I am frequently asked, why, given that single-family home permits and starts are still lagging the current recovery, are we facing such a significant labor shortage?
What’s happened in residential construction, as the economic recovery has been underway, has been a shift from single-family home construction to multi-family construction. While there is a direct correlation between starts and permits in single-family delivery, because there are numerous units within one multi-family building and work within each apartment is typically more than what is required in a home, labor requirements are exponentially higher in multi-family construction.
Understanding this, all you have to do is look to the Construction Pipeline for Phoenix and Tucson reported by ABI Multifamily. Within these reports, simply compare the 2015 units delivered with the 2016 estimated unit delivery to understand the significant demands on our labor pool in Arizona. According to the report, Phoenix alone is showing an anticipated 11,000 units will be delivered in 2016 vs. 4,661 in 2015, an increase that more than doubles the demand on labor. Likewise, in Tucson the anticipated number of units delivered in 2016 is 1,000, which also is more than double the 445 units that were delivered in 2015.
The staggering growth in multi-family alone has placed higher than usual demands on the local labor pool. In addition, because of the growth, multi-family has attracted general contractors and subcontractors who have not been focused in the market previously. This broadening of firms into new markets is pulling labor from other areas and causing stress in commercial construction as well.
We’re not the only ones to recognize that the growth is significant. In the March 25, 2016 issue of the Phoenix Business Journal, bankers spoke of their transition away from financing multi-family projects. In the article, “Banks see Some Tarnish in Multi-Family’s Shimmer,” Ed Zito, president of Alliance Bank of Arizona, said his institution has moved past multifamily and said “multifamily is too competitive.” Also, David Ralston, chairman and CEO of Bank of Arizona said, “We’ve avoided lending on multi-family projects.”
As usual, the market is going to correct itself. However, due to substantial demands by the multi-family sector, the construction industry will continue to face significant labor challenges through 2016.