Construction Rises but Can Builders Finish With so Few Hands?

February 1st, 2024 by Drew Vass, Executive Editor

The labor market showed significant improvements over 2022-23. But for construction, that trend was destined to change, experts warned [DWM]. By mid-2023, the number of workers needed had reached the mid-300,000 range, after peaking at over 500,000. Those improvements were attributed mostly to a decrease in starts among single-family homes, said Robert Dietz, chief economist for the National Association of Home Builders (NAHB). “My expectation is that number is going to go back up again,” Dietz said.

And so, it has.

Starts for new single-family homes rose to over a million in November and December 2023. Wednesday, officials for the Associated Builders and Contractors (ABC) said the construction industry will need to attract an estimated 501,000 additional workers on top of the normal pace of hiring to meet demand.

“Not addressing the shortage through an all-of-the-above approach to workforce development will slow improvements to our shared built environment, worker productivity, living standards and the places where we heal, learn, play, work and gather,” said Michael Bellaman, ABC president and CEO.

ABC’s model uses historical relationships between inflation-adjusted growth for construction spending, taken from the U.S. Census Bureau’s Value of Construction Put in Place Survey, and payroll construction employment, sourced from the U.S. Bureau of Labor Statistics.

“Broadly, there are two factors shaping the interaction between construction worker supply and demand,” said ABC chief economist Anirban Basu. “There are structural factors, including outsized retirement levels, megaprojects in several private and public construction segments and cultural factors that encourage too few young people to enter the skilled construction trades.

Among the key issues preventing progress on labor is a lack of diversity, as only 6% of construction workers are women. But there are also other “structural influences” at work, Basu and other experts suggest—including a lack of productivity. Over the last 30 years, data shows productivity in residential construction in the range of 13% to 14%, while for the overall economy it’s as high as 50%, experts tell [DWM].

The industry is also set to face a wave of retirements.

“More than one in five construction workers are [age] 55 or older, meaning that retirement will continue to contract the industry’s workforce,” Basu said. “These are the most experienced workers, and their departures are especially concerning.”

As younger workers fill in, they’re expected to be less productive than the more experienced workers they replace.

For this and other reasons, “The construction sector continues to clamor for labor,” said Richard Branch, chief economist for Dodge Construction Network.

According to ABC officials, in 2025, the industry will need to add nearly 454,000 new workers on top of normal hiring. That’s presuming that construction spending growth slows significantly next year, they said.

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