Austin’s growth driving up costs of labor

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In the past six years the number of Austin building permits has increased more than 25 percent, according to city data.

During the same timeframe, the number of 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 overall 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.

Supply and demand

In Austin, the shortage is noticeable because of the vast amount of construction underway and in the pipeline. Steven Burch, president of 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 you 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.

Construction Outlook

The Associated General Contractors of America polls contractors each year on trends and concerns. In the latest survey completed in December, 131 Texas firms responded to the survey about what is affecting their firm the most, including a shortage of hourly skilled, or craft-worker, positions. (via Source: Associated General Contractors of America/Community Impact Newspaper)

“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.

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.”

Labor issues

According to an AGC survey of 131 firms in Texas, 49 percent of firms polled reported worker shortages are their biggest concern.

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.”

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 places besides 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.”

Cause and effect

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.”

Sonny 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.

Austin residential and commercial building permits

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Amy Denney
Amy has been reporting in community journalism since 2007. She worked in the Chicago suburbs for three years before migrating south and joined Community Impact Newspaper in September 2010. Amy has been editor of the Northwest Austin publication since August 2012 and she is also the transportation beat reporter for the Austin area.
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