Builders have been struggling to hire and keep up with the demand for real estate. Now they're raising wages.
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- The homebuilding sector added 6,700 new jobs in February.
- Construction wages are 6% higher than this time last year, marking the fastest growth in 40 years.
- Hiring and better pay could lead to more affordable housing amid a historic real estate boom.
The homebuilding sector is hiring more workers and increasing wages — and that could mean more affordable housing is on the way.
The construction industry overall added 60,000 jobs in February, and wages for nonsupervisory positions saw the fastest rate of growth in 40 years, according to the US Bureau of Labor Statistics.
"Average hourly earnings in construction are up 6% on a year-over-year basis in February, the fastest pace since 1982," Odeta Kushi, First American's deputy chief economist, told Insider. "Attract and retain more builders and there will be more ground-breaking on new homes."
The US homebuilding sector has experienced it's fair share of setbacks in the last few years. Between labor shortages and a lack of building materials, homebuilders just can't seem to catch a break – but February's employment and wage growth offer some optimism. If wages continue to rise, they're likely to entice more potential builders. As the industry grows, it could lead to an uptick in homebuilding that could result in more affordable housing.
"The rise is positive news for an industry that has been grappling with chronic labor shortages," Kushi said. "We need more homes built and, in such a labor-intensive industry, you need more workers to build more homes."
Higher wages could lead to more housing construction
Housing affordability remains at historic lows as a lack of available homes for sale has increased buyer competition. The downturn in construction is attributed to many factors but largely a labor shortage that has stalled construction projects across the country.
"The skilled labor shortage in the construction industry is not new, it's been an issue for more than a decade now," Kushi said. However, she noted that February's data is favorable as the rate of residential building is up 6.2% compared to pre-COVID levels.
According to an October survey conducted by the National Association of Homebuilders, more than 55% of single-family builders reported a shortage of labor across 16 homebuilding trades, with the greatest being among carpentry trades. The NAHB also notes that subcontractor shortages are even more widespread than "shortages of labor employed directly by general contractors." According to them, at least 90% of single-family builders reported a shortage of subcontractors in each of the three categories of carpenters (relating to occupation and training) and 80% to 85% reported a shortage of subcontractors in six other trades.
"Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines," NAHB researchers wrote.
If the homebuilding sector welcomes more workers, it could relieve the housing market of affordability woes. This is because as more homes are introduced to the market, homebuyers will have to compete less for available inventory. As competition eases, home prices are likely to moderate and eventually fall.
"Higher costs in construction due to labor scarcity is one factor responsible for recent home price gains," Robert Dietz, NAHB SVP and chief economist, told Builder Online, adding that "the future of homeownership depends on the cost of new housing, and improvements can only be made through industry-wide efforts to improve the labor outlook."
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