Katy’s cost of construction


The ripple effect of the construction industry’s shrinking labor pool is beginning to reach businesses in the Greater Houston area.

Katy's cost of construction“Over the last five years, it’s created a large issue for us just with regard to the amount of work that was starting to go on in Houston with the oil and gas [industry]booming and then the influx of people moving to Houston and the growth of the Houston market,” said Todd Granato, president of Webber LLC’s commercial division and former president of PepperLawson Construction, which has constructed projects in the greater Katy area, including Katy ISD’s newest schools.

Webber, based in The Woodlands, acquired PepperLawson in 2016.

Over the past five years, the number of construction workers increased 14 percent in the Houston/Fort Bend County metropolitan area, according to U.S. Bureau of Labor Statistics data. Despite an increase in the number of 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 would like to have,” said Ken Simonson, chief economist for the Associated General Contractors of America.

Supply and demand

Katy's cost of constructionThe shortage is noticeable because of the vast amount of construction underway and in the pipeline. Steven Burch, president and chief operating officer of 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 a 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 ultraselective about who [they]do business with,” he said.

Granato said the construction labor force has been looking elsewhere for jobs.

“It seemed like our labor force that we use for construction over the last 20 years here started taking oil and gas jobs,” he said.

After the recent oil and gas downturn, however, Granato said he noticed workers were coming back to construction but wanted to be paid more to align with the higher pay previously in oil and gas. He said it ends up increasing the cost of construction.

“Now, you’ve got labor [that]is really blowing the bottom out of the market,” Granato said.

Bud Walters, a Katy resident, owner of Pieper Houston Electric and president of American Subcontractors Association Houston Chapter, said part of the issue is there are fewer skilled laborers coming from high schools.

“All mamas want their babies to go on to college, but I’ve got a foreman electrician making north of $100,000 a year,” Walters said. “You don’t normally hear that in high school. We’ve lost a great number of kids coming into the trades because they’d rather try to go through college, and some kids are set for college and some aren’t.”

Walters said instead of getting young adults at age 18, sending them through an apprenticeship program and into the career field, he gets potential workers when they are much older.

Immigration is another piece to the puzzle, said Stan Marek, CEO of Marek Brothers Systems Inc., a Houston-based residential and commercial construction company.

“People are using a lot of undocumented labor, and it really hurts the good guys that try to do it right,” Marek said. “The way they do this [is]they don’t hire them as employees, they hire them as independent subcontractors.”

He said the issue will not be solved until Congress passes an immigration law that gives the workers a path to legal status.

“If they’re illegal, there’s not many places they can go,” Marek said. “The workers are being held hostage because of their status. They can’t go to a legitimate employer. I can’t hire those people.”

What could exacerbate the shortage are President Donald Trump’s immigration policies and the effect on Texas’ economy and construction industry, Simonson said.

Labor issues

Katy's cost of constructionThe construction industry not only struggles with finding skilled workers but also with retaining such workers, officials said.

According to an AGC survey of 131 firms in Texas, 32 percent of companies had a hard time finding salaried and skilled hourly positions, and 27 percent found difficulty in hiring skilled hourly positions.

About 51 percent of the firms said they would continue to have a hard time filling these roles, with 54 percent reporting they have had to increase base pay and 38 percent had to provide bonuses or incentives to workers. The biggest concern among these firms—with 49 percent agreeing—is worker shortages.

Bill Farnum, vice president of preconstruction 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.”

Chuck Gremillion, the executive director of Houston-based Construction Career Collaborative, which sets out to train workers and boost the industry, said the skilled labor shortage is overall extremely complex. In Houston, it dates back to about 1982 with the city’s first oil recession.

Houston was overbuilt after the bust, Gremillion said. Construction companies looked to cut costs and moved away from unions, which cost more for labor but also trained employees. With a lack of training, the skilled workforce then retired, creating a labor deficit, he said.

Additionally, as the industry obtains bids by providing the lowest cost for a project, companies started employing workers as subcontractors who did not receive benefits.

“They were able to cut about 30-35 percent of their labor expense that way,” Gremillion said. “It created a race to the bottom, obviously.”

When more students began going to college, the industry looked to undocumented labor to get projects done, he said. Since wages have remained stagnant, what was once a way to earn a middle-class living is not the case anymore, he said.

“Since the industry wasn’t training people, it was throwing unskilled labor at the problem, which, of course, was just adding to the problem,” Gremillion said.

Cause and effect

Katy's cost of constructionDead 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 company 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.”

Farnum said a developer or project owner pays for any downtime through taxes or rent payments.

“Just to get a site development permit used to take 90-120 days,” he said. “Now if you get one in six to nine months, you’re lucky.”

Besides increased labor costs, some companies are reporting having to pay more for the cost of construction materials, including steel, copper and aluminum, Simonson said.

“What we saw for several years—2010 to mid-2016—was that the cost of goods used in construction, materials that wind up in a project and items consumed by contractors, that those costs were declining on a year-over-year basis,” he said. “But starting last year, they saw an increase.”

Additional reporting by Olivia Lueckemeyer

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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. As senior editor, she is the point person for the company's partnership with Fox7 Austin.
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