Commercial Real Estate, Capital, Insurance, Leasing & Management

Blame The Labor Shortage For Rising Construction Costs Continuing Into 2018

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Nick Sanfilippo explains how developers can help keep their construction costs down.

As the number of construction projects across the U.S. continues to rise, so does the price tag for these developments.   

One of the main drivers behind soaring costs has been the growing construction labor shortage. Proposed national infrastructure projects and continued demand from the private sector could put national shortages at over 1 million tradesmen. 

“Construction costs for raw materials are not really rising,” Franklin Street Senior Vice President of Project Management Nick Sanfilippo said. “It is really the labor force that is driving prices.”

Sanfilippo provides project management and consulting services for clients on projects ranging from tenant build-outs to new developments. As the volume of construction projects has risen nationwide, he has seen contractors become more selective in choosing their projects because of the lack of sufficient labor. More than one-third of contractors have been forced to turn down jobs.

An aging workforce has worsened the shortage. Millennials have avoided vocational and trade schools. About 27% of millennial women and 21% of millennial men have completed a bachelor’s degree, versus 17% of baby boomer men and 14% of baby boomer women. 

Perception is part of the problem. A recent survey of 18- to 25-year-olds from the National Association of Home Builders revealed only 3% of young people were interested in pursuing construction as a career. Most surveyed wanted a less physically demanding job.

They could be missing out on a major economic opportunity for stable job growth and income.

“Right now, construction is a very lucrative business,” Sanfilippo said. “There is a perception of the industry as not being a very attractive field, but there is a lot of money to be made. Once the younger talent sees the gold mine, their interest will shift to it.”

The ongoing battle between union and nonunion workers also factors into rising construction costs. While some cities and states require the use of union workers on construction projects of a certain size, contractors have turned to nonunion labor as a cost-cutting measure. 

In Atlanta, the West and Midwest, nonunion work is more prevalent than in the North, Sanfilippo said. But developers still rely on skilled workers to handle more specialized jobs like mechanical and electrical work. Despite the growing market share of nounion labor, proper training and education continue to be major hurdles. 

Annually, labor costs have increased by 1.9% to 2.9%. Sanfilippo sees no sign of that plateauing in the near future. Developers should lean on existing relationships with contractors to get the best price in a tight market.

Having a project manager who knows how to leverage both analytical and interpersonal skills helps. 

“If you have a relationship with a contractor, they are going to give you preferred pricing,” Sanfilippo said. “A talented project manager is also essential. Simple things like paying your subcontractors consistently keeps them on the job, drives schedules faster and keeps things cheaper.”

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