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Blog/April 2, 2018

Who Will Build Tomorrow?

Monthly Metrics

This question looms larger and more relative each day.  For the past several years, contractors in the Greater Houston area have been straining its existing workforce to put $25-$26 billion of construction in place, annually. This is the aggregate amount of work each year in the residential, nonresidential building and non-residential structures markets.  Builders in each of these markets report labor shortages with almost all skilled crafts; retirements continue to outpace recruits.  Travelers are dwindling as work returns to normal levels, everywhere.  Overtime is pervasive; 50-hour weeks have become standard with several crafts. This area could easily absorb 5,000 additional craftworkers right now. Hurricane Harvey’s significant damage just exacerbates this shortage despite the professional “storm chasers” and the minimally-qualified opportunists.

So, with a real worker shortage today and with researched projections* that say the amount of annual construction put in place will almost double by 2040, a critical strategic question becomes, who will build tomorrow?  Surely technology will provide some help. Offsite build – onsite install methods will expand and refine, prefabrication and modularization, perhaps using a manufacturing model and heavy robotics. Specifications will need to become more standardized to realize all that may be there. And 3-D printing may become capable of stamping out bigger structures. Jobsite robots may also become increasingly common and effective. However, even if these new methods expand and blossom, there will still be the need for skilled craft workers, large numbers of them.  Many promising programs are underway to help attract, train and retain these skilled workers, but the industry, united, must intensify and expand them.  Several current initiatives deserve comment.

A threshold priority is access to a legal immigrant work force.  It is a matter of math; there are not enough citizens in this area to fill construction jobs, even if the industry improves its recruiting rate.  Many other industries face the same facts. This industry has always relied on immigrants; they do great work; they founded great companies.  Locally, Tellepsen, Bellows, Marek, Chamberlin all have immigrant roots.  Nationally, McCarthy, Gilbane, Sundt and many others have immigrant DNA; as do most of us. Americans for Immigration Reform and The Rational Middle initiatives are two groups into which industry leaders have invested heavily.

The Construction Career Collaborative (C-3) is trying to restore construction craftwork to a financially viable and honorable blue-collar career choice.  It’s an alliance of owners, general contractors and specialty contractors.  The owners specify this will be a “C-3 Project”; accredited contractors agree to follow the guidelines for legal pay as to overtime and taxes, minimum safety training and a commitment to craft training.  A wide range of training partners have been enrolled; they include the junior college system, established training programs through AGC, ABC and AFL-CIO and, more recently, some enlightened industry non-profits.  SER Jobs for Progress is one. They have welding and several core construction classes.  In addition to building the workers, this group takes low income participants with a history of challenges and helps rebuild their lives. Contractors who employ their graduates become partners in helping SER and the worker with this noble journey.

Finally, a website called ConstructionCitizen.com is a central vehicle for education and communication.  Craft job descriptions are posted; so are jobs.  Then there are articles on current issues and trends.  It projects a contemporary “techy” industry image, almost essential to appeal to the emerging workforce and increasingly valid as jobsite technology explodes. More initiatives and wider industry support are needed. Solving the challenge of “who will build tomorrow” is in everyone’s best interest.

*The Perryman Group has projected that Houston GDP will be $998.9 billion in 2040.  Construction-put-in-place is historically and conservatively 5% of GDP.


Houston’s Monthly Metrics

The annual benchmark revisions to the employment numbers were released by the Bureau of Labor Statistics (BLS) last month. This is the BLS’s opportunity to go back and correct any incomplete data from the past, and this time, they revised Houston’s numbers all the way back to 2013. The new employment numbers (see chart) show Houston had job losses in both 2015 and 2016 before ramping up to over 60,000 jobs in 2017. While there are some concerns that the jump in 2017 is overly optimistic, the boost is likely, in part, due to Harvey as several sectors, including construction, saw job growth in the fourth quarter last year. History tells us that the boost in job creation will slowly retreat over the next year as recovery efforts subside, putting a drag on the employment numbers for 2018.

Source: Workforce Solutions

Also, new U.S. Census Bureau population estimates show Houston’s population is growth slowed from 125,005 (July 2015 – July 2016) to 94,417 (July 2016 – July 2017). The slowdown came almost exclusively from domestic in-migration, a result from our slower economy. While our 13-county region has added 950,000 residents since 2010, this slower pace, while not unexpected, will have implications for future construction and development needs.

Halliburton is forecasting oil production to dip below demand in 2018 and then remain above demand for 2019. They anticipate this will keep oil prices above $60 for 2018 before dropping into the upper $50’s in 2019. Sand, labor shortages and pipeline capacity remain issues. The tax reform passed earlier has many people making plans in the plants. The impact of the new tariffs is unknown. Contractors have already begun receiving notices of rising steel and aluminum prices, on top of already increasing prices, to cover the new tariffs, and margins are again expected to be squeezed as contractors try to pass on those increases to the owners where they can.

The light industrial market remains strong with “clear height” becoming an issue as the warehouses get higher and higher – one recently went to sixty feet according to CBRE. The trend is being driven by automation and has become pervasive enough that CBRE may change the way the space is tracked in the future (moving from square feet to cubic feet).

Businesses and residents are monitoring the discussions around the new floodplain and its requirements and cost implications. Construction Dive recently reported that Mayor Turner has said all new buildings within the city limits should be built two feet above ground and those in the 500-year floodplain should be built two feet above the expected flood level.  Beginning this year, Harris County has said most new homes have to be built to a 500-year floodplain standard even if they are within a 100-year floodplain. Questions remain around what happens to improvements to existing buildings that would require this code compliance. The school districts, for one, have properties scattered across the region that will need extensive additions and repairs over time that these new standards could wreak havoc upon.

There is also concern that some of those displaced by Harvey will not return to their homes and stay in apartments instead. John Burns Consulting reports that while the apartments are slightly overpriced in Houston, single family homes are even less affordable, with the median home price increase outpacing income growth over the last year. This means that those who were on the bubble or looking to re-enter may have an issue with affordability and decide to continue renting. On a positive note, it could bring multifamily projects back much sooner. The downside is it could have further tax implications for the school districts.

If these challenges weren’t enough, school districts are also facing Governor Abbott’s proposed tax plan that would limit local entities from collecting more than 2.5% in additional property tax revenue than the previous year unless they receive a super majority (2/3) of voter approval. As such, many districts are looking to get bonds passed sooner rather than later.

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