Construction Worker Shortage Drives Up Costs and Slows Growth
The Bay Area and Sacramento housing markets are booming once again.
Factors driving that trend:
- Home prices are consistently rising as demand remains strong.
- State and municipal initiatives to encourage denser housing are also raising demand for buildable lots near mass transit hubs.
- People who commute into the Bay Area from the San Joaquin and Stanilaus Valley pursue homes closer to their workplaces, which keep housing demand high.
Moreover, this growth has a downside. As prices are rising, so are costs and lack of available labor is also proving to be a drag on growth.
“As the Bay Area scrambles to find housing for its growing population, developers are running into another kind of shortage,” the Mercury News reported this week. “There aren’t enough construction workers to build the homes the region needs.”
This impacts all sectors of the real estate business.
Homes and apartments cannot be built fast enough to keep up with demand.- With the Great Recession over, taxpayers feeling richer have passed a number of municipal bond measures to fund new school and other building projects and clear out the backlog of deferred maintenance that built up during the budget crisis from 2008-2010. All these projects statewide were voted in over the last two-three years, and are now exiting the planning process and getting launched.
- Contractors have to raise their bids for projects in anticipation of having to pay more to obtain and retain workers.
- Turnover has risen as workers leverage their worth for more pay.
All these trends are coming together in a perfect storm to drive up the cost of labor in the California real estate construction industry.
“The challenge of finding workers only exacerbates the Bay Area’s housing shortage,” continued the Mercury News article. “Despite a dramatic increase in permits for residential construction since 2009, construction jobs have increased at less than one tenth the pace of permits. As a result, wages and the overall cost of buildings are increasing.”
We hope and expect that the attractiveness of working in construction draws in more talented people over time, demand for housing in Northern California will not abate for the foreseeable future. The construction business will find a way to respond to that demand by expanding their workforce, but that will take time.
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