In Business Economics, Vol. 49 No. 4, (2014) economists Gad Levanon, Ben Cheng, and Michael Pattera laid out a scenario that the construction industry would face significant skilled work force challenges in the near future, as the number of entrants to the industry did not exceed the numbers of workers leaving the field.
This situation applied to other fields as well, in varying degrees, that the researchers categorized them as tight vs slack fields. Construction fit into the tight category.
And while no one could have predicted the extent of COVID-19, the virus’s impact on the construction and related fields certainly exacerbated the predicted challenges. Simply put, in April 2020, nonresidential construction lost over 500,000 jobs. So, might construction labor be doomed for a labor shortage over the next 12 months and how can proactive project management approaches mitigate those challenges on real estate projects?
Construction Labor Shortages
In July of 2022, the nonresidential construction field added 13,000 jobs (up over 300,000 each year) according to Associated Builders and Contractors (ABC) analysis of data obtained from the U.S. Bureau of Labor Statistics. The overall rate of unemployment in the field remained a historically low 3.5%.
“…ongoing weakness in certain commercial real estate segments, sky-high materials prices, and shortages of skilled construction workers have forestalled a growing number of projects by suppressing demand at a time when the cost of delivering construction services remains elevated,” ABC Chief Economist Anirban Basu said in a press release.
Despite the growth in job openings, construction, like most industries, is struggling to find skilled workers to fill open positions. Government data points to there being one worker for every two job openings.
A big concern for real estate investors and developers is how long and deep the impacts of labor shortages will have on current and future development of construction projects. Supply-chain issues, that are also predominantly labor driven at the sourcing, manufacturing and transportation aspects, combine with trade labor shortages to profoundly impact project schedules at most stages. And if those aren’t enough, municipalities are struggling with retirements and unfilled positions that stymie both permit plans review and site inspections.
No one wants projects to linger. Lost hours always amount to lost money. And in a highly competitive labor market we need to keep and attract the best talent we can. However, there are several ways you can mitigate this situation.
Three Ways to Mitigate Labor Shortages
Project managers and owner’s representatives can prevent and deal with construction and supply chain labor issues. The Real Projectives’ team works hard to manage risks and drive results. We offer three key strategies to mitigate them as follows.
1. Identify goals and vulnerabilities
The first is to explore and identify with the entire project team what the critical paths are and where the most known and potential vulnerabilities lie. Equally important is defining what goals are most essential to success so that appropriate contingencies in time and money can be included in the schedule and budget.
2. Prepare to buy materials and equipment earlier
Second, is to convince our clients, equity partners and lenders to be prepared to buy and fund purchases of key materials and equipment much sooner than historically done. Recently we have been placing early orders for structural steel, electrical gear, membrane roofing, mechanical equipment, and others. If the project site is unable to properly store the materials on early arrival, we arrange for them to be held in bonded warehouses. While this increases costs and some protection risks, it markedly improves availability of key resources when needed.
3. Monitor staff capabilities
Thirdly, we ask of each design and construction company about how they are staffing each project and what other work they are undertaking to monitor the capability and capacity of both the technical and managerial players to plan, manage and do what they need to do individually and collectively. We will help them source additional consultants and subcontractors to supplement as necessary.
If you’re planning a new real estate development or renovation construction project, we’d love to discuss the risks and options to help you overcome construction labor and supply chain challenges. Contact us today or call us at 888.357.7342 to discuss how leveraging our knowledge, expertise, and ambition could drive your next project or portfolio to success.