Labor shortages and an increase in material costs cause heartburn among Austin's construction community – Community Impact Newspaper

The ripple effect of the construction industry’s shrinking labor pool is beginning to reach businesses in Southwest Austin. Servando Varela III, owner of home remodel and repair service Anything Around the House, said he is suffering the consequences secondhand through a lack of subcontractors.

“If for some reason I need to sub[contract] a particular job out, the contractor may tell me, ‘I don’t have enough people to do it today or get it done this week,’” Varela said.

Delays such as this are not uncommon during a time when building permits have increased more than 25 percent in the past six years in Austin, according to city data. During the same time, the number of overall construction workers increased by more than 27 percent in the Austin-Round Rock metropolitan area, according to U.S. Bureau of Labor Statistics data.

Despite an increase in the number of workers, many construction sites are understaffed, namely with skilled laborers who must have specific certifications or licensing before they can perform work.

“We have been adding workers, but companies are saying they aren’t the workers they ideally they would like to have,” said Ken Simonson, chief economist for the Associated General Contractors of America.

Varela also pointed to Austin’s high cost of living as a reason why construction workers are leaving the city. In cities such as San Antonio, construction workers are paid a similar rate but are under less pressure to make ends meet.

“The lack of workers does create a problem for us because we have to pay our employees more to keep them,” he said. “They have to be able find a place to live, a car to drive, afford utility bills and feed their families.”

In Austin, the shortage is noticeable because of the vast amount of construction underway and in the pipeline. Steven Burch, president and chief operating officer of Austin-based White Construction Co., said it comes down to supply and demand.

“Since people have choices and there’s a lot of work, prices are going up—not because it costs a lot more [for materials but] in labor, it definitely does—because a lot of the subcontractors are competing for the same people, and the way they get them is they pay them more,” he said.

As a result, Burch said many owners have to rethink the project’s viability to stand up to delays and come up with a more realistic time frame and budget.

“When there’s more demand than there is supply, [subcontractors] can raise the price and [they] can be ultra selective about who [they] do business with,” he said.

The lack of workers is a two-fold issue, said Parker Holt, property and casualty broker and construction practice leader with insurance firm Higginbotham, and president of the Central Texas Subcontractors Association.

When the oil boom occurred in the early 2010s in South Texas, many construction workers left their jobs in search of high-paying posts in the oil industry, Holt said. Although that industry has slowed, Holt said the jobs have not returned as quickly, and the labor pool is still thin.

“These guys are having a hard time finding good help,” he said. “A lot of times they are losing their good help who are going down the street to a job that has a better compensation plan or insurance plan.”

Because more infrastructure work—roads, bridges, transit and airports—is still on the horizon in Austin, Holt said he thinks the problem will continue.

“If there’s light at end of tunnel, that might be ambitious,” he said. “This is going to be an issue for a while.”

What could exacerbate the shortage is President Donald Trump’s immigration policies and the effect on Texas’ economy and construction industry, Simonson said.

“If people are being denied entry or deported or getting the message that the U.S. is not a welcoming place for this talent, this will put a pinch on the workforce and will slow economic growth on area that depends on that talent,” he said.

Varela said the subcontractors he works with are already experiencing the impact of Trump’s rhetoric against undocumented immigrants.

“[Undocumented workers] are scared to work,” he said. “Depending on their status, or the way they answer questions, they could be arrested that day.”

Jose Garza, executive director of Workers Defense Project—an Austin-based organization that advocates for the rights of low-income workers, especially construction workers—said Trump’s executive order, which removes priorities for the standards by which immigration enforcement officials can detain people, will decimate the Texas economy.

“We’re seeing a slowdown because people aren’t coming to work,” he said. “That policy really starts to have a ripple effect on our economy.”

According to an AGC survey of 131 firms in Texas, 32 percent of companies had a hard time finding salaried and skilled hourly positions, and 27 percent found difficulty in hiring skilled hourly positions.

About 51 percent of the firms said theywould continue to have a hard time filling these roles, with 54 percent reporting they have had to increase base pay and 38 percent had to provide bonuses or incentives to workers. The biggest concern among these firms is worker shortages at 49 percent.

Bill Farnum, vice president of pre-construction services for White Construction, said seasoned construction workers are retiring from the industry.

“There’s not as much interest in that profession,” he said. “It’s not the profession it was 20 years ago. People have many more choices for similar pay.”NWA-2017-03-28-3

Holt said the industry has been asking school districts to reinforce trade programs in high school that would put students on a path toward skilled labor.

Garza said about 50 percent of Texas construction workers are undocumented immigrants, and 60 percent report not having basic training. He said few placesbesides labor unions offer workforce training programs.

“There’s a disconnect between the labor market and training options for that labor market and an insufficient emphasis on training,” he said.

Garza said the construction industry needs to focus on increased wages, increased training and a path to middle-wage jobs.

“You can’t import labor from other places in the country or from around the world,” he said. “We depend on a strong, well-skilled labor pool. If there is a labor shortage, it means businesses grind to a halt.”

Dead time is a concern for developers and business owners alike. The increased time to find workers not only can set a project back by months—it also affects businesses’ bottom lines because they have to pay more to obtain workers.

“They run into unexpected overtime costs because they couldn’t find workers,” Simonson said. “Once [the contractor] tells the owner a firm bid, they’re stuck with those costs.”

NWA-2017-03-28-4Sonny Horton, president of BCS Concrete Structures, a local concrete subcontractor firm, said he had to start paying workers $2 more per hour to get positions filled, resulting in higher-than-expected labor costs.

“We’re just trying to keep our eye on the market a little better,” he said.

Farnum said a developer or project owner pays for any downtime, including through taxes or rent payments.

“Just to get a site development permit used to take 90-120 days,” he said. “Now if you get one in six to nine months, you’re lucky.”

Besides increased labor costs, some firms are reporting having to start paying more for the cost of construction materials, including steel, copper and aluminum, Simonson said.

“What we saw for several years, 2010 to mid-2016, was that the cost of goods used in construction, materials that wind up in a project and items consumed by contractors, that those costs were declining on a year-over-year basis,” he said. “But starting last year they saw an increase.”

Varela said this is causing his customers heartburn. The average homeowner is not aware of the trend and therefore finds it difficult to accept an increase in the price of services.

“We give an estimate, and we research our prices,” he said. “We know our estimates are fair, but people don’t have the knowledge of how much materials are actually costing.”

Additional reporting by Olivia Lueckemeyer

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