Home builders are suffering a severe worker shortage as the housing market struggles to return to more normal production levels. Total housing starts are half of what they were at the peak of the boom, but labor shortages are reported at a higher frequency than when the industry was building over 2 million homes a year. The causes and solutions are many.
During the boom and bust, NAHB surveyed builders, the majority of whom were facing a worker shortage that increased substantially as the industry started to recover. In mid-2015, over half the builders were suffering some or serious labor shortages, compared with 20% in mid-2012. The greatest shortages are for framers and carpenters, regardless of whether they’re direct employees or subcontractors.
The Census Bureau recently published a report utilizing detailed employment records over the past 15 years. About 60% of former construction workers either went to some other industry or remain unemployed. Only 40% returned to construction after the bust.
At least two reasons explain the seemingly permanent loss of so many construction workers. First, the downturn was long and severe. Housing production fell 80% from peak to trough, and the collapse lasted six years before any significant uptick began. Few individuals could withstand an unemployment period that long and no unemployment program lasts that long. A second explanation for the loss— especially for those who remain unemployed, retired early, or went back to school—rests with where they worked before construction. The boom did bring new workers into construction. From 2000 to 2006, the number of construction workers increased four times as fast as all workers. The largest contributing sector to construction was the service, hospitality, and retail industry. When the newest construction workers were laid off, many were reluctant to return to the lower average wage service sector. This may explain why one-quarter of the former construction workforce is no longer in the labor force.
The 40% that did change jobs went to the trade and business services sectors. Many became truck drivers, landscapers, and general laborers. The rise in energy exploration also would seem to be a jobs destination, but the Census study found only 5% of former construction workers went into that field.
Not only did the construction sector lose more than half the workforce, but new entrants also are rare. The share of new hires under 45 went from 73% of the construction workforce to 63% from 2000 to 2011. The decline was most significant for the 19 to 24 year olds who dropped their participation in construction from 18% at the peak to 13% most recently while maintaining or increasing their participation in other industries. This youngest group of job entrants was forming their career path at a time when construction (particularly residential construction) was on the decline and unpredictable. In addition, many school systems dropped vocational education programs as they faced declining budgets.
Construction pay scales have not kept their relatively high position over the bust and start of the recovery. In 1990, residential construction workers made an average of 14% more than the general workforce. That higher level slumped to near parity and has only moved up to 4% greater than the average worker pay. Construction wages always have been above average, but less so as builders and subcontractors tried to keep workers on payroll but were unable to raise wages as other sectors did.
The solutions include raising wages and attracting more young people into home building. Wage increases will mean higher home prices, but new-home prices have not risen as fast as existing home prices so there is some room for growth. As existing home prices increase and buyers come to the table with more equity, this may not be as difficult as it has been. Attracting young people means creating a positive vision of working in home building. Promoting the participation in creating a place for a family to live and enjoy their community will enhance potential workers’ appreciation for the real reason many stay in the industry.