pointed to the high cost of labor – and lack of it.

“Where we’re just getting pummeled is on labor costs,” said Doug Chesnut, CEO of Dallas-based Streetlights Residential. “All of our labor is going to Midland to work in oil patches. They can make 50-100 percent more out there. So, we’re seeing our subs really struggling to show up with fully staffed crews.”

Labor Pool Shows Signs of Deficits as Construction Ramps Up

In 2012, home building and construction started a slow chug but fewer skilled workers kept crews lean, enough that some contractors raided others at job sites. While the fallout of 2008-09 left many construction workers without a job, the pool of available labor had shrunk by the time the economy ramped back up.

Thousands of carpenters, masons and sheet rockers cashed in on higher paying wages in the ensuing oil and natural gas boom, which now stands as a bit of boondoggle in some areas for the apartment industry. The demand for housing is up, especially in oil patch communities that have doubled and tripled in population overnight but finding qualified workers to build housing has been a challenge.

And those who didn’t go to the oilfields have found work in other industries.

Associated General Contractors of America (AGCA) Chief Economist Ken Simonson points out that although the unemployment rate for construction workers went from 18.8 percent in November 2010 to 8.6 percent in November 2013, the majority of the 890,000 who went back to work didn’t do so in construction. During that span, the industry added only 327,000 employees.

“That means most of those experienced workers left the industry, at least for now,” he wrote on the organization’s website.

Simonson said that contractors likely will have to spend more on wages, benefits and bonuses to get workers back on the job site. Until they come back, you can bet that overtime will run high.

Slowdowns May Be the Norm as Construction Workforce Heals

Fewer workers can lead to slower build times, which isn’t always welcome in a market like today where apartment demand is up. And developers and construction companies may have to endure the shortfall for a little longer while trying to keep projects on schedule.

In his testimony before the Senate Banking Committee’s Subcommittee on Economic Policy in early May, NAHB economist Robert Dietz said that even though home construction is poised to grow that worker shortages in some markets will persist.

The industry can’t replace veteran workers fast enough, and even has had a difficult time retaining newer craftsmen.

AGCA officials attribute a sharp drop in the number of secondary-level construction training programs over the past several years to fewer new workers replacing those who have left the business. The association is urging federal, state and local officials to adopt measures to help create training programs for future construction workers.

Developers May Need to Find Alternative Ways to Build Apartments

For now, apartment developers may need to heed the call for efficiency. Alternatives to building that require less on-site labor are spurring some hope among modular manufacturers that it might make sense to build units in factories instead of in the field.

Modular apartment units are nothing new, with several developments under way or having been recently finished. The Domain, a 444-unit project over several acres in San Jose, Calif., built in pre-fabricated sections, recently began leasing. Much of the community was assembled in a factory in Boise, Idaho.

But out in the field, construction companies are doing whatever it takes to get the job done. One Dallas-based apartment builder told The Dallas Morning News recently that the company is paying workers on the site to keep them coming back. The practice seems to be a temporary solution for a problem created by a recession that pushed people – especially younger ones – out of the industry.

And that may leave some in the apartment vertical feeling the pinch that can go along with an economy that is building steam.

 

 (Image source: Shutterstock)

 


Contributing Editor, Property Management Insider
President, Ballpark Impressions, LLC

author photo two

Tim Blackwell is a long-time publishing and printing executive in the Dallas/Fort Worth area who writes about the multifamily housing and transportation industries. He has contributed numerous articles to Property Management Insider, and worked as a newspaper reporter in the D/FW area. Blackwell is president of Ballpark Impressions, and publishes the Cowcatcher Magazine. He is a member of the Fort Worth Chapter/Society of Professional Journalists.

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