There are a few factors making it difficult for homebuilders to keep up with demand for new real estate, both on the residential and commercial sides of the business. For example, supply chain disruptions have led to both material shortages and higher prices for essential components like lumber. But perhaps the biggest constraint of all is the current labor shortage that is affecting much of the U.S. economy.
Here's a rundown of some of the current data about just how bad the skilled labor shortage is, and when we might start to see things turn a corner.
How bad is the skilled labor shortage and what can be done?
To be sure, the skilled labor shortage in construction isn't exactly new. But it's getting worse. According to a report by Angi, 77% of tradespeople say the labor shortage is a problem, up from 71% a year ago. Of skilled tradespeople, 30% report having to turn down jobs, and many report that it's preventing them from growing their businesses. And 68% of construction businesses report struggles when it comes to hiring skilled workers.
There are a few reasons for the problem, but unlike what we're seeing in other fields, it isn't necessarily a problem of worker satisfaction. Throughout the U.S. workforce, we're seeing more frequent resignations as workers feel more empowered to set their own terms for employment due to increased competition for labor.
However, job satisfaction in construction trades is quite high: 83% of skilled workers report satisfaction in their job choice. Wages are also quite attractive; for example, the average general contractor earns 53% more than the U.S. average income.
So what is causing the shortage? For one thing, 62% of survey respondents believe there's a general lack of respect for blue-collar work, and 54% think trade schools get overlooked in favor of universities. And a majority say that a clear pathway for women to enter the skilled trades would make a difference. It's easy to see why -- after all, 97% of construction supervisors are male, as are nearly 90% of all skilled workers in construction.
There is also a recruiting strategy problem. For example, only 37% of construction businesses use online job postings to recruit candidates, compared with the more than 80% of Americans who look for jobs online. The most common way skilled workers are recruited remains word-of-mouth, and this will likely have to change before the problem gets better.
Broad effects on the real estate sector
The skilled labor shortage in construction is affecting the real estate sector in a variety of ways. For starters, it is contributing to an imbalance in supply and demand in several areas of commercial real estate. Industrial real estate is one example -- leading industrial real estate investment trust (REIT) Prologis recently reported record-high occupancy rates and said that space is effectively sold out in several major markets.
E-commerce growth is creating tremendous demand, and industrial developers simply can't build fast enough to meet that demand.
Student housing is another example. Students are returning to school in full force, but the supply of student housing is expected to be at an 11-year low in 2022. Leading student housing developer, American Campus Communities, mentioned the labor market when discussing the low supply.
On the residential side, several homebuilders have reported growing backlogs of homes to build, and some have even cut off new orders altogether until they're able to keep up with demand.
And it isn't just construction -- the renovation market is feeling the effects too. Zillow recently announced that it wouldn't buy any more homes through its Zillow Offers segment in 2021. One big reason is that there simply aren't enough contractors available to make needed repairs before the homes can be resold.
One thing is for sure -- we're seeing quite a bit of disruption in the skilled labor market, and it's causing delays and other problems for construction. The good news is that the problem seems like a solvable one, but it will require some big changes in the industry.