Is There A Surplus of Construction Resources?

The Real Estate Espresso Podcast

Is There A Surplus of Construction Resources?

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Is There A Surplus of Construction Resources?

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re looking at the demand for construction materials and labor. The number of housing starts is way down nationally. This is true for single family homes and for multifamily apartments, so it stands to reason there should be plenty of labor available for your projects if you decide you want to undertake a project in the current environment. Sometimes building in this scenario could be a brilliant move.

There’s a high-quality skilled labor force available and the reduced demand could mean big savings in both labor and materials. In general that’s true. We find that independent labor, skilled labor, often work for subcontractors. For example, you might have someone who is skilled at installing insulation. The company they work for charges the client a dollar a square foot, or sometimes a dollar twenty a square foot for the labor. That same individual, doing the exact same work, is paid 40 cents a square foot from their employer.

These days they’re simply not that busy. They might work one or two days a week or perhaps one or two weeks out of each month. There simply is not enough work out there. These same individuals would rather work for clients directly at the same rate of 40 cents per square foot. They’re not necessarily faithful to only working for their employer. These are the so-called weekend warriors who are both willing and able to moonlight outside their main source of income. As a result, you can get the work done by highly skilled labor without the markup associated with a full-fledged subcontractor.

I’m getting calls every week from carpenters, painters, drywall crews and so on. But here’s what’s changing. At the same time, we’re seeing high prices in some markets for very specific skilled labor. If people are not moving into a new home, they’re making the decision to renovate the place they’re currently living in. One of the consequences of the lock-in effect is that you don’t want to pay a higher mortgage rate by moving; instead, it’s far cheaper to remodel and update an existing home even if that means adding an extension, building an accessory dwelling unit, adding 📝 an elevator if an older couple has mobility issues, or just plain modernizing a home.

We’re seeing a large national uptick in renovations, filling the void where new home construction was previously solving a need. The other source of demand for materials and labor is public works projects that don’t touch the Housing Start statistics. These government-funded projects don’t follow the housing cycle. I’ll give an example from my home city of Ottawa, Canada. These types of projects are happening all over the US and Canada. In my city, there’s a major expansion of our light rail and subway system. Part of the train travels below ground and part of it above ground. Projects like this use vast quantities of concrete.

The ready-mix plants are working flat out to service the needs of this one project alone. You can be sure that if you’re ordering concrete and you have a commitment for concrete to be delivered, you might not get the delivery when you’re expecting. If the light rail project is calling for concrete they probably will take priority over your project. If there’s an airport runway being built or a bridge or a concrete highway you might find yourself behind the mega project when it comes to supply and materials.

You can see this effect when you look at the employment statistics in the GDP statistics. The growth in hiring in the US consists primarily of public sector jobs for most of this past year. The growth in the economy has also consisted of government deficit spending. If there’s a change in government that may be more fiscally responsible, that might change the competition for resources. If there’s been a major storm in the area, you can anticipate both a shortage of materials and labor for months maybe years to come.

Looking at the damage in Asheville, North Carolina, it’s going to take some time. Labor has always been in short supply in Asheville and it’s been relatively expensive. Even for our construction projects that are planned for Asheville, we’ve been focusing on bringing in talent from Charlotte, over two hours away. If you have projects in the southeast, including Florida, Georgia, and the Carolinas, you can expect a shortage of specific types of labor for months to come.

Roofing contractors struggle to retain their employees for whatever reason, and when you add the intensity of storm damage repair, these contractors experience very high turnover. If you’re willing to try new people, you’ll find the marketplace is inefficient. Some high-quality people are busy and in high demand, and others just can’t seem to find work. It’s a time when you can hire some great skills at competitive rates, but don’t take it for granted.

You can’t generalize. The reality is on a case-by-case basis. From my conversations with large general contractors, I’m hearing that now is the time to bid out projects. Many subcontractors are looking into the future and seeing a very tiny backlog of work. The feeling is that they’re prepared to compete for work, something we haven’t seen in a few years.

As you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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