The Skilled Labor Shortage: A Long-Term Challenge

The skilled labor shortage will remain a limiting factor for homebuilders.

By Robert Dietz

While the availability and pricing of materials is the most immediate challenge facing the home building sector today, these obstacles will eventually ease, albeit slowly. Through a combination of improved supply-chain, restored logistics networks and eventual lessening of inflationary pressures, there will be improvements for the materials network associated with residential construction.

However, the skilled labor shortage will remain a significant limiting factor for home building over the next decade. Macroeconomic improvements, i.e. job creation, will make labor conditions tighter. The unemployment rate will continue to decline as this unusual expansion cycle continues. 

“There are elements of the Great Resignation story that are clearly exaggerated but there is truth to the more fundamental point that there are now fewer people holding a job or seeking a job than there were at the start of 2020.”

The labor force participation rate has declined from 63.4% right before the Covid recession to 61.9% today. And with the average age of a construction worker at 41, national demographics suggest that the workforce will continue to skew older. According to an analysis by the National Association of Home Builders (NAHB) of labor market data, the number of workers in construction who are aged 25 to 54 is now 69% of the workforce, down from almost 73% in 2015.

To a certain degree, the ability of home builders, remodelers and other firms in the residential construction sector to add workers actually improved in 2020. The unemployment rate increased to above 15%, home building was designated an essential industry due to the efforts of state, local and national home builder and industry associations, and the nonresidential construction sector experienced job losses. 

As a result, home building was one of the few sectors that experienced job gains during the recession of 2020, increasing its workforce by approximately 81,500 from February 2020 until the end of 2021.

However, this employment boost has now faded. The job openings rate in construction, a measure of open and unfilled positions, is well above 4% and is near an all-time high. At the end of 2021, there were almost 350,000 open positions in the construction sector. And for the overall economy, there are more open, unfilled jobs than there are unemployed individuals to fill them. 

There are elements of the Great Resignation story that are clearly exaggerated but there is truth to the more fundamental point that there are now fewer people holding a job or seeking a job than there were at the start of 2020.

All stakeholders in the residential construction industry need to continue to make the case for careers in construction. This includes supporting local programs run by state and local home builders associations, as well as broad efforts undertaken by the Home Builders Institute. 

NAHB estimates that the industry needs to fill 740,000 positions a year, the sum of so-called occupational openings, to account for industry expansion, and more importantly, industry retirements and departures. Recruiting, training and retaining workers is key to the industry’s ability to build and improve housing over the coming decade.

Accomplishing this goal will require the time and efforts of the entire industry, making the case for the merit of work in the construction sector. The construction sector pays middle-class wages and serves as a launching pad for small business development.

To accomplish this industry goal, diversifying the workforce will also need addressing. For example, only 10% of the construction labor force (including sales and management) consists of women, with only 6% of construction occupation positions being women.

Due to the lack of labor, wages in residential construction are increasing. Recent data from the Bureau of Labor Statistics show a 7% to 8% year-over-year average gain. Higher wages will help attract additional workers to the sector but are only sustainable to the degree that worker productivity is rising. 

This is the ultimate solution to the skilled labor shortage in construction. Increased productivity, via investment in new products, techniques and technologies will enable relatively faster wage growth that will create a sustainable environment in which hiring can accelerate. 

This will undoubtedly be a slow process, but the NAHB housing forecast sees gains for more systems-built housing and products that save worker time at the construction site as important pathways to improvement and long-term improvements for the skilled labor challenge.

Robert Dietz is the Chief Economist for the National Association of Home Builders. He may be reached at [email protected].