Growth in the construction industry is strong and very well distributed by sector and geography, according to experts. The nation’s low unemployment rate and recent actions by the federal government have presented challenges for companies to overcome, but have not impacted the demand for work.
“Right now, things are busy, which means it’s good, and we anticipate that it will remain busy through the end of the year,” Clayton Miller, executive vice president at Southern California Contractors Association, said. “But it has been a little difficult to find the employees that are needed.”
According to Kenneth Simonson, chief economist at The Associated General Contractors of America, a lack of qualified workers has plagued the construction industry for several years. However, he said the issue has been compounded by an 18-year low unemployment rate in all construction sectors and a decline in foreign-born workers due to more stringent immigration enforcement.
Immigrants make up a far higher portion of the construction workforce than the overall workforce, Simonson explained, citing a Pew Research Center study. Over the last eight years, he said the number of Mexican immigrants has declined, replaced by immigrants from Central American and Asian countries. These new immigrants are less likely to enter the construction industry, Simonson explained. Companies which once relied heavily on immigrant labor are finding themselves seeking American-born employees, creating more competition amongst employers.
The Trump administration’s current and future tariffs are causing construction costs to increase drastically as the cost of materials increases, Simonson said. According to the U.S. Bureau of Labor Statistics, the price index for construction materials jumped 8.8% from May 2017 to May 2018. Year-over-year, the price index for aluminum increased by 17.3%, lumber and plywood by 13.9%, copper and brass by 13.8%, diesel fuel by 44.5%, asphalt by 8.9%, ready-mix concrete by 6.5%, and paving mixtures and blocks by 5.2%. Within that same time period, Simonson said the price charged by contractors for new, non-residential building rose only 4.4%.
“The implication is that contractors are being squeezed very hard right now in terms of what they are paying for materials, while their bid prices are not fully reflecting those costs,” Simonson said. “Anyone who has already agreed to do a job and hasn’t bought the materials, chances are they are looking at a huge shrinkage of their profit margin or even going in the hole on the project. It also suggests that contractors need to raise their prices substantially going forward.”
As construction costs increase and company bids follow suit, Simonson said many projects – especially those planned by public agencies on a fixed budget – will be scaled back, put on hold or canceled all together. “They will pull back an individual project completely or pave only half as many miles of roads or rebuild half as many schools as they had planned to do,” he said. “So, the contractors lose out and the small contractors are probably in the toughest position to absorb these blows.”
President, Brascia Builders Inc.
It’s an exciting time in Long Beach as business is really booming. I am confident that this progression will continue throughout the remainder of 2018 and 2019. From our street water lines to Long Beach Transit, and everything in between, there will always be a strong need for infrastructure expansion and improvement. In addition, Downtown Long Beach is exploding in commercial and residential high-rise real estate. This will create a demand for lounges, eateries, bars, and other social gathering spots – ultimately keeping our construction industry healthy.
At Brascia Builders Inc., we feel very proud to build for our dynamic community. In the last year and a half, we received the highest volume of calls for construction project needs to date. Most recently, we completed a commercial project for the Long Beach Data Center and wrapped construction on a men’s card room and patio extension at Virginia Country Club. Beyond the economic growth we are seeing right in our own backyard, it is happening on a nationwide level. I believe this will continue under our current local and federal administrations and I applaud those who have made and who continue to make our community and country prosper.
President of 2H Construction
The last couple years in the commercial construction market saw great gains. I have a positive outlook of continued moderate growth through the remainder of 2018 and into 2019. Interest rates remain low which, combined with new lower corporate taxes, creates the means and incentive to invest money into buildings.
Retail developers are looking to keep up with modern design to attract consumers. Employees want to work at offices that have updated amenities and aesthetic design features. Public buildings are investing in energy efficient infrastructure. These are all good signs for continued construction projects. Long Beach has many great examples of all the above at the new Douglas Park, in Downtown Long Beach, with 2nd & PCH, at California State University, Long Beach and within the Long Beach Unified School District just to name a few off the top of my head.
With all these good things in our industry, we still have some challenges. There are increasing local and state regulations that require dedicated attention and increased manpower to address and adhere to the growing requirements. The construction labor force is getting lean in certain trades, making it difficult to keep up with demand. Some material prices are increasing at rates that are tough to contain and hard to procure in time to meet schedule requirements. We also have to be ready for the residential market to drop at some point which tends to push the residential contractors into the commercial markets.
All in all, the commercial construction industry is currently strong with no near-future signs of a drastic downturn.
President, Morey Remodeling Group
A large segment of our clientele are small business owners who we help with both their personal homes and their office remodeling. These clients are positive about the next couple of years and are investing in construction work. We have been blessed with clients who want to work with us and our outlook is that this optimism will continue with new clients. Low interest, rising home values, and a shortage of homes for sale has impacted the remodeling work being done. Morey Remodeling Group has brought in additional team members to take care of our clients and the projects they want us to do. Our backlog of scheduled work is larger and, while it is easy to say “Yes, we can do your project” to each new prospective client, most of our industry is at least 3 to 4 months out to take on new projects. We are getting calls on a regular basis from people who have plans that are permit-ready and want to start right away. We must let them know we are not able to take on additional work. As a design-and-build company, as we talk with potential clients, we talk specifically about the design timeframe and let them know that when the permit is issued we want to get construction started within 10 working days. We believe the next 2 to 3 years will have continued strong investment in the remodeling and construction industry.