CRE is Facing a Labor Shortage in the Construction Trades
- Bob Brown
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This 1932 iconic photo of tradesmen casually lunching on a crossbeam during the construction of 30 Rockefeller Plaza in New York City symbolizes perfectly the spirit, grit, and determination that America has prided itself on since our country’s founding. There was a time until not too long ago that employment in the construction trades was worn as a badge of honor. Competition to join a union was fierce and one often had to rely on connections, family or otherwise, to enter the trades. But sadly, times have changed.
It is unfortunate, even ironic, during the longest economic expansion in U.S. history, and Real Capital Analytics (RCA) reporting, “U.S. commercial real estate prices rose in May at their fastest annual rate so far this year,” that the CRE industry is suffering a severe shortage of skilled tradesmen to meet the demand.
How Bad is It and What is the Impact?
The USG Corp. and the U.S. Chamber of Commerce in its Q1 2019 Commercial Construction Index reported that 70 percent of construction firms nationally said they were struggling to make deadlines because they can’t find enough skilled workers. And according to the U.S. Bureau of Labor Statistics, there are currently 300,000 unfilled jobs in the construction industry. The Bureau adds that the industry is expected to need an additional 747,000 workers by 2026.
The depth of the labor shortage is further revealed in a recent survey by the Associated General Contractors of America which shows that 79% of construction firms want to hire more employees in 2019, but the industry is only expected to supplement its workforce by .5% annually during the next ten years.
Builders and contractors faced with a labor shortage must boost salaries both to retain their own employees and to attract new ones. These increased costs are, of course, passed on to the end user - whether it’s a startup wanting to construct a new facility, an existing company planning to expand, or a municipality seeking to build an entertainment venue or renovate a public facility.
When those end users receive bids far higher than budgeted for, the project is likely to be delayed or nixed. From the contractor’s perspective, the Chamber of Commerce Report offers a quote which seems to speak for many in the industry: “My single most important concern about my business in the next 12 months is being able to bid jobs competitively and still turn a profit while paying higher labor costs.”
In this regard, The Herald Tribune of southwest Florida reported that buyers in Vue Sarasota Bay, a 144-unit condo tower learned that the project would be delayed for months due to rising labor costs.
In the public sector, two examples of the headwinds facing the industry should suffice. The Maine Department of Transportation slashed millions of dollars from its 2019 infrastructure plan because contractors submitted bids far higher than the DOT estimated, the Portland Press Herald reported. In Minnesota, the Metropolitan Council, the agency in charge of the $2 billion Southwest Light-Rail project rejected first round bids because they were higher than budgeted for.
What is the Cause of the Labor Shortage in the Construction Trades?
Probably, the main driver of the labor shortage is the Great Recession of 2007/08. During this severe economic downturn, construction slowed drastically, and vast numbers of workers found themselves unemployed - about 600,000 skilled tradesmen left the industry. Most have not returned. This shrunken labor pool is found throughout the industry: carpenters, masons, pipefitters, electricians, plumbers, etc. The yearly .5% growth forecasted for the next decade, referenced earlier, is not even close to compensating for the six-figure loss.
Today, with a strong jobs market most of these workers have other career choices which may be more lucrative, offer more opportunity for advancement, and confer a higher status in society.
Another factor seems to be generational. Millennials, for example, are much more attracted to career paths in IT, finance, and product design according to a survey by Glassdoor and reported by CNBC. The construction trades are nowhere listed among their top ten career choices.
In many high schools, shop classes have vanished, as fewer students are choosing the trades as an elective to their required coursework. And as each year passes and the economy remains strong, more and more students are encouraged to go to college, rather than choosing a trade. As a result, the industry is graying, with the average age of a tradesman now at 42.5 years according to the U.S. Bureau of Labor Statistics.
What Should the Industry Do and What is Being Done to Improve the Situation?
Studies and employment professionals recommend both increased targeted advertising and holding symposiums in high schools to inform students of the increased wages and benefits the industry is now offering. The myth that it’s difficult to support a family on a tradesman’s salary must be debunked.
The same Chamber of Commerce report adds, “The potential to attract workers under 30-years-old is one incentive for firms to invest in advanced technology. Contractors report that young employees are requesting digital tools to help them do their jobs more efficiently.” Tech advancement should be fast tracked in companies where it is lagging.
And the industry has been taking steps to address the labor shortage. Here’s a sampling:
- South Florida’s Current Builders, which has constructed more than 40,000 multifamily units and 15 million square feet of office space, has begun offering continuing education to its employees. The firm also started Current Builders University, a free program of continuing education that helps its employees move up the company’s ranks into management.
- Oleta Partners of Miami is funding a free, 6-month program to seniors at North Miami High School to learn about construction technology, plumbing, HVAC systems, and REVIT 3D modeling.
- The Master Builders of Iowa, one of the chapters of the Associated General Contractors of America recently announced a $5 million endowment to help create buzz about construction. Individual high schools and non-profits will have access to hundreds of thousands of dollars a year to fund programs that encourage the young to consider a construction career.
- The National Association of Homebuilders is sponsoring student chapters in high schools across the country – they currently have 4,500 members.
- Some of the heavier hitters in the private sector, such as Lowe’s are launching incentive programs to entice young people into the construction trades. A new workforce development initiative called “Track and Trades” aims to provide innovative career alternatives and financial support for employees to pursue a skilled trade. Some of the benefits include full tuition funding for trade skill certification, coaching and support, and placement opportunities for pre-apprenticeships in the company’s nationwide contractor network or continued growth with Lowe’s.
Hopefully, with these and many other efforts underway by the private sector, trade associations, and government, the labor shortage crisis in the construction trades may begin to ease in the not too distant future.
This united response from those various sectors outlined above offers cause for optimism and paves a path forward. It brings to mind a Mark Twain quote which occurred when he and a colleague were attending a classical music concerto in Germany. Halfway through, Twain leaned in toward his friend and whispered, “Don’t worry, it’s not as bad as it sounds.”