Multifamily developers are being hit by a one-two punch to their ability to plan and execute builds recently. As data in a recent National Real Estate Investor (NREI) online article shows, along with data from TradesmanInternational online, a painful combination of rising material costs and lack of skilled trade labor is fixing to cost everyone. We look at what’s driving these factors as well as what could help turn the tide in today’s BAM blog.
Material Costs…Going Up!
The multifamily developers are paying a steep price for current trade tensions, as evidenced by the rising cost of construction material. The Trump administration’s declaration of intended (and sometimes imposed) tariff’s on materials like lumber and steel have caused prices in both areas to increase, even if it’s only in anticipation of an imposed tariff. According to the NREI piece, manufacturers sometimes even claim that they’re raising prices in anticipation of a tariff (which may – or may not- come to fruition). NREI cites the producer price for steel mill products at 19% higher than just a year ago. The NREI data does note that when tariffs have been postponed or dialed back, the prices have then moderated from an initial increase.
The Fix
Reducing trade tensions and disputes would help cut the cost to construction necessities like steel, lumber, aluminum, and more.
The Skilled Trade Labor Shortage Continues
It’s been a known quantity for some time; while unemployment is low, and some sectors struggle to find workers to fill those jobs, certain sectors are struggling more than most. The skilled trades are seeing a lack of new applicants to fill their job pool, which in turn is affecting multifamily developers. Jobs like electricians, carpenters, sheet metal workers, and more are all failing to attract the same amount of hires as in years past. TradesmanInternational online notes that there are several factors at play: older skilled workers are retiring, young people are eschewing trades in favor of four-year degree programs and white-collar jobs, and the workers who left during the Great Recession haven’t returned – meaning there are even more jobs to fill. The shortage of labor is affecting construction across the board, and the multifamily industry is no different.
The Fix
There’s no easy remedy; unfortunately, the skilled labor shortage will probably get worse before it gets better. It will likely take a planned and intense effort to attract workers into the trades, including making it an appealing job choice for younger individuals entering the job market.
The BAM Bottom Line: Multifamily development is being impacted, as is most construction, by these two factors. While construction material costs may decrease with lessened trade tensions, the skilled labor shortage will likely continue for some time.
