Navigating The Labor Conundrum

Beyond skilled labor shortages stemming from the layoffs of the Great Recession of 2008-2009, the construction industry faces much deeper systemic issues that pose significant risk to your business. The industry is challenged on both ends of the labor spectrum – both supply of workers, as well as the productivity of those employed. According to a study by the Associated General Contractors of America, 70% of construction firms report they are having a hard time filling hourly craft positions, and the majority of builders today rank labor shortages at — or near the top — of their list of concerns. And as older talent retires, younger workers tend to shun careers in construction in favor of higher-prestige work in the tech industry. While increasing productivity can offset labor shortages by boosting the output of each worker employed, the construction industry faces challenges on this front, as well.  In fact, between 2005 and 2015, while other industries saw productivity increases of 2%, construction productivity increased by just 1% over the same period. And to make matters worse, construction companies also point to uncertainty around immigration reform as another, more-recent, contributor to worsening labor shortages.

What does this all mean to your real estate portfolio? With limited resources, fewer firms will be able to bid on construction projects for fear they will not have enough workers to meet demand. Your projects will also suffer from cost overruns, delays and quality issues. And unskilled labor deployed in dangerous settings increases your risk for workers’ compensation claims.

The good news is there are strategic steps you can take today to mitigate risks to your business, while also helping to correct the deeper root causes of today’s construction labor shortages. Here are some suggestions:

  1. Rethink Training: All too often, crews are poorly supervised and have little training or quality control. As a result, corners are cut, and important steps overlooked. These lower-quality buildings require costly repairs and maintenance and expose you to increased risk of failure and liability.
    • Hands-on training in new technologies is key to attracting young talent, and ensuring your workforce can deploy the systems that will drive the next wave of growth and quality. A great example is the Chicago-based Plumbers Local 130 who recently opened a state-of-the-art training center that will expose apprentices to “real-world” construction scenarios and “green” technology. Better-trained, more engaged workers will deliver higher-quality output.

 

  1. Continually Improve Safety Measures: As less-than-qualified people are put on your jobs, the risk of high-stakes mistakes increases dramatically. And when schedules start slipping, the risk of accidents increases even further as these unskilled laborers move even faster.
    • You should be sure that your construction partners not only have safety training measures in place, but that they continually update these procedures and practice safety on-site daily. For example, ensure your partners have on-site safety supervisors and that they conduct daily safety huddles with crews to ensure procedures are being followed, and continually vetted/updated.
    • Aside from supporting local construction trade education and monitoring safety protocols, in the near term be sure you require your contractors — and their subcontractors — have adequate insurance coverage for negligence and defective construction. Sub-contractor polices should be equal to, or greater, than the contractor’s and from companies with an AM Best rating of no less than an “A.”

 

  1. Shift to Off-Site Fabrication: Aside from the hard costs associated with delays, missed delivery dates can also have a negative impact on your brand reputation, not to mention your clients’ businesses.
    • For larger commercial projects, consider using advanced off-site prefabrication of major wall segments, floors, bathrooms and roofs. According to a study by McKinzie, this manufacturing-inspired mass-production approach can boost productivity five to ten times.
    • Aside from reducing construction timelines, these off-site manufacturing methods have the added benefit of reducing the headaches — and risk — associated with staffing, and site

With the right mix of longer-term thinking, coupled with strategic coverages to protect you from the risks of today’s labor shortages, your real estate business can thrive while others flounder.