Skilled Trades Shortage Stymies Housing Recovery

Now that new homes are beginning to sell again, recovery in the housing market has met a new foe - shortages of skilled construction tradespeople willing to give up the alternative jobs they struggled to find during the hard times of double digit unemployment in our industry, and return to construction work. Some trade contractors report they are only able to fill 75% to 80% of the journeyman trade jobs needed to take on all the work offered to them.

The National Association of Home Builders reports that the five states experiencing the strongest recovery in housing starts are also finding severe shortages of framers, roofers, carpenters, and plumbers, a labor market problem which curtails even faster growth in new housing construction. Though construction industry unemployment still far exceeds the national overall unemployment rate of 7.5%, and employment in home building has increased only 5% from its 2011 all time low of 2 million workers, tradespeople who found other work during the five year industry slump are understandably reluctant to come back to the seasonal and cyclical construction workforce. Housing starts increased 47% in the last 12 months, but construction employment over the same year long period rose only 3.7%.

Half of the NAHB members surveyed report they have had projects delayed because of shortages of journeyman tradespeople, and 15% say they have refused to bid on some projects offered to them because they could not staff the jobs. Furthermore, new home price increases increased 12% from a year earlier, to an average of $247,000.00 driven by higher wages needed to attract skilled trades people back into the construction job market. NAHB estimates there are as many as 116,000 unfilled skilled construction jobs, and also that 22% of the home construction workforce is made up of foreign born workers.

NAHB chief Economist David Crowe predicts that increasing prices for construction materials, along with the skilled labor shortage, will prevent a return to the peak home construction rates of 2002-2006 until at least 2016. "We need to rebuild the infrastructure of the industry," Crowe concludes.

Bad News Dogs Chicago and Illinois Construction Markets

Non residential construction in Illinois fell nearly 30% year over year from the first quarter of 2012 to the first quarter of 2013, declining from $1 billion to $762 million. The corresponding first quarter plunge in the Chicago metropolitan market for non residential construction was a less dramatic 12%. Nationwide, the news for our industry was somewhat less pessimistic, but not very encouraging. Private residential construction , the only major market segment showing a nationwide gain, was up 0.4% in March. Private non residential construction was down 1.5% nationally, with federal government construction declining a steeper 1.7%, and state and local construction spending skidding 4.2% 

National new single family home construction rose 1.6%, and new single family home sales inched up 1.5%. New multifamily construction gained a mere 0.3%. March housing starts passed the one million mark for the first time in nearly five years. Although national unemployment hit a four year low of 7.5%, construction was the only private industry cutting jobs instead of adding them. Governments at all levels also slashed employment ranks.

Our industry continues to suffer locally and nationally, while the overall American economy expanded a modest 2.5% for the first quarter, comparing favorably with Eurozone unemployment of 12.2% and Greek and Spanish unemployment reaching as high as 27%. 

The Obama administration's April 10 budget request includes some mixed news for the construction economy, including fourteen fold increases in GSA construction and nearly three fold increases in GSA repairs and alterations, and much more modest increases of 5% in military construction, 1.5% in highway construction, and 0.9% for public transit construction. Federal construction budget cuts include 13.4% for airport improvements, 20% for EPA waste water and drinking water revolving funds, and 40% for Department of Agriculture rural drinking and waste water projects.

In the next few months and years, it looks like the driving force in any construction industry growth will be private market residential construction.

Apartments Likely Driver Of Any Chicago Construction Employment Upturn

Employment in Chicago’s construction industry has been declining by 5,000 to 6,000 jobs each month recently, dropping more steeply than any other significant metropolitan market in the United States. Ironically, the only hope for the near future arises out of the city’s and nation’s foreclosure debacle – the need for more rental apartments to house dislocated former homeowners. Though Mayor Emanuel has recently announced commitments by such corporate giants as Google, Sara Lee, MillerCoors and United Airlines to move office jobs into the city, much of that workforce will be located in existing vacant office space, such as Google’s lease of 400,000 square feet in the Merchandise Mart.

On the other hand, new apartment construction in the city is showing some slow but hopeful growth. Recently launched projects in the residential high rise market include the Kennedy family’s 500 unit, 50 story apartment tower on Wolf Point, and the 42 floor, 332 unit Summit on Lake at 73 East Lake Street, now under construction. Chris Kennedy describes the family’s Wolf Point project as “a billion dollars coming into the city when all is said and done,” including not only the 50 floors of small apartments appealing to “young people without cars” and two office towers to be built later. Forty-second ward Alderman Brendan Reilly is still dealing with community opposition to the Wolf Point project, which will obstruct the delightful views of neighborhood residents recently purchasing expensive condos nearby.

It will be years before we know whether these new rental units will be abandoned by their tenants when the housing market finally turns around, if ever, but the apartment developers are betting billions on substantially full occupancy, at least until their apartment projects can be fully depreciated and sold off as condos.

Construction Industry Employment Declines

While the overall American economy added 120,000 jobs in March, and the architecture and engineering sector gained 3,600 jobs, the construction industry as a whole lost 7,000 jobs, with gains in heavy civil construction and residential construction more than offset by losses in commercial building construction.  Ken Simpson, chief economist of Associated General Contractors of America says he believes the figures imply that skilled tradespeople are leaving the industry. Associated Builders and Contractors chief economist Anirban Basu remarks about the job decline, “The first quarter of 2012 will be judged as a step backward for the industry as construction spending levels stagnated and employment momentum disappeared.”