Small Developers and the Construction Labor Shortage -time to dig deep.

During the Great Recession there was very little construction work to be done for about five years. During those five years lots of people in the trades retired, changed careers, or returned to their country of origin. Now the demand for housing is overwhelming the supply of existing and new homes. The problem is made worst because suppliers of lumber, drywall, insulation, HVAC equipment, and windows are all scrambling to to get supplies to construction site. The supply chain will get unkinked with time, but the shortage of skilled construction labor is a structural issue that is not going to go away in the next 10 years.

At the national level the NAHB and others in the housing industry have been pushing for investments in shop classes in public schools and other training initiatives and for immigration reform. A guest worker program and a path to permanent residency or citizenship for workers who are sponsored by their employer are frequently brought up in lobbying efforts.

Let's say some or all of those initiative get attention and funding. What do small scale local developers and trade contractors do in the meantime?

Small outfits doing modest incremental development projects in distressed neighborhoods are already operating on thin margins and taking real risks to make their neighborhood better. If the the labor shortage increases labor costs and reduces the skill levels of the people you can hire, that additional cost is going to have to be passed along in higher rents and higher home prices. How do we compete with bigger outfits doing bigger projects that can provide steady work at higher wages?

I figure we are going to have to grow our own. I also figure we will need to solve this problem by making it bigger.

It’s time to rethink everything about how we train people in the trades and how we organize work on the site. Before the Housing Crash, the Great Recession, and the Covid 19 Pandemic lots of small residential trade contractors struggled with the management and paperwork required to stay in business, pay their taxes, and stay out of financial trouble. For most, learning a trade teaches you very little about running a business.

This is the time to gather the resources needed to provide a clear path for people entering the trades for the first time to see how they can own a business, own a home, and own some buildings. Someone learning how to hang and finish drywall could become a drywall contractor in a couple of years with good mentoring and the support of a local QuickBooks maven. If you are in the trades you are well positioned to connect with investors and renovate buildings as a partner. Along the way you will need to repair your credit and join a cohort of other folks looking to leverage construction skills into renovated or new buildings.

Residential construction trades have become quite specialized and any project4’s schedule depends upon excellent communication which can be hard to maintain when every trade is being pulled in different directions. If the electrician can’t show up to rough in after the framer gets their inspection, the project completely stops until they can finally make it to the site. If that takes three weeks, then all of the following trades need to shift their work around and go work some place else. After that shuffle you may not get your plumber or HVAC outfit back to the site for a couple weeks… Most trades have the same overhead if they work on 5 houses or 25. A trade’s throughput, their productivity is what makes for a good year or a bad year. If you are not doing enough work, you can charge more and find out that you made a lot less at the end of the month. A developer who cannot manage a schedule people can trust could wreck a trade’s cash flow and drive them out of business.

What if the small developer’s construction site is a place committed to training —and to cross-training people to perform multiple trades? A well run site is a very satisfying place to work. Can it also be a much more productive place to work as well? Can it be the place where small developers pay it forward and help mentor people in the trades so that they can build a stable life and then build wealth for their family?

What’s the alternative? We could just keep grinding along with limited access to reliable trades, and see if we can pass along higher costs as our projects take 6 or 8 months too long and our productivity tanks.

I think we should dig deep and find a way to take the incremental development projects in our neighborhoods to the next level. I think the ability to provide training and mentorship is going to be the key to meaningful and significant work in the next ten years.