Historically, summer is the boom time of housing construction. But this year it’s not.
We wrote in a recent piece about the low unemployment rate had dropped to 4.5%. And in some states it’s much lower than even that: Iowa, Idaho, Colorado, Indiana and North Dakota are all in the 2% range.
This is great news—for skilled workers. It means they’re in high demand, and that they can quit one job and get another very quickly, so employers need to know how to treat them better, through pay or perks.
But the lack of workers is leading to a big problem: reduced productivity on the job site due to the absence of workers.
“It’s driving up costs, for homebuilders and providers of non-residential services,” said Anirban Basu, the chief economist at Associated Builders and Contractors (ABC). “The shortages are even greater in non-residential construction.”
During the housing crisis of 2008, more than 2 million jobs were lost. About 30% of those workers entered other industries and decided not to come back.
Worse still, the skilled trades are low in numbers, too. “Construction contractors can’t find welders, can’t find electricians, can’t find air conditioner specialists,” Basu said. And the future looks bleak. According to the Associated General Contractors of California, for every five experienced workers who retire from construction, only one apprentice enters. Trade schools and vocational training programs report that they’re having a hard time attracting students as well. By the year 2024, California alone projects they’ll have 200,000 unfilled jobs. As a frightening comparison, the entire United States currently is short 200,000 workers.
A long-running report by McKinsey consultancy measures the productivity of various industries. These are calculated in "value-added per hour". In other words, how much value can one worker produce in one hour. While some industries have boomed in the last decades--retail and manufacturing both are growing in the double digits--the construction industry is stagnant. This is not due to a lack of production by workers; it is not that workers are putting their feet up and having coffee and a smoke. Instead, it's, first, that construction has relatively high fixed costs compared to other industries: expanding operations to hire new workers means buying new expensive equipment, everything from hard hats and steel-toed boots to drills and nail guns to bulldozers and cranes. Compare that to retail, where a new employee might just need a logo on a polo shirt. But, second, construction is cyclical, and when things are more bust than boom, a construction owner is sitting on fixed costs: those new tools and machines, and "value-added per hour" drops like a stone.
There have been many ideas bandied about as to how to fix this productivity problem. A start is for the government to mitigate somewhat these up-and-down cycles in the industry. 20-30% of construction jobs are public works. If the state can build highways and libraries when housings starts are low, construction companies won't have to lay off as many workers, and that new equipment is still getting used.
There is also a lot of talk about pre-fab construction, which has the potential to help with quality control and high standards, therefore, productivity. Here again, government can step in and make uniform building codes and forward-thinking zoning laws to allow for pre-fab buildings. But with pre-fab, even in downturns, you can build a house, fold it up, and store it for later.
All of these things will help both workers and contractors. There's even room in pre-fab for an increase in robotics, which will help with that massive labor shortage. But the issue with all of these things--well-timed government contracts, pre-fab investment, law changes--is that we have to start working on them now, while things are booming, so that we'll be prepared for the bust.