The Labor Shortage’s Impact on Multifamily Development

Image by Joe Holland via Unsplash

Housing inventory and affordability will continue to be weakened by the shortage of skilled construction labor, according to a new report by the Home Builders Institute (HBI).

The estimations contained in the HBI Fall 2021 Construction Labor Market Report are based on a new analysis of Bureau of Labor Statistics data by the National Association of Home Builders (NAHB). The number of new workers needed yearly to keep up with demand is estimated to be 740,000 each over the next three years.

While exacerbated by the pandemic, the shortage of construction workers can be traced back to the Great Recession of 2008-09.

“The industry lost a million and a half works during that time,” Robert Dietz, chief economist for Washington, D.C.-based NAHB. “It’s added workers back during what was a long recovery in home construction.

“But we simply have not added as many workers as needed and the workforce has aged. A key challenge for the home building and non-residential construction industry is recruiting, training and retaining workers.”

The implications are as stark for multifamily as any other sector. Approximately 400,000 to 500,000 apartments need to be built yearly to keep pace with household formation growth.

“Doing so requires a workforce of about a half million,” Dietz said. “We need to recruit, train and retain workers in the multifamily space to meet this goal.”

Market overview

The HBI report offers a number of other key findings. The number of open construction sector positions averages between 300,000 and 400,000 monthly. Residential construction represents about 3.1 million of the total construction employment of 7.42 million. Construction sector self-employment tallies 22 percent of today’s labor force, a decrease from the 26 percent in 2010. Women comprise a modestly growing share of construction employment, up from 10.3 percent in 2019 to 10.9 percent in 2020.

Asked whether some projects will be delayed because there are not enough trades to go around in some markets, Dietz responded that this phenomenon has indeed occurred in recent years.

“In fact, lack of labor is a key constraint to explain why housing was underbuilt over the last few years, particularly in high-growth markets,” he said.

Smaller markets with high population growth and comparatively lower initial population levels, such as high-growth markets in the Mountain States, have been particularly affected, he said.

“However large labor shortages are also found in larger markets that nonetheless have high home construction levels,” he added. “For example, Texas has three of the top five home construction markets—Dallas, Houston and Austin—and all suffer from a lack of skilled labor.”

Among the different strategies to address the labor shortage, the most important is recruiting younger workers who have recently graduated from high school and community colleges, Dietz said, adding, “It’s also about getting people trained in the industry, because it’s a skilled labor shortage. Through training we can increase labor productivity, for more construction output per worker. And with greater productivity, you get higher wage growth and a virtuous cycle, in turn attracting more people to the field.”

Middle skills

In recent years, a renewed focus has been placed on motivating high school and community college students to train for “middle skills” jobs. Doing so is important given the U.S. faces what Dietz terms a “middle skills crisis.” The crisis results from putting too little emphasis on the vocational training upon which the country once depended.

“I think the combination of higher student loan debt, poor graduation rates from four-year universities and declining labor force participation rates—meaning workers on the sidelines—indicates there is potential for real economic and social outcomes from advancing the middle skills sector,” Dietz said.

“That’s the area of the economy from which small businesses form. We’ve seen more business flow to larger companies in the pandemic, which has been particularly hard on small businesses,” he added. “When you get people in the trades, these people after a few years of earning can go on to start their own businesses. Getting more people trained as electricians and carpenters, as well as nurses and other skilled positions, is a good thing for our economy.”

Late last month, a report indicated labor shortages and inflation have increased the expenses of operating senior housing communities nationwide.