U.S. home construction experienced sharp declines in September, decreasing by 4.7 percent?the largest drop in six months. This was largely the result of hurricanes Harvey and Irma, which devastated Houston, Florida, and U.S. territories in the Caribbean, leading to a temporary halt in homebuilding. However, the decline was also reflective of a larger and more pervasive problem in the industry: there simply aren’t enough workers.
The construction industry has been plagued by labor shortages for the past several years, and the problem continues to worsen. Labor scarcity delays construction start times, as employers need to staff their projects before they can begin work. This reduces efficiency and can increase costs, which are passed onto homebuyers. The long-term effects of the hurricanes and other disasters such as the forest fires ravaging California will only make matters worse, as these will require significant home rebuilding, further increasing demand for labor.
Construction employers have increased wages to attract more workers, which also places upward pressure on home prices, but this has failed to solve the problem. According to surveys from the National Association of Homebuilders (NAHB), 58 percent of employers indicate that there is a labor shortage. Meanwhile, wages grew by 3.6 percent among construction staff in 2016, and are expected to rise by another 3.4 percent in 2017. Comparatively, median wages for private U.S. workers grew by 2.4 percent in 2016 and by 2 percent between January and September of 2017.
How Did We Get Here?
These labor shortages can be traced to the 2006-07 collapse of the housing market, which triggered the Great Recession and led to massive layoffs in the construction sector?an industry that relies heavily on immigrant labor. Roughly one-tenth of all foreign-born workers are employed in construction, compared to around 5 percent of native-born workers. The recession caused many immigrants to return to their home countries due to the lack of job prospects.
However, as housing demand has rebounded in recent years?single-family home prices have increased by roughly 30 percent since 2012, according to the U.S. House Price Index?lower immigration levels have collided with renewed demand in the industry, creating labor shortages. Indeed, the number of job openings in the construction industry grew by 14 percent between August 2016 and August 2017, the most recent month for which data are available. Many who left the workforce during the recession have gone to other industries and have not returned to construction, and fewer young workers are entering the skilled trades, in part due to the downturn in vocational and occupational training in schools.
“The industry lost 450,000 skilled workers during the recession and they are not coming back fast enough,” according to Ed Brady, Senior Officer at NAHB. “There is simply not enough skilled labor supply to meet demand for housing construction.”
Immigration Can Help
Broadly speaking, immigration plays an important role in plugging labor gaps and complementing the native-born labor force. This is especially true for immigrant-heavy industries like construction. Boosting immigration can help mitigate the labor challenges facing the industry, as it would increase labor supply, which could lead to efficiency gains and cost-savings from reducing construction start times. Conversely, policies that seek to restrict levels of job-seeking immigrants will likely exacerbate labor shortages, especially when considering the decline in labor force participation among native-born workers.
Ultimately, boosting immigration could go a long way in remedying the labor shortages plaguing the construction industry. And while the 4.7 percent drop in home building was primarily the result of natural disasters, policymakers should recognize that many homes will need to be rebuilt because of these disasters, and prioritize reforms to the immigration system that work to grow the labor force. Such reforms could boost efficiency, reduce costs, and support industries that are seriously short on help.