Landmark Links October 14th – What’s the Solution?

ken-bone

Lead Story… A pudgy, mustachioed, red-sweater-wearing star was born during Sunday’s Presidential Debate.  Kenneth Bone was selected to ask the candidates one of the final questions of the night and, his earnest question about how to balance fears of fossil fuel job loss with environmental concerns, combined with his appearance resulted in him essentially taking over the internet…and cable news…and late night TV…and leading to a bunch of hysterical memes.  Mr. Bone was somewhat of a breath of fresh air in a night otherwise marred by childish personal attacks and enough bullshit to fill a rodeo ring. He put a serious question on the table at least for a few minutes and acted as a reprieve from all of the tiresome mudslinging.

Unfortunately, housing has played little if any role in this election cycle despite the critical role that it plays in the US economy and the supply and affordability crisis that we are now facing (to it’s credit, the current Administration has at least taken a public position advocating for more much-needed development even while the candidates rarely if ever mention it).  Among the biggest problems facing the industry today is a massive labor shortage.  That got me thinking: what if the housing industry had it’s own Ken Bone at the debate last weekend?  Rather than focusing on energy policy, his question would have gone something like this:

“What steps will your housing policy take to address the construction labor shortage, while at the same time increasing affordability for American families?”

Industry website Constructiondive.com posted a story based on the recent Construction Management Association of America’s National Conference & Trade Show in San Diego that essentially asked just that.  From Construction Dive (emphasis mine):

While the majority of the conversation around the construction labor shortage has focused on the trades, firms are struggling to snag qualified professionals and white-collar workers as well. A nationwide survey of 1,459 contractors — conducted by the Associated General Contractors of America during July and August — found that 69% are having difficulty finding workers to fill hourly craft positions, 38% are having difficulty hiring salaried field positions and 33% are having difficulty hiring salaried office positions.

“We’re already pressed in terms of the ability to service all the clients with what’s currently on the docket, let alone what’s coming,” said Allyson Gipson of Artemis Consulting, in San Diego. She noted that the recession led to a “geographical depletion of talent,” as well as a large void of industry expertise. 

The aging workforce is also a primary concern for construction professionals, as baby boomers are retiring, but a new generation isn’t filling their place.

On the construction services side, the recession brought increased competition as “everybody was scrambling for work,” Gipson said. Interest rates have remained consistently low, energy credit tax provisions have been extended and private sector spending has risen. All these factors have spurred a boom in multifamily, highway, retail and office construction, she noted.

However, with that increased construction spending comes more demand for services from an industry already struggling to keep up with current projects. Myrna Dayton, deputy director and deputy city engineer for the City of San Diego, said that despite the agency’s efforts to improve recruiting efforts, “We always seem to be short. It’s a constant struggle.” 

Construction Dive then laid out three potential tactics to help solve the labor shortage sumarized below:

Partner with schools and encourage internships to develop the next generation of industry professionals

The gap between graduation and employment can be especially daunting in the construction industry, where students must transition from a classroom environment to the field. Without classes that prepare them for real-life tasks and challenges of a day on the job site, students often struggle to succeed in the industry.

Change hiring requirements to adapt to current conditions

Experts also said standard hiring requirements are often out-of-date for the current industry environment. With owners mandating countless certifications, “those people who have the skills set are going down the road,” Gipson said. “The best construction managers running a building program aren’t all necessarily licensed architects.”

Find ways to attract millennials to the industry

The construction industry has consistently struggled to attract younger workers to fill the gap left by retiring professionals. “We have an industry that is less appealing to millennials,” Gipson said. “We’re not really a sexy industry.”

She encouraged companies to focus on cultivating interest in construction among middle school and high school students. As millennials seek to use their creativity in a work environment that offers autonomy, the industry can tout its ability to offer those kinds of roles.

While the above tactics are a good start, there is a simple reality that needs to be addressed: construction worker pay needs to increase in order to attract more workers.  In an environment where some coastal cities are moving towards a $15/hour minimum wage there is simply no way to entice someone to do manual labor if it doesn’t pay substantially more than making lattes.  However, unlike your typical fast food restaurant or coffee joint, home builders aren’t currently in much of a position to pass additional labor costs on to consumers since 1) They are constrained by mortgage qualifying criteria; and 2) Home building profit margins are already low leaving little room to raise prices and slow absorption without taking a major hit to the bottom line.  That being said, there is common sense solution that would allow builders to attract more workers while not driving prices higher or eating into thin margins: reduce the growing regulatory burden associated with new home building which has soared nearly 30% since 2011 to a whopping $85,000 per new home.  This was partially addressed in the Obama Administration’s Housing Development Toolkit that was released last month.  Reforms that reduce the regulatory burden back to even their 2011 levels at least theoretically allow for construction wages to adjust higher in order to attract workers to fill the many vacant construction positions today without driving up prices or killing builder returns.  Reducing red tape and it’s associated costs, along with the three strategies that Construction Dive outlined above would go a long way towards solving the construction labor shortage and allowing the construction industry to once again become the economic growth driver that it has historically been.

Economy 

Stable and Slow: Great post and chart from Cullen Roche of Pragmatic Capitalism about how economic expansions are getting longer despite (or perhaps because of) slower growth rates.

Golden

See Also: Millennials aren’t as big spenders or risk takers as prior generations were and that is likely to have a profound impact on the economy.

Running on Empty: Nearly 7 in 10 Americans have less than $1,000 in savings including 29% of those who make over $150k and 44% of those who make between $100k and $150k.

Right on Schedule: So far, 2016 is going pretty much exactly as Bill McBride of Calculated risk predicted it would: slow, steady growth.

Residential

Shady Subprime Redux: Why the hell is the Federal Government allowing solar panel loans with 10% interest rates to get senior priority to GSE backed mortgages in the event of a default?

Under Pressure: Deutsche Bank says that rising mortgage rates in Japan, resulting from the BOJ’s plan to push long term yields higher could cause Tokyo condo prices to fall 20%.

Profiles

Water, Water Everywhere: Israel is one of the driest places on earth.  However, their focus on advances in desalination technology has provided them with something that would be unimaginable just a decade ago: a water surplus.

Fire In the Hole!  Samsung is ending production of the Galaxy Note 7 because the damn things keep lighting on fire.  See Also: Samsung is sending fireproof boxes and gloves to Galaxy Note 7 owners for their recall in case the devices spontaneously combust in transit.

Hope for the Future: A new study finds that only one of five Millennials has actually tried a Big Mac.

Chart of the Day

A 5,000 year low.

Even the ancient Egyptians didn't enjoy the low interest rates we see today.

WTF

Bone Zone: A porn company has offered red-sweater-wearing, presidential debate star Ken Bone $100k to appear in an adult film.

Peak Florida: “A 350-pound Florida man ran from a Walmart with two stolen TVs, but his getaway was compromised when his pants–containing his ID–“fell off as he ran away,” according to cops who yesterday apprehended the suspect, who had a crack pipe stuffed with Brillo buried in his anus at the time of his 3:43 AM arrest.”

Clowning Around: A couple in Wisconsin left their 4 year old kid at home alone while they terrified a neighborhood dressed as creepy clowns.  They are now facing child neglect charges.  See Also:  A British woman was so terrified by a creepy clown that jumped out of the bushes that she went into premature labor.

That’s Loser with an “L”: Some guys are paying over $1,200 a year for a fake girlfriend to text and Snapchat with them.  You can read the article if you’d like or just take my word that it’s every bit as pathetic as you are assuming.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 14th – What’s the Solution?

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