Building Blues

Hiring challenges, soaring material costs, and building demand are putting pressure on the construction industry

By Jillian Manning | April 29, 2023

The construction industry has been on a roller-coaster ride for the past three years, from an all-time low in jobs and projects in spring of 2020; to a flurry of building activity to meet pent-up demand; to frustrating snafus with supply chain issues.

And that’s to say nothing of the nationwide hiring dilemma in the skilled trades. While some of those struggles mentioned above have been resolved since the onset of the pandemic, bringing people to the construction field continues to be an uphill battle.

With all that in mind, what will it take for the industry to return to business as usual? We looked at national and statewide trends and asked local employment experts and business owners what they think will move the needle.

Priority No. 1: Finding Workers

The Associated General Contractors of America (AGC) found in their 2022 workforce survey “91 percent of construction firms [are] having a hard time finding workers to hire, driving up costs and project delays.”

Lauren Tucker, executive officer of the Home Builders Association Grand Traverse Area, agrees the local hiring outlook is challenging for construction businesses.

“The biggest challenge is the shortage of skilled labor,” she says. “This is not a new issue to the construction industry, on both sides—residential and commercial. There are many causes; the recession in 2008 caused many tradespeople to close up shop, and sadly most have not returned to the workforce. We have told young people for years that they need to go to college to make something of themselves, while there are respectable and lucrative careers in the skilled trades that you can begin learning and earning the day you graduate high school.”

To incentivize entry into the field, construction companies have gotten creative. The AGC survey found that 29 percent of respondents have lowered hiring standards (e.g., education, training, employment, arrest record, drug use or testing policy); 42 percent have initiated or increased spending on training and professional development; and 86 percent have increased base pay rates.

Those changes are necessary to address the growing demand for construction jobs. The Bureau of Labor Statistics (BLS) reports that nationwide “about 723,400 openings each year, on average, are projected to come from growth and replacement needs” from 2021 to 2031 for construction and extraction occupations. Overall construction employment is projected to grow 4 percent in that decade, which is about as fast as the average for all occupations.

There’s even more momentum happening in our area. Rob Dickinson, business services regional director at Northwest Michigan Works!, says construction jobs grew at an average rate of 6.5 percent from 2019 to 2022 and accounted for 7.5 percent of jobs in the northwest Michigan job market.

“Construction continues to project high demand,” Dickinson says. “Short-term projections through 2023 show the construction industry the third highest growth industry in Michigan, behind only leisure and hospitality and professional and business services. Long-term projections through 2030 see the construction industry losing a few spots, with growth projected to be the sixth highest growth industry in Michigan.”

Dickinson echoes the sentiment that employers are focusing on better job incentives, noting that hiring and retention strategies for northern Michigan construction businesses also include offering apprenticeships and professional development in addition to higher pay, more benefits, referral bonuses, and loyalty bonuses for staying longer than six or 12 months.

But even with all of those incentives, Dickinson still says it’s not easy to fill jobs.

“Issues that our local employers are facing include not having the talent pool they once had, trouble attracting the talent that is present, and when the talent shows up, they don’t have the necessary skill set,” he says of the challenges employers face. “Other contributing factors that are hitting the industry as well are the lack of affordable housing, lack of transportation, and higher daycare costs. Families are making decisions based on these issues, and construction employers in northwest Michigan are losing out.”

Priority No. 2: Managing Costs

As construction businesses struggle to find employees, they also struggle to source building materials. Supply chain issues, material shortages, and soaring costs created a perfect storm in 2021, and though 2022 was more stable, the monetary ripple effect has been felt from suppliers to builders to homebuyers.

The drastic shift in lumber prices is a case-in-point example of the problem.

Trading Economics, which provides global historical data and forecasts for more than 20 million economic indicators, recorded the cost of lumber from 2018 to early 2020 as ranging from $304 to $639 per 1,000 board feet. Then, in conjunction with the pandemic-fueled decline in the construction job market, the price of lumber plummeted in April 2020 to $264.

That’s when the real trouble began. Prices climbed for the rest of 2020, then skyrocketed to $1,686 in May 2021—a 538 percent increase in just over one year—with another peak of $1,464 in March 2022. Those were the two biggest spikes in Trading Economics’ 25-year tracking history, and they happened when homeowners were undertaking tons of renovations and new builds, especially Up North as more people moved to the area or were living out of their summer homes.

Mike Tucker, president of Kingsley Lumber, says that lumber prices have now returned to a “new normal,” trending 20-30 percent higher than pre-pandemic levels. (At the time of publication, lumber prices currently sit at $353 per 1,000 board feet.)

But even though prices are more predictable now, the damage has been done. According to the National Association of Home Builders, “volatile prices of lumber products in recent years have caused the average price of a new single-family home to increase by more than $14,000.”

Those price increases in turn have a direct effect on new building projects. In AGC’s workforce survey, 58 percent of respondents cited increasing costs as a reason upcoming or expected projects had to be canceled, postponed, or scaled back.

Mike Tucker adds that while some lumber mills had a windfall in revenue, contractors have been burned by the huge swings in lumber prices.

“Contractors were often in fixed price contracts, which required them to absorb their rising costs without the ability to pass along these added costs to the homeowner,” he explains. “Not only were they feeling the inflationary pressures in their businesses, but with huge interruptions in the supply chain, a lot of contractors couldn’t finish projects on time due to the increased lead times, leading to projects taking way longer and in turn slowing the cash flow cycle of their businesses.”

(Now, with lumber prices coming back down, the script has been flipped, and he says “they are using mill shutdowns and curtailments as a tool to keep the lumber prices high” to keep mill profits flowing.)

Priority No. 3: Building More

A tough hiring market and high business costs don’t seem like they would add up to more homes being built, especially at affordable prices for the buyer. But that’s what Michigan needs.

A national housing report from Habitat for Humanity in 2022 estimates that Michigan is short 87,000 homes, and the Michigan Economic Development Corporation shares that “Michigan’s Statewide Housing Plan estimates that 75,000 new homes need to be built every year just to keep up with demand.” But we aren’t keeping pace. The Home Builders Association of Michigan forecasted that only 17,114 single-family home permits would be issued in 2022 (final numbers have not yet been released).

Meanwhile, local nonprofit Housing North specifies that Grand Traverse County needs an additional 5,715 housing units through 2025, 72 percent of which should be rental units. But Yarrow Brown, executive director of Housing North, estimates only 1,555 permits (72 percent of which are for single-family homes) have been pulled between 2020 and 2023. And many of those projects, Brown says, aren’t necessarily affordable for most folks living in northern Michigan.

Still, there’s some optimism for a swing toward more housing opportunities. “We are seeing more and more apartments, duplexes, triplexes, and accessory dwelling units being approved and built,” Brown says. “With the interest in missing middle housing and more infill development, we are seeing creative solutions and opportunities not only for renting but for shared capacity home ownership, such as community land trusts and cooperatives.”

Brown adds that she feels NoMi communities are becoming more “housing ready,” for the developers who want to build here, though it’s no easy feat for developers to do so. She points to high property taxes, zoning restrictions, permitting delays, and gaps in financing as hurdles for developers to overcome. And, of course, she says there continues to be the need for “human power to build the homes.”

“We often think we are developer friendly here, this is not necessarily true,” Brown says. “Many developers are investing in this community because they want to, not because it is easy to do.”