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A growing shortage of skilled workers is driving up construction costs for commercial real estate projects nationwide. Industry trade group, Associated Builders and Contractors (ABC) says the construction sector needs as many as 500,000 more workers in order to meet the current demand for work. With the current shortage, there just aren't enough skilled workers to complete all of the projects that builders want to start.

The problem's severity was evident in the report, "Q3-2017 Commercial Construction Index," released by the U.S. Chamber of Commerce and USG Corp., a Chicago-headquartered manufacturer of gypsum wallboard, joint compound and ceiling suspension systems.

The report characterized commercial real estate construction as "strong and healthy, but not without its challenges." It shouldn't come as a surprise that the biggest concerns were the availability, skill level and cost of skilled workers.

Top Trades With Labor Shortages

TNinety-one percent of the 206 contractors who responded to the report's survey said that they were at least moderately concerned about workforce skill levels. Ninety percent said they were at least moderately concerned about the cost of skilled labor. Fifty-three percent said they had planned to hire more workers, but finding sufficient skilled labor remained a challenge.

The top 10 building trades most affected by the shortage of skilled workers were:

  • Concrete
  • Electrical
  • Masonry
  • Interior finishes/millwork
  • Steel erection
  • Plumbing
  • Heating, ventilation and air-conditioning (HVAC)
  • Mechanical
  • Sheet metal
  • Roofing

Causes of the Labor Shortage

Builders began to warn about the shortage of skilled labor soon after the Great Recession of 2008 ended. They anticipated the problem after tens of thousands of construction workers who became unemployed during the downturn had found jobs in other industries or retired. Following that trend, fewer young people chose the career due to a perceived lack of job opportunities.

Hiring has increased in the post-recession period, but the pace hasn't kept up with the need, reported The Wall Street Journal via Fox Business. One employer reportedly hired 70 people in a two-month period, but still had close to 200 open positions to fill.

Construction spending has increased as well. According to the U.S. Census Bureau, the seasonally adjusted annualized pace of private nonresidential construction spending reached $954 billion in August. Public nonresidential construction spending added another $263 billion on a seasonally adjusted annualized basis, pushing the total to $1.2 trillion.

The current administrations budget — which calls for $200 billion and leveraged up to $1 trillion in new federal government spending for infrastructure — could exacerbate the shortage of skilled workers by creating additional demand for their labor. The ABC estimated that 600,000 more workers would be needed to complete all of the planned projects.

Outlook for a Solution

In May, ABC Chief Economist Anirban Basu mentioned that construction labor costs were rising 4-5 percent per year, significantly faster than inflation, and the outlook for employers was expected to worsen.

To address the problem, builders have broadened their job recruitment efforts, while subcontractors have created joint ventures to bid for projects and asked employees to work more. Likewise, the ABC supports a ramp-up of industry-driven training programs and apprenticeships to expand the population of skilled construction workers.