Story #4 of 10 in Haight’s series of Top Ten Stories in California Construction for 2015
California’s economy has for the most part rebounded from the Great Recession. The demand for new housing is steadily climbing, and builders are once again buying land and planning new communities. While not to pre-recession levels, the number of new housing shows is nonetheless impressive. According to the North State Building Industry Association, in 2011, at the depth of the Great Recession, only 1,386 homes were sold in the Greater Sacramento area. This year, the number will exceed 3,087. Statewide, more than 40,000 single family houses will be built. An additional 50,000 multi-family units are expected to be constructed.
However, this new building boom is facing substantial headwinds. While the drought is on everyone’s minds, an almost equal impediment is the State’s shortage of qualified construction workers. According to U.S.A. Today, Housing starts have increased 11.3% so far this year compared to the same period in 2014 to a post-recession high, government figures show. Commercial construction spending rose 9.7% during the first half of 2015. This figure is borne out by the National Association of Homebuilders (“Association”), which reported the national rate for housing growth has increased 26% nationally. The Association reports these figures would be even higher if builders had could find more skilled laborers. Another study by the Associated General Contractors of American found national unemployment in the construction industry at mid-year 2015 fell to the lowest level since 2001. Simply put, demand for workers far exceeds supply.
Economists and building experts believe a myriad of factors caused the labor shortage. Primarily, they point to the massive industry slowdown which resulted in layoffs of hundreds of thousands of workers. The laid off workers found work in other industries, where the salaries were greater and the physical work demands were fewer. Others simply “aged out” and stopped working all together. Additionally, housing construction also has become more complex since the Great Recession, with new energy efficiency and water conservation requirements, stricter environmental standards and construction technologies. These new requirements make it harder for untrained workers to be immediately integrated into the construction workforce.
A fourth, and somewhat controversial rationale for the labor shortage is tied to immigration. As immigration policies become more restrictive, and better opportunities in South America there is a documented decrease in Mexican immigration to the United States. According to Home building analyst John Burns Real Estate Consulting, Inc., Commerce Department data shows that there are 570,000 fewer Mexican born construction workers in the U.S. than at the construction industry’s peak in 2007. According to the same study, Mexican-born construction workers in the U.S. numbered 1.332 million last year compared with 1.89 million in 2007. Commerce Department figures show a 67% decline in immigration to the U.S. from Mexico from 2006 to 2013. This combined with the increasing requirement to use E-Verify has unquestionably limited the number of immigrants working in the construction trades.
What is the net effect of this shortage? The most obvious is an increase in labor costs. The U.S. Department of Labor reports that hourly earnings for construction workers are substantially outpacing raises for workers in non-construction fields. This has created a domino effect which has resulted in higher prices for new homes. A secondary impact of the labor shortage is the delays in completing new homes.
Is there a solution to the labor shortage? While there is not a “one size fits all” approach, most in the industry believe that creating training programs should be a primary goal. The California Homebuilding Foundation (founded in 1978 through the CBIA) is focusing on supporting and expanding industry funded trade schools such as the Building Industry Technology Academy provide a way to ensure a steady supply of skilled labor for California’s construction industry. It will be a few years before training and vocational schools can turn out skilled construction workers. In the meantime, it appears the construction industry will continue to face a labor hurdle with unknown consequences.
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