Will Labor Shortages Quiet the Building Boom?

High demand and low interest rates have made the past few years a great time to build. With those fundamentals largely still in place (interest rates are expected to continue to rise), building contractors predict another strong year in 2018:  75% of respondents to a December 2017 Associated General Contractors of America survey plan to hire in 2018.

But will they find the workers for whom they’re looking?  82% of the aforementioned AGCA survey respondents predicted hiring challenges during 2018 – higher than 2017, when 76% foresaw such difficulties.

The supply of skilled construction labor is under pressure from multiple angles, including:

• Retiring baby boomers
• Tighter enforcement of immigration regulations
• Lack of career appeal to Millennials

To attract millennials, contractors must increase wages, bonuses and benefits.  That’s good news for workers, but not contractors; construction already pays nearly 10% above the average U.S. non-farm private-sector job.  Should wage increases not attract sufficient new workers, contractors may need to further increase wages, adding additional margin pressure.

A bright spot for contractors’ profits will be recent corporate tax law changes.  In particular, the new accelerated tax depreciation rules and cut in headline corporate tax rate should give contractors heightened cash flexibility.

Otherwise, the government doesn’t seem to be doing the industry many favors in 2018.  Residential-focused contractors may be unfavorably impacted by the new cap on mortgage interest tax deductions.  Additionally, price increases driven by recently proposed steel and aluminum tariffs may pressure supply costs.  Finally, the long-awaited infrastructure plan remains far from adoption.  In 2017, many in the sector hoped an infrastructure program would further increase demand, but the unfavorable response to the long-awaited plan outlined last month suggests it won’t soon be enacted.

In the long run, automation may provide relief for contractors’ labor shortage, but likely not in the near-term.  Automated masons and driver-less bulldozers may be in the industry’s future.  In the short run, however, people remain prized commodities to contractors.