The big builders that build two out of every five of the nation's new homes collectively pay at least $8 billion a year to hire undocumented workers, according to an analysis by BIG BUILDER. And they like it that way. What they don't like to do is to think about how much more the same amount of labor would cost if proposed legislation to end illegal immigration becomes law.
The building industry has enjoyed the benefits of cheap, oftentimes illegal, labor for years and now it looks like, one way or another, those days may be over. With 15 percent of big home builders' costs directly tied to labor, builders have a giant stake in the outcome of two contentious proposals now being debated in Congress. Either version of the immigration bill would hurt. Builders could lose their illegal workers because they cannot get across the border, causing prices to rise because of worker scarcity. Or their prices will rise because they have to pay legal guest workers a more competitive market wage.
Although few experts are willing to venture a guess as to how much it would cost builders to pay for legal or guest workers, the photo: getty one effect would be dramatic. The bill for labor would be likely to increase at least $4 billion a year to at least $12 billion for on-site residential construction labor.
As industry executives peer ahead at months of uncertainty and declining sales, the last thing they want to hear is that costs are going to come under pressure—a great deal of it.
A $500,000 house, which also includes 15 percent labor costs, would see an increase of about $6,300, he says. And that does not even include the ancillary costs of items, such as tile and lumber, which are often produced by immigrant labor. The home building industry, which had $381 billion in new-home sales in 2005, would face a major adjustment in finding, hiring, and keeping their workers.
“The cost will definitely go up if there is any kind of restriction on the labor force,” says Dennis McGill, a Credit Suisse First Boston analyst. “It is going to come straight out of [builders'] margins.” McGill says there would be no effect if a builder raised the price and a buyer would be willing to pay the higher price. But “it is difficult for builders to raise prices right now,” he says. The biggest problem, economists say, is not increasing the pay of workers, but the tightening of the labor pool. The Senate proposal to give amnesty to 11 million to 12 million illegal workers would make it harder to hire them at cheaper prices, cutting the workforce of unskilled day workers who often fill in for the skilled ones. The House version of the bill offers no free ride. It would impose penalties of up to $10,000 on employers for every illegal worker hired and double that for repeat offenders, as well as jail time. There is no guarantee that any piece of legislation will fix the problem even though the Senate version, which includes the amnesty provision and is backed by President Bush, is far more liberal than the House plan.
“If you reduce the available labor, you would be bidding up the price of what remained.” says Robert Curran, managing director of Fitch Ratings, which analyzes the home building industry
In the short term, it “will come out of the builder's pocket. In the long run, it will come out of the home buyer's,” says Jamie Pirrello, COO of Mandarin Homes, an Annapolis, Md.,–based home builder. “If we cannot hire people willing to accept lower wages, we will absolutely see an increase in our costs.”
No one has actually counted how many undocumented workers reside in the United States. The PEW Hispanic Center says there are between 11 million and 12 million, but other surveys suggest that the number is as high as 40 million.