With the inauguration of a new U.S. President, there is guaranteed to be some uncertainty about the future. Ironically, for a man who made his fortune as a real estate developer, Donald Trump’s presidency is creating considerable uncertainty within the construction industry.
It should come as no surprise to anyone following the current U.S. real estate cycle that development is booming in markets across the country. With cranes dotting the skylines of several major cities, it would appear that 2017 is an excellent year to be in the construction business. However, the steel skeletons of these new buildings do not reveal the whole story. It is no secret to the men and women hired to build these buildings, but the construction labor market is starving for workers. This is causing delays and increasing construction costs in markets across the nation.
One of the underlying causes of this employment shortage is the mass exodus from construction jobs that occurred during the Great Recession. With the collapse of the housing market, millions of construction workers left the industry; some temporarily, and others permanently. Today, the construction labor pool is 23% smaller than it was in 2007. With fewer workers to choose from, construction companies are having a hard time executing their projects.
It is not for lack of trying. According to a recent survey by the Associated General Contractors of America, 73% of contractors are having difficulty filling positions for both hourly and salaried workers. In evidence of this, end-of-month construction job openings are at 17-year highs. There are simply not enough workers showing up to fill the open positions.
This has been a significant challenge in markets where real estate development has taken off. In some markets, contractors are increasingly turning down projects because they can’t find enough workers to complete the job. This is especially true when projects include a fine for not delivering on schedule.
One of the only effective tools contractors have to combat this crisis is to increase wages for their workers. Average hourly construction wages increased a healthy 3.2% over the past year, to $28.52. In many cases, this has not been enough. Some companies have reported having to give on-the-spot raises to prevent employees from going to a competitor.
Given this current state of affairs, one of the biggest questions facing the construction industry is how President Trump’s proposed $1 trillion in infrastructure spending could impact the labor market. Some industry experts are hoping that the press surrounding this plan will create a buzz and attract new workers into the construction industry. Others are more skeptical, claiming that infrastructure jobs typically require different skills than those used in residential and commercial construction.
A recent study published by Georgetown University is more optimistic. The authors claim that Trump’s plan will help create more than 11 million jobs over a 10-year period. This level of job creation would completely restore the construction jobs lost during the Great Recession and put the industry back on its previous trajectory, making it as if the recession had never happened. The study also claims that workers will be able to transition from traditional construction jobs to infrastructure jobs with as little as six months of training.
What could this mean for the construction industry? Right now, it means a lot of uncertainty. It is possible that millions of available jobs will attract new entrants into the industry and help alleviate the current labor shortage. It is also possible that the labor shortage will continue and its effects will be magnified as a limited workforce is spread out over even more jobs. With currently elevated wage rates failing to attract new labor into the job market, there is no guarantee that more jobs are the answer to the problem.
Recent executive orders signed by President Trump could also have dramatic impacts on the construction industry. Two controversial executive orders, signed on January 25th, propose swift actions regarding immigration and border security. These actions could have devastating consequences for the more than 10 million undocumented immigrants in the United States. To begin with, the orders call for a significant increase in Border Patrol agents and immigration officers. These officers are also granted much greater latitude regarding deportation, calling for the removal of illegal immigrants who “pose a risk” to public safety, based on the “judgement of an immigration officer”. Additionally, the executive orders strip federal grant funding from U.S. sanctuary cities that shield undocumented immigrants.
On top of the impact that these orders will have on the private lives of millions of men, women, and children, the potential impacts on the construction labor market are tremendous. In the U.S., nearly 30% of construction workers are foreign-born, according to research from the National Association of Home Builders. This research also found that immigrants account for nearly half of all drywall installers, 43% of roofers, and 60% of plaster and stucco workers in the U.S. And nearly 53% of immigrant workers were born in Mexico.
These executive orders could potentially cripple the construction industry. In the state of Texas, about 50% of construction workers are undocumented immigrants according to a study by the Workers Defense Project and the University of Texas. Removing even a portion of this group from the workforce could drastically increase the cost of building and grind new construction to a halt. As a result, many business leaders have called for caution on the part of President Trump. Douglas Yearly, CEO of Toll Brothers, has said that he hopes Trump will make informed decisions, stating decisively that “Our business is an immigrant based business.”
One of the most controversial elements of Trump’s executive orders was the call for securing “the southern border of the United States through the immediate construction of a physical wall”. Though the length of the wall is still an open question, there are almost 2,000 miles of border to secure. Working around difficult terrain including mountains, deserts, and sand dunes, constructing such a wall would be a monumental undertaking. Though there is no doubt as to the purpose of this border wall, Trump’s order is vague on the precise details of how this wall will be constructed. At an estimated cost of anywhere from $8 to $40 billion, deciding who will build the wall is second only to the question of who will pay for it.
Experts disagree on the impact that this construction project could have on the industry as a whole. Some claim that the wall could produce up to 25,000 jobs, while others claim that the project won’t stimulate U.S. employment in any meaningful way. (This would certainly be true if Mexico builds the wall as Trump has proposed.) Most experts agree, however, that any jobs created by the construction of a border wall would be temporary in nature and would not significantly impact the construction labor force once the project was complete. This is likely little consolation to those contractors who might have to delay or cancel other projects because of intense competition for workers while a wall is being built. The real effects of such a massive undertaking are very difficult to project.
In closing, it is critical to observe that any of President Trump’s proposed policies or executive orders could still be stopped from going forward. The authorization of $1 trillion in infrastructure spending will require the approval of Congress, and executive orders are never guaranteed to take effect. (President Obama ordered the closure of Guantanamo Bay in 2009, but the facility was still in use when he left office.) It is vital to remember that only Congress can make laws. Executive orders, such as authorizing the construction of a wall on the U.S. border, are a President’s attempt to enact certain measures that are interpretations of an existing law, or that are not expressly stated in a law. When these orders overreach into the realm of lawmaking, legal opposition arises.
Keeping all of this in mind, the question of how Trump’s policies will affect construction labor becomes even more difficult to answer. The only thing we know at this point in time is that the future of the construction industry is uncertain. The industry has the potential to improve considerably if more workers can be found… or things could get much, much worse. Trump has made these issues a priority for his first 100 days in office, so the one thing we can be certain of is that the construction industry will be watching the President with bated breath.