By Chris Bruen
Chris Bruen is the Director of Research at the National Multifamily Housing Council (NMHC) in Washington, D.C. He can be reached at firstname.lastname@example.org.
With the U.S. economy recovering and the housing market rebounding rapidly, many multifamily firms are experiencing construction pricing pressures. While materials—lumber in particular—have been at the forefront of this discussion, multifamily firms have also noted labor constraints.
NMHC’s Construction Survey, now in its seventh iteration, has been tracking this issue through the COVID crisis. Results show labor availability to be a consistent concern for multifamily firms during this period; however, different factors appeared to drive those challenges at different points over the balance of the pandemic (Figure 1).
To get a better sense of how much the economy’s rapid bounce back is driving labor constraints and the scale of these challenges, NMHC’s research team took a deeper look at some of the other labor-related data available. The findings point to chronic challenges around construction labor availability, felt perhaps more acutely given the rapidness of housing’s recovery.
Construction Employment Grows Despite Pandemic
In the immediate aftermath of the U.S. COVID-19 outbreak, data from April 2020 show there was a sharp drop in the number of employees working in multifamily construction. According to data from the Current Employment Statistics (CES) survey, the number of seasonally adjusted employees for new multifamily general contractors fell 8.3 percent month over month in April 2020 to 35,300, which is the largest monthly decline on record (data beginning in 1990).
This data trend certainly corresponds to the widespread construction shutdowns and even construction moratoria that were put in place at the start of the pandemic. But as construction activity resumed, employment in this sector quickly rebounded in the latter part of 2020, rising to 41,500 by December 2021 and marking the largest year-over-year increase (13.4 percent) since February 2015. Employment in this sector then moderated somewhat to 40,200 in March 2021—a level still 4.4 percent greater from the previous year.
Construction employment data are scattered however, with general contractors, subcontractors, and other skilled labor often showing up in different counts. By another measure, employment in the sector never hit a pause during the pandemic. Employment among new housing operative builders (those who build on sites that they own) seemed to grow unabated throughout the pandemic (Figure 2), increasing 7.3 percent year over year to 51,300 in March of 2021. However, note that the CES does not differentiate between single-family and multifamily operative builders, so the full extent of the multifamily construction employment in this measure cannot be fully ascertained.
Has Employment Constrained Construction Levels?
This steady growth in construction employment through the pandemic’s recovery runs parallel to the industry’s construction activity levels. After taking a temporary dip early in the pandemic, multifamily completions climbed to a seasonally adjusted annual rate (SAAR) of 393,000 in 3Q 2020—the highest quarterly rate recorded since 1988—and then moderated only slightly by the first quarter of 2021 (SAAR of 362,700).
But the question is whether these elevated completion levels might have been even higher if it were not for constraints on labor. As noted, multifamily construction firms have reported difficulty in finding workers throughout the COVID-19 pandemic. Even in the latest round of NMHC’s construction survey – which took place from May 17 to June 1, 2021—nearly half (47 percent) of respondents said they were impacted by the availability of labor.
However, data from the Job Openings and Labor Turnover Survey (JOLTS) suggest that this is not merely a COVID-related issue. The rate of overall construction job openings has been increasing steadily over the past decade – bolstered by an expanding economy - reaching a peak of 5.2 percent in April of 2019. After moderating somewhat in late 2019 and 2020, the rate of openings is once again approaching peak levels, rising to 4.4 percent (preliminary) in March 2021.
The JOLTS data, unfortunately, do not allow us to view residential construction data specifically. We can alternatively look at the average wages of residential construction workers provided by the Current Employment Statistics survey to provide insight, however. If multifamily builders are having a difficult time finding labor, then we would expect them to offer higher wages.
From March 2006 (beginning of the series) to July 2011, the average hourly earnings for all (seasonally adjusted) employees involved in residential construction was effectively flat, growing just 0.14 percent. On an inflation-adjusted basis, this amounts to an 11.3 percent decrease in real wages.
From this point in 2011 onward, coinciding with the general economic recovery following the Great Recession and subsequent growth in construction job openings cited earlier, the average hourly earnings for residential construction employees grew steadily. Even the pandemic didn’t seem to significantly affect that growth, as hour earnings increased from $21.81 (July 2011) to $31.78 in March 2021. This amounts to around a 2.3 percent raise per year, after accounting for inflation.
In recent years, multifamily construction has ramped up to rates not seen in over three decades. This construction activity has created increased demand for construction workers. Employment data supplemented by NMHC member survey responses clearly shows this has resulted in higher wages and a greater number of job openings than can be filled.
The pandemic appears to have caused limited disruption to these longer-term trends. However, the rapidness of the post-pandemic economic and housing rebound is painfully underscoring the continued challenges. While wage growth shows an industry response, time will tell if these wage hikes are sufficient to attract enough labor for the industry to continue to grow at pace.