There’s a rather precarious challenge facing the construction industry. Over the past two years, the prices of new homes have skyrocketed, remaining elevated as a result of a shortage in supply. The obvious solution is to boost the supply, but construction companies have had a hard time finding qualified, skilled labor.
As a result of the labor shortage, construction companies have had to increase their pay scales to boom-time levels or even beyond. Such expenses are then passed on to homebuyers in the form of increased prices, increasing prices well beyond what the supply shortage already is.
That is, as long as homebuyers tolerate the increased costs, which they’re now starting to shy away from, causing sales in the Spring quarter to be rather sluggish.
According to the National Association of Home Builders’ chief economist David Crowe, this labor shortage slams buyers with expensive delays in addition to the aforementioned higher prices. “It’s a direct impact on the cost of the home because you have to pay more for the resources to build it,” says Crowe. “And it’s an indirect increase because it delays final delivery of the home, and that costs money, too.”
“Price increase are going to be huge, because people are going to start demanding more money,” explains Peter Cramp, President and Owner of Porch to Pier. “As the older experts retire, it becomes harder to find good new people to replace them. The real issue is not that we have a shortage of labor, but a shortage of skilled labor.”
Although this seems to be painted as bad news, it’s realistically quite good. This labor shortage is a problem that other industries would to have instead of their other woes. It means that the industry is growing–it just needs to get the labor.
According international property and construction consultancy Rider Levett Bucknall, the projections for this quarter and beyond are quite optimistic. Their research indicates that the market for houses will fuel the need for construction projects. What’s more, the National Association of Home Builders is anticipating housing totals to increase from 2013’s 924,000 to about 1.15 million in 2014.
Of course, as good as that news may be, the only way the construction industry can grow is if it’s able to end its labor shortage. Many left the construction industry because of the recession, but now that pay rates are climbing so high, it could also bring them back.