The Construction Labor Problem Will Only Get Worse

Of the 9.2 million unfilled jobs in the economy, nearly 300,000 are in the construction sector, according to the Bureau of Labor Statistics.

This problem may get worse before it gets better.

“We expect labor to be a rising challenge for construction firms as the overall labor market heals in the coming quarters,” NAHB Chief Economist Robert Dietz wrote in a recent blog post.

Reciting the latest BLS stats, Dietz says that the economy added 850,000 jobs, but the unemployment rate, at 5.9%, didn’t really move. While residential construction added 15,200 jobs on a net basis for the month, nonresidential construction lost 22,600.

Dietz says that more workers are needed in the construction industry for housing supply to increase. To accomplish this, labor force participation needs to be better than its current 61.6% rate for both construction and the overall economy.

Other observers have pointed out issues with labor in the construction industry.

Dr. Masaki Oishi, co-founder and chairman of MarketSpace Capital, says a labor shortage exists in “the really experienced construction workers.” But it isn’t as acute for construction workers who don’t have specialized skill sets. 

“It seems that a lot of construction workers were laid off during the pandemic and really haven’t come back yet,” Oishi says. “That could be because the number of projects going forward hasn’t come back to former levels yet. But it could also be because they’ve just been out of work for so long that they don’t really have the motivation to jump right back in.”

To build enough new housing to keep pace with the demand created by economic, demographic and migration factors, developers need workers. Oishi, like many other business executives, thinks government policy is at least partially to blame.

“There was a lot of support for workers who were laid off during the COVID pandemic,” Oishi says. “That is a good thing. But if the government is going to continue to subsidize a certain lifestyle where we’re essentially paying people to stay at home, that will not help the labor shortage. I think there does have to be some carrot-and-stick incentives to get people back to work.”

While labor problems should linger into the future, Dietz says materials price increases are starting to subside.

Data from Random Lengths shows that the cost of framing lumber has dropped roughly 50% over the past seven weeks, but prices paid by builders have declined by a fraction of that amount. In fact, NAHB says the prices quoted to builders are at record highs. 

NAHB cites the supply chain as a significant reason for that disconnect. Eventually, builders should realize those savings, though. However, pricing for OSB and other materials remains high and some deliveries are still being delayed.

Materials prices have forced builders to take action. While 62% of builders report frequently raising sales prices, 59% indicate they have pre-ordered materials to manage supply-chain concerns. Forty-five percent have put price escalation clauses in sales contracts. Another 11% took the dramatic action of canceling sales contracts because of material challenges.