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Builders: Expect no quick end to labor shortage


A critical shortage of construction workers has been one of the major factors blamed for somewhat sluggish new-home building. Some economists noted a recent uptick in hiring, but National Association of Home Builders (NAHB) Chief Economist Robert Dietz discussed why he believes the industry's labor shortage may be growing more severe. 

Some economists have noted an uptick in construction hiring, but your recent Eye on Housing blog suggests the shortages may be getting worse. Where does the industry stand right now in terms of the labor shortage?

robdietzWe tend to focus on the openings number, which is the current unfilled number.The openings data gives a sense of how many construction firms are out there with a job to fill, but they can’t fill.

In this case, in March of 2018, the number of unfilled jobs in the construction sector was 248,000. That was an increase from February. February was 180,000. That is a seasonal factor, though. That kind of growth you expect. Year over year, in March of 2017, the number of openings was 179,000. That number of 248,000 in March [2018] was real near the cycle high, which was 255,000 in July of last year.

Does this indicate a greater employment shortage?

The actual intensity of the shortage remains. It is a critical shortage. It hasn’t increased substantially over the last year. It is beginning to get a little bit worse. The way I track that is by looking at the home-openings rate, which is the percent of industry employment plus current job openings. You can smooth the data out by using a 12-month moving average, and it takes out some of the seasonality. Basically, what it shows is that currently we are at a cycle high on the job-openings rate.

In fact, it has been higher since November 2016 than the peak rate we saw for unfilled jobs during the housing boom. The driver behind that is that the demand for construction activity is growing. We have growth within the housing space. We have growth in the residential market, the home-improvement market. There is clearly growth in single-family construction. As an agenda item, it is clear that the industry, in coordination with local governments and trade schools, community colleges and other stakeholders, really has to recruit the next generation of construction workers. That is going to be a slow process.  

Are there particular trades that stand out?

We just published the data for remodelers, since May is remodeling month. It is pretty close to what we see in the single-family sector. The top shortages were reported for carpenters, framing crews, bricklayers and masons, drywall installers and concrete workers. That list is very similar to what you see on the single-family side.

Why aren’t people going into the construction trades?

Two reasons: One is cyclical and the other is more structural. The cyclical reason is that the homebuilding industry — that is the broader single-family/multifamily and remodeling — lost a million and a half positions during the Great Recession. So, there was a huge amount of job loss. People who had skills, had experience, went off to find other jobs — transportation, the energy sector.

The other is more structural, some generational change. We surveyed young people — people 18 to 25 — about the kind of industries that they would be interested in as a career. Construction rated not great. Some of the reasons given were that it was seasonal, that it was physical labor. People wanted careers in business, or essentially working behind a computer screen. So that represents almost a generational challenge.

The other is a critique of the industry. Worker productivity within construction has been relatively flat. In fact, in residential construction, it has only grown about 3 percent since 1993.

Is that why you recently blogged that the industry needs to get more out of the available workers?

Yes, we need to build more with less. What does that mean? It means a combination of things. It means changing how we build homes. Currently, 3 percent of homes are modular construction, essentially factory built. Maybe that share needs to rise, so you can capture some economies of scale. I am not going to say that share is going to rise substantially, but every little bit helps. Across the industry, more components of the home are being assembled in factories and less work is being done on the worksite. A good example are trusses that are pre-assembled in a factory and then transported to a home-construction site. More activities like that would be a way of raising productivity. Then, there are other tools that could come online in the next five to 10 years. Some of them are a ways off, but if you have a persistent labor shortage, maybe it makes sense to have the ability to have a bricklaying robot or an automatic drywalling machine.

Is there a target number of new employees that would not necessarily address the entire labor shortage, but relieve the pressure substantially?

What we have got is a rolling shortage of about 200,000 workers. That doesn’t mean that if you suddenly got tomorrow 200,000 workers into the industry, that the labor shortage would be gone. At a given months worth of data, that seems to be what we are short.

There needs to be more new construction. So the question is why is single-family construction this year only growing by about 7 percent, instead of 10 to 15 percent? Well, the answer is, in terms of basic economics, there are limits on the amount of land moving through the land-development pipeline [and] the number of workers that are available. The issue that has tied labor availability as a supply-side bottleneck for homebuilding this year is lumber. A lot of prices have dramatically increased, in part due to the 21 percent lumber tariffs that are imposed on Canadian softwood lumber. That is where we get about a third of the lumber used to frame new homes in the United States. If you look at the price data in markets right now, lumber prices are up almost 60 percent since the start of ’16. That has added about $6,000 to the construction costs of a typical newly built home. So, lumber and labor, those are the two headline concerns and risks for homebuilding this year, but the demand [for new homes] is really positive. 


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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