Participants of the BEX June 2019 Leading Market Series event, The Rising Cost of Construction, highlighted increased labor costs as a primary reason the total price of construction has risen so much in the last 18 months. Other factors include the rising cost of construction materials and the overall demand for construction services.
The skilled labor shortage has been making headlines for years. BEX research points to a statewide construction labor force that peaked in 2006 with 240K, then was slashed to 110K at the low point of 2010. The recession forced out nearly 55 percent of the labor force, who, in turn, either left the state to stay in the industry, or found another way to make a living that wouldn’t have such peaks and valleys and isn’t as physically demanding.
That loss of skilled tradespeople is proving incredibly difficult to replace. Even in today’s state of the market, where construction is in high demand, the labor force is much less efficient, requiring more man-hours to produce the same amount of construction output.
Roundtable participants explain that in order to attract and retain talent, they are paying more in wages. Roger Rowley of Hunter Contracting stated that he has seen internal labor costs increase by approximately 9 percent since the beginning of 2019. Similarly, Benjamin Rathke of Ferguson explained that while their labor force is mostly warehouse and trucking, they offer a robust career development to employees through Ferguson University. All participants agree that career development is a necessary investment for them as employers in order to attract and retain talent. Mike Bontrager of Adolfson & Peterson noted that the trades on his projects have reported increases in labor costs of 15%-30% annually with firms actively poaching craft labor promising $1/hr above their current rate.
Regulation & Safety
It is no secret that construction has a nasty reputation as an unsafe profession. Decades of increased focus on safety has not removed the stigma entirely. Andy Clarke of Roofing Southwest has noted that in the last 5-10 years even he has seen a significant uptick in the project cost of increased safety. They currently employ 14 full-time safety professionals and have added hard barricades to every project as a standard safety procedure on every project.
In a similar track, Roofing Southwest went on to describe the increased cost of regulation and code compliance. For instance, when significant losses occur from major weather events, insurance companies lobby for tighter specifications, e.g. double the amount of attachments required for metal flashing. This translates into a higher construction cost with both more materials and manpower to install.
Push to Hold Schedule
While less efficient tradespeople are working, clients are pushing to hold the overall construction schedule. The longstanding saying in construction is ‘You have a triangle, at each point is Schedule, Cost, Quality; choose two.” The market is currently choosing to give on cost and push to hold the quality and schedule points.
Filling the Pipeline
While career development paths do exist for people once they enter the trades, a major shortfall of the industry is how to attract young people to consider construction as a viable career path. Mike Bontrager with Adolfson & Peterson is chairing the Build Your Future Arizona campaign through the Greater Phoenix Chamber of Commerce.
Mike Bontrager with Adolfson & Peterson Construction and Mike Greenawalt with Rosendin Electric described that the industry needs to reach not only kids, but needs to educate parents and school counselors and teachers. These influential roles can help direct kids to the trades by including that as an option for persons who do not wish to pursue a college education, instead starting to work and earn a living wage right out of high school. After a few years of experience, tradespeople earn a very comfortable living while not burdened with student loan debt.
Build Your Future Arizona is one of several initiatives by industry groups to attract individuals into the construction industry. Another event is the annual Arizona Construction Career Days which happens each November. Now two separate events, one in Phoenix, one in Tucson, the two-day hands on educational event allows thousands of high school students the opportunity to interact with construction companies and preview the options in the industry.