If Housing Eats the US Economy, What Happens to School Construction Costs?

Screenshot 2016-06-09 09.57.36
Image courtesy of Washington Post and iStock

An analysis in the Washington Post‘s Wonkblog predicts continued steady and robust growth in the home construction industry over the next five years, causing labor shortages and changes to American lifestyles.

The biggest business story of the next five years, as described in the Washington Post‘s wonkblog is “a capacity-constrained U.S. economy where the housing sector is taking “inputs,” like labor and capital, from all other sectors.” Conor Sen writes, “Housing is set to eat the U.S. economy.”

In Maryland, county governments have been observing market conditions in construction and their effect school construction costs. In his report the the Capital Debt Affordability Committee last fall, Dr. David Lever, Executive Director of Maryland’s Public School Construction Program stated that market conditions are contributing to school construction cost increases, along with other factors,

In early May 2015, a discussion about construction cost was held among LEA [School] Facility Planners, architects, and constructors at a meeting in Hagerstown, MD. Based on the discussion, the rapid escalation in construction cost can be attributed to the following factors:

  • Market conditions:
    • Competition for bidders from the private sector and other governmental entities;
    • Reduced number of contractors and plant capacity as a result of the recession;
    • Shortage of labor, particularly skilled;
    • Increase of contractor margins as they recover from years of at- or below-cost bidding.
  • Click here for additional factors.

According to Sen, there could be more of these trends–in particular labor shortages–to come. As described in his piece in Wonkblog,

  • Construction employment as a share of total employment is likely going to rise at least another 0.4% to get to a level of 5% in this cycle.
  • At the current level of employment, this means we need another 550,000-to-600,000 construction workers.
  • Construction unemployment is already near record lows.
  • Demographic trends in the U.S. – an aging workforce, a workforce that’s growing more educated, the changing mix of immigration toward Asian knowledge workers rather than Hispanic blue collar workers (29 percent of construction workers are Hispanic) – all act as headwinds toward finding more construction workers.
  • From a labor slack standpoint, the pool of potential construction workers is probably well-represented by unemployed men under the age of 55. To get back to late 1990s levels of male unemployment, we would need essentially every single male unemployed worker who finds a job in the coming years to go into construction. This doesn’t take into account skill, desire, education level, geography, etc.

For more information and additional analysis on how these trends could effect the broader economy, see the full piece on Wonkblog, The biggest business story of the next five years.