The Ongoing Concern for Skilled Laborers in the Construction Industry is Getting Worse
During the last seven years, the construction market has demonstrated healthy and steady growth. The recent natural disasters across the United States, Mexico and the Caribbean can only continue to impact the ever increasing gap of labor supply and demand.
A survey from the Associated General Contractors of America found that 67 percent of construction firms are having a hard time finding skilled workers like carpenters, bricklayers, electricians and plumbers. On a national level, the graph below shows the overall concern.
This labor shortage was created by the Great Recession (2008-2009) where skilled labor left the industry to find new and more reliable employment. The general consensus has been that a significant percentage stayed with their new profession and never returned to the industry.
Current labor resources are at a premium and as noted in the above chart, nearly two thirds of the employers believe it will remain that way. In fact, we are seeing repeats of previous boom times where construction crews are moving to a new project for $ .25 to $ .50 more an hour – sometimes in the middle of an assignment.
Construction represents 10% of the US GDP. Baby boomers are reaching retirement age at a rate of 10,000 a day and a good portion of the construction work force are expected to hang up their tool belt for an easier life.
In Atlanta, the industry generally expected that when the Falcons and Braves stadiums ($3.0 Billion in construction) were completed in 2017, that a significant amount of labor would return to seeking employment. Instead, the city has more than covered the work volume with new projects in Midtown, Buckhead, Perimeter and the airport. Contractors are still feeling a labor shortage. We understood from several subcontractors that they will only negotiate work or bid work that may start 6-8 months from now.
There is no relief in sight. The Commercial/Industrial sector of the AIA Architectural Billing Index (ABI) indicates for the last year, there has been an ever increasing amount of design work – translation – an even greater volume of construction is on the way.
What this means to our Owner Clients is a general trend of increasing prices. The ENR index has pegged construction inflation at 4% +/- for the past year. We are advising clients to budget 5%–7% inflation for projects currently in design. Inflation will start to increase. Correspondingly, we also believe the Federal Reserve will increase rates next year as an attempt to keep inflation in check.
In the short term, the labor shortage will continue. The current administration’s focus on more jobs and bringing investment back to the United States has a direct effect on future construction volume.
Recommendations to Clients
Our clients are wondering how long the current building boom will last. The two Economists that I follow are split on the answer. Harry Dent has been predicting an economic downturn for several years which still has not happened. ITR projects a minor downturn in late 2018 lasting until the end of 2019. Our projections have the economy continuing at its robust rate into 2019. This means – Owners should not wait for better construction pricing because we do not believe it will happen in the short term. In summary – if you want to build – start it NOW.
DRB Consulting, LLC. (“DRB”): DRB is an Atlanta-based construction project management and expert witness firm that provides in-depth advisory services to owners, lenders and developers in the real estate development, design and construction industries. DRB’s team of professionals has extensive experience in providing consulting services at all levels of business. From startups to complex turn-arounds or restructuring projects, DRB will contribute the power of perspective and knowledge that you desire with uncompromising values.