High Demand and Limited Supply Drive Construction Labor Costs Up
The law of supply and demand is one of the basic drivers of construction economics. It is integral to cost and profit for any construction business from materials suppliers to on site labor and contractors. Labor supply is closely tied to the demand side of the curve and the supply of skilled craftsman is fast becoming an issue that will drive the cost of labor up until a solution can be found.
Today we are witnessing the long-term results from those programs that encouraged more students to go to college and discouraged students from taking those courses that lead to the building trades.
A recent article in one of the Houston area community newspapers pointed out just how difficult the labor supply issue is becoming in Katy located on the west side of Houston and one of the fastest growing suburbs in the region.
As the article titled, “Katy’s cost of construction” reports, “Fewer technical students, undocumented labor play role in ongoing labor shortage.”
The article is a good overview of the issues facing the construction industry in Houston where many skilled craft workers are facing retirement or they moved to the industrial construction side of the industry when commercial hit the bottom in 2008-09. Now that the Oil and Gas business is in a slump, the skilled are coming back to the commercial construction industry, but are demanding higher wages that they got in oil and gas. Todd Granato, president of Webber LLC’s commercial division and former president of Pepper Lawson Construction, said “It seemed like our labor force that we use for construction over the last 20 years here started taking oil and gas jobs."
After the recent oil and gas downturn, however, Granato said he noticed workers were coming back to construction but wanted to be paid more to align with the higher pay previously in oil and gas. He said it ends up increasing the cost of construction.
With the growing labor shortage, many of the subcontractors are paying higher wages in order to win the competition to hire and retain the best skilled craft workers to meet the demand of new projects underwritten by new bond issues in parts of the Houston region like Katy.
According to Stan Marek, CEO of Marek Brothers Systems, Inc. a Specialty contractor headquartered in Houston, “People are using a lot of undocumented labor, and it really hurts the good guys that try to do it right. The way they do this [is] they don’t hire them as employees, they hire them as independent subcontractors.” He said the issue will not be solved until Congress passes an immigration law that gives the workers a path to legal status.
“If they’re illegal, there’s not many places they can go,” Marek said. “The workers are being held hostage because of their status. They can’t go to a legitimate employer. I can’t hire those people.”
Ken Simonson, chief economist of the Associated General Contractors of America and an author at ConstructionCitizen.com, indicates, “What could exacerbate the shortage are President Donald Trump’s immigration policies and the effect on Texas’ economy and construction industry.”
Complex issues in a time of change and transition, driven by the demand and supply curve have created a set of issues for the residential and commercial construction industry that will only be solved by some “out of the box” thinking in Congress and throughout the industry.
By Jim Kollaer for Construction Citizen
Trenton H. Cotney
Florida Bar Certified Construction Lawyer
Trent Cotney, P.A.
8621 E. Dr. Martin Luther King, Jr. Blvd
Tampa, FL 33610
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