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VOL. 8 | NO. 31 | Saturday, July 25, 2015

Going Up: Labor, Materials Drive Construction Costs

By Amos Maki

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Shelby County homebuilders have steadily raised prices for months now, partly due to supply and demand but mostly due to soaring material and labor costs.

Second story framing underway on a Magnolia Homes development in Collierville. 

(Memphis News/Andrew J. Breig)

While the demand for new homes remains steady, the supply of new homes remains relatively low and homebuilders are able to raise prices. But construction costs have been on the upswing for several months and are impacting every corner of the construction industry.

From the cost of materials to the demand for a shrinking workforce, it has become more expensive to build everything from office buildings to homes.

“We are seeing material consistently move up along with our labor cost,” said Reggie Garner, vice president of Magnolia Homes Inc., one of the region’s top homebuilding firms. “This definitely effects your total cost to build a home, which requires us to really stay on top of raising our new home sales prices to keep up with the increases we are receiving.”

One major source of rising construction costs is a lack of skilled workers.

During and after the recession, millions of workers fled the construction industry looking for work elsewhere. But now, as demand for construction services rises, workers can be difficult to find.

Of more than 1,000 construction firms nationwide surveyed by the Associated General Contractors of America, 83 percent said they are struggling to find enough craft workers, including carpenters, equipment operators and laborers. That number is up from 74 percent one year ago.

Even with the industry employing nearly 6.4 million people nationwide – the highest level since 2009 – it’s still not enough to keep up with demand, officials said.

The dearth of employees doesn’t stop at the work site, either.

About 61 percent of the firms surveyed – up from 53 percent a year ago – said it is difficult filling professional positions like project supervisors, estimators and engineers.

In response, the AGC crafted a workforce development plan aimed at repairing what it refers to as a “decimated” pipeline of qualified workers to the industry.

Industry professionals say a decades-long national shift to encourage attending college has severely hampered the construction business and other trades requiring extensive technical training.

“Considering how much the nation’s educational focus has moved away from teaching students career and technical skills during the past few decades, it is easy to understand why the construction industry is facing such severe labor shortages,” said AGC chief economist Ken Simonson in a statement.

The pipeline for new construction employees is mostly empty, Simonson said, because of the “dismantling of public vocational and technical educational programs.”

The lack of skilled workers has forced some contractors to turn down jobs. An ACG report released last August found that 30 percent of U.S. firms were forced to turn down work due to the labor shortage.

But it’s not just the lack of skilled workers driving the increases, the cost of building materials is also rising.

The cost of construction materials inched up slightly – 0.2 percent – in June after a 1.1 percent increase in May, according to Associated Builders and Contractors Inc.

Contractors said that while the cost of some materials is inching upward, Memphis’ low-cost environment remains a plus.

“We have received some notice from subcontractors and vendors on materials price increases in some areas such as steel, drywall and concrete,” said Rusty Linkous, president of Linkous Construction Co. “However, we are still in a competitive market and I strongly believe that Memphis is still economically a great place to build.”

PROPERTY SALES 21 82 6,474
MORTGAGES 7 53 4,088
BUILDING PERMITS 240 353 15,714
BANKRUPTCIES 38 58 3,328