Over the past couple of weeks, metropolitan areas across the Gulf and Atlantic coasts have been hunkering down in the face of hurricane-force winds and torrential rains. Now that both Harvey and Irma are in the rearview mirror, cities, households, and investors are focusing their attention on rebuilding.
But there are questions. Specifically, where will the labor come from to help with the massive effort, and what will the impact be on underway or proposed CRE projects?
So speculated Jeff Myers, Managing Consultant on the CoStar Portfolio Strategy team, as he recently explored labor statistics and how they will impact rebuilding efforts in the face of the two massive storms.
“The unemployment rate for construction workers was the lowest August reading in at least 17 years, meaning that there is not a lot of slack in that part of the labor force to toss at cleanup efforts,” explained Myers. “Nationally, a lot of workers who left the sector or retired over the past decade have not been replaced, and the number of workers is 11% below its peak.
“However, in many markets the amount of commercial construction taking place is creating substantial demand for builders, pushing payrolls to record levels,” he continued. “In Houston, the number of people employed in this sector is about 4% above its mid-2000s peak. All in all, this metro area has the second-largest number of construction workers in the U.S., behind only New York, and its concentration of these jobs (50% above the U.S. benchmark) is the highest of the 54 National Index metros.”
Given the tight construction labor pool, wage growth for those workers has jumped, Myers explained, noting that wage increases for both residential and commercial construction workers have outpaced gains experienced by workers in many other sectors over the past five years. This rise in wages has already impacted the cost and timeline to get projects completed in metros across the country.
But even with a storm-induced wage bump stemming from increased demand for services, the historically below-average wages for construction workers in Houston and Florida may have limited appeal to large swaths of the industry. This is especially true for those workers in typically higher-paying Northeast, West Coast, and Midwestern metros. In Houston, the overall mean hourly wage is about 7% above the national average, but for construction workers it is about 6% lower than that benchmark.
However, given the potential spread between storm-related construction wages in Houston and South Florida and standard wages through much of the Southeast and Great Plains, there is a greater chance that some workers from those areas will migrate for the better pay.
“For investors in cities that lose workers, this movement will mean getting projects done could become more challenging and expensive,” explained Myers. “For investors in metros receiving workers, this shift should help the recovery efforts to go faster, but it will not correct the overall labor crunch enough to guarantee timelines or push costs down.”