There is a labor shortage in the residential construction industry, and it is bound to get worse before it gets better.
Home builders are providing the best gauge of how severe the shortage is and how concerned they are about it. In a survey taken in January at the National Association of Home Builders convention in Dallas, 75 percent of the more than 700 builders queried said that labor availability was the most significant problem they expected to face in 1999.
A decade ago, only 29 percent of builders were concerned about the problem. Growth areas such as the Southwest and South have long experienced such shortages. And while the Northeast and Midwest slogged through recession and home-building slowdowns in the early 1990s, for example, booming metropolitan areas such as Las Vegas and Phoenix drew from an oversupply of labor in slower regions.
Because of the labor surplus, there was little growth in real wages in the construction industry for several years.
The labor picture has changed dramatically since 1995. The sustained building boom has resulted in the lowest unemployment rate in the construction industry since 1970.
Last year's new-home market was stronger than expected, heightening concern about labor availability. Sales in 1998 topped 888,000, or 118,000 more than the NAHB's chief economist, David H. Seiders, had predicted in January of that year.
More important for builders, more houses were started in 1998 than in 1997--about 150,000 more. So far this year, the rate of home starts is 120,000 units above last year's, further stretching labor resources.
In a recent speech, Seiders indicated that though some slowing of the general economy and housing markets is expected this year, the change of pace will not be that abrupt. Housing production will remain strong, at an annual rate of 1.52 million starts by the end of the year, he said.
It is often difficult to assess the importance of the housing industry to the overall economy, but if NAHB statistics are any guide, the construction of 1,000 single-family houses generates 2,448 jobs in construction and related industries, about $79.4 million in wages and more than $42.5 million in federal, state and local taxes and fees.
That means 3.7 million jobs will depend on construction of single-family houses in the United States this year. Single-family and multifamily construction plus remodeling account for $328 billion annually, or 4 percent of the gross domestic product.
The Labor Department has reported that 240,000 new workers must be enlisted and trained annually to meet the nation's building needs for the foreseeable future.
Gary G. Schaal, vice president of sales and marketing for Orleans Home Builders in Bensalem, Pa., said that some of the shortage resulted from the shakeout in the contracting industry during the recession of the 1990s.
"There's not the same number as there once were, before the recession," Schaal said. "A lot of carpenters, bricklayers and others went into other businesses or moved to other areas, and no one came along to take their places."
According to Schaal, most builders use subcontractors from start to finish, from digging and pouring the foundation to painting the walls. So the subcontractors, not the builders, are experiencing the labor problem firsthand. But if they have problems, the builders will, too.
"It's fortunate that we have been using the same subcontractors for years, so we haven't had huge problems," Schaal said. "But increased construction volume means that builders have to go out and hire more subs, and there just aren't many available."
Because builders hire subcontractors rather than use their own employees to construct houses, they have tended to leave training to contractors and trade unions.
Apprenticeship programs, which are typically registered with the Department of Labor's Bureau of Apprenticeship and Training or state apprenticeship councils, are designed to safeguard the welfare of apprentices and to maintain the quality of training by enforcing standards and practices.
There are 800 registered apprenticeship programs covering the construction trades throughout the United States, according to the Home Builders Institute, which promotes training and education programs for the NAHB.
Apprenticeship programs involve extensive on-the-job training and classroom instruction. Generally, for each year spent in a program, an apprentice receives 2,000 hours of on-the-job training and a minimum of 144 hours in the classroom.
The length of such programs varies with the trade involved, although four years is typical.
In Philadelphia, the United Brotherhood of Carpenters and Joiners of America and the Associated General Contractors of America jointly operate an apprentice program for carpenters in a facility behind Northeast Philadelphia Airport.
Each year, the top fourth-year apprentices compete for cash awards and prizes by working on a construction project that is kept secret until the day of the competition.
On April 30, 24 apprentices representing eight Pennsylvania counties competed, not only for prizes but also to be seen at work by prospective employers. Yet even 24 top-notch carpenters are hardly enough to meet current or future demand.
With the supply of experienced labor stretched to the limit, subcontractors have started paying premium wages for skilled framers, bricklayers and finish carpenters.
While labor shortages increase costs to subcontractors and builders, those increases aren't necessarily going to increase the price of your house--just the cost of building it. If the builder can't get enough framing carpenters on site, it can also mean delays.
"We raise prices based on market demand, not on labor costs," said Zvi Barzilay, senior vice president of Toll Brothers Inc., which builds in 18 states. "We have been increasing prices because the demand for luxury housing is strong."
A shortage of building materials such as drywall and insulation has compounded the labor problem, area builders said, even though none would acknowledge any delays in delivery of houses to buyers because of it.
"The labor market is strung tight as a drum," Seiders told the NAHB's Construction Forecast Conference in April. "In some cases, it is taking 20 days to a month longer to finish a house because of that situation."
In addition, "insulation prices were up about 10 percent in March from March 1998, and climbing at an annual rate of 20 percent during the first quarter," Seiders said.
Even more critical are shortages of gypsum wallboard. Drywall prices will increase 9 percent this year, Seiders said, and cement and brick prices and delivery times also are expected to increase.
What is being done to ensure a continued supply of qualified labor? So far, builders, major suppliers and others have invested almost $10 million in education and training programs. For example, State Farm Insurance Cos., which paid $3.7 billion in claims to Florida homeowners after Hurricane Andrew struck in 1992, donated $200,000 in 1997 to create certification procedures and guidelines to ensure zero-defect construction.
The Industry-Education Alliance, which the NAHB administers, trains carpentry framers at 10 sites throughout the country. More than 600 framers have been trained thus far in the six-month, full-time program, part of which trainees spend on job sites supported by local builders' associations.
In addition, the Home Builders Institute trains and finds employment for more than 2,000 federal Job Corps graduates in the building trades each year.
Although the NAHB is making a serious effort to recruit and train more workers for the housing industry, the group's retiring executive vice president, Kent Colton, said: "It is likely that builders will increasingly turn to the use of premanufactured components in the home-building process or modular homes, as the pool of skilled workers shrinks."
Don Martin, a former NAHB president, said builders need to solve the problem by getting involved in training programs. Yet of the hundreds of local and regional home builders' associations throughout the country, only 30 are involved in such training.
"Realistically, the only way sufficient numbers of skilled workers can be guaranteed is if builders themselves commit to becoming an integral part of the training process," Martin said.