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Labor Shortage Pinches Construction Industry

(By Dale King) Nearly a million workers in construction trades lost their jobs during the “Great Recession” and its aftershocks that slammed the United States in 2008 and subsequent years.

Ironically, that same economic downtown continues to adversely impact the construction trade. Only today, it is causing a labor shortage that is forcing industry costs up, even though the price of many commodities has dropped, says a report from CBRE Group, the Los Angeles-based commercial real estate services and investment firm.

The state of Texas – particularly areas such as Houston, Dallas/Fort Worth and Austin – have fared better in the building cost arena than other parts of the nation. In fact, Austin has lower construction labor and materials prices than other major U.S. markets, said Andrea Cross, Americas head of office research for CBRE.

“U.S. employment in construction occupations declined by 985,000, or 15.8%, between 2005 and 2015,” Cross told Realty News Report. “As construction jobs disappeared during the recession, many workers switched to occupations with better job prospects, or retired.”

“In addition,” she said, “many workers who had migrated to the U.S. to work in the booming construction industry moved back to their home countries. Thus, when construction activity started to pick up, developers and contractors faced growing competition for the smaller pool of construction laborers, particularly skilled workers.”

For most markets, annual construction cost inflation accelerated in January 2016, following limited growth in 2015. An exception was Austin, said Cross, where costs have been flat this year. Austin significantly outpaced other markets in the past few years, with a cumulative Construction Cost Index (CCI) change of 17.4 percent since January 2011.

Employment in the construction industry in Texas cities like Dallas/Fort Worth, Houston and Austin “ran counter to the national trend” from 2005 to 2015, said Cross. “These markets had relatively minor housing market corrections compared with metros such as Phoenix and Los Angeles, which had the largest decreases in construction employment among those studied in our report.”

Also, the Texas economy rebounded rapidly following the recession, “driving demand for and development of both residential and commercial property in those markets.”

Robust development activity has driven strong wage growth in Texas markets. Cross said Houston (45.2%), Austin (31.6%) and Dallas/Fort Worth (31%) registered some of the steepest wage hikes in the decade between 2005 and 2015, though salaries were fairly low to begin with when compared to other U.S. markets. “Thus, they had further room to increase compared with already high-cost markets like New York, Chicago and San Francisco.”

While wages varied considerably nationwide, construction material costs didn’t change a great deal from area to area. “The most expensive [materials] market examined in our report, San Francisco, differed from the least expensive market, Austin, by just six percentage points,” Cross said. “Materials costs in both Dallas/Fort Worth and Houston are on par with the national average.”

Cross said the U.S. Producer Price Index (PPI) “for final demand construction trended downward between October 2015 and March 2016, with particularly large decreases in such areas as asphalt, No. 2 diesel, iron and steel products.”

The impact of shortages in trained construction laborers was compounded, said Cross, “by increased fees from contractors who charged more not just because they could now afford to be more selective, but also because they were stretched across a larger number of projects and would need to use less-experienced crews for some projects.”

What does the CBRE researcher see for the future? “It will take time and training to replenish the construction workforce, particularly in the skilled trades.”

June 22, 2016

Dale King is a contributing writer for Realty News Report , a Texas-based publication.  

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