In October, the Associated General Contractors reported that the number of job seekers looking for construction had fallen to the lowest level since 2006. After construction employers added 12,000 jobs in October, the sector's unemployment rate fell to 6.4 percent. Residential building and specialty trade contractors added a combined 8,000 employees since September and 130,600 (6.0 percent) over 12 months.
And things don’t seem to easing up anytime soon. "For the past several months, the construction industry has added jobs at double the all-industry rate of 1.9 percent rate," said Ken Simonson, the association's chief economist. "Construction wages, which were already higher than the private-sector average, rose 2.6 percent in the last year—the fastest rate since early 2010—as contractors ramped up their search for qualified workers."
For a builder looking to increase starts in 2015, these numbers could be concerning. The labor environment is already tight. As the markets for subs continues to tighten, how can builders compete?
The easy answer is payments. Most builders are going to have to pay more than they did in 2009 or 2010. With more work and fewer subs, it’s a simple question of supply and demand. But to understand how much to pay, Tony L. Callahan, president and CEO of supply changing consultant The Callahan Consulting Group (CCG), argues that a builder needs to have visibility into the supply chain and the contractors costs.
“A trade that has cut it to the bone in downturn, needs to increase their margin,” Callahan says. “But how much of an increase? Once you have that transparency and that cost you can better ascertain how much.”
But there may be other ways to attract quality subs than by simply paying the most. “As the contractor pool has slimmed down, that talent pool is smaller,” says Kevin Wilson, vice president purchasing and national accounts for Irvine, Calif.-based TRI Pointe. “We need to look for strategic ways to be the builder of choice. I don’t mean by running out and giving everybody a price increase, but by looking for ways to provide a more beneficial relationship with our subs.”
For instance, paying faster or having a well-managed site can set a builder apart. “It may mean going from a monthly payroll to every two weeks,” Wilson says. “It might be using various online auto pay tools. And, it may mean just having our sites ready so once they walk on site, they’re profitable from the minute their guys hits our job site.”
Wilson says the quality and organization of a job site can have a big effect on the success of subcontractor crews working there. And, can serve as a big reason they decide to return for future jobs. “I would say that we are more focused on keeping track and monitoring how good our superintendents are doing,” Wilson says. “If a builder has a horribly managed job site, I’m only going to be able to attract the worst subs ones or have to pay a lot of money.”
The delivery of materials also plays a role in the quality of the job site. “Purchasing and estimating is a part of the overall ability to attract and retain good subs,” says Mike Schmidt, vice president of operations at Irvine, Calif.-based MBK Homes. “If they go on site and you’re rolling subs and trades through, the logistics become unbearable for subs. If your superintendent schedules the guy right, they’ll want to come back.”