Houston Is So Short Of Construction Help, Developers Are Taking Matters Into Their Own Hands

March 25, 2022   |   Tags:
Houston Is So Short Of Construction Help, Developers Are Taking Matters Into Their Own Hands

By Lane Gillespie of Bisnow.com

Horizon International Group had just nabbed the contract and city tax breaks to develop the W Hotel, a 300-odd-room luxury hotel set to sit atop the Partnership Tower in downtown Houston, in early March 2020. A week later, pandemic lockdowns ground the construction industry to a screeching halt, setting off ongoing labor shortages and project delays that have since been compounded by layoffs, the Great Resignation and severe materials shortages.

When the W Hotel project picks back up later this year for Horizon, it will mark more than two years of labor and materials difficulties that have driven up costs and delayed projects for the entire American construction industry. For Horizon, specifically, the travails of the past 24 months have boosted project costs by tens of millions of dollars and driven the firm to consider a unique solution — creating its own trade school to train construction laborers.

Labor shortages, especially in the dangerous and high-stress construction industry, aren't new. But like nearly every pinch point in commercial real estate, the problem was exacerbated by the pandemic. As of the end of 2021, the Houston construction industry had only recovered a fraction of the 24,000 jobs lost due to Covid-19, according to Greater Houston Partnership data. As projects are restarted amid recovery, the market must gain even more jobs, 27,700 in total, to recoup losses and have enough hands on deck to go forward with planned projects.

Al Kashani, vice president at Horizon, told Bisnow all of his projects, in Houston and elsewhere in the U.S., have come upon pandemic-related labor and materials challenges.

"Oh, my God, you never have enough labor in Houston," Kashani said. "Even during downtime, it's not enough sufficient amount of labor."

Kashani estimates Horizon, which is involved in both development and construction, employs thousands of ground-level construction workers directly or indirectly and has about 35 or 40 managerial employees. He needs another 500 in the field, and says the company needs about 30 additional managers.

Severe supply delays and materials price hikes alongside a lack of skilled labor and the increase in wages that has spawned mean the W Hotel project costs about $20M more than it did six months ago. Though costs are stabilizing, Kashani said the project will not be completed at anywhere near its initial estimate of $130M.

Experts who spoke to Bisnow offered different reasons for why the industry is experiencing a severe labor shortage. Paul Puente, executive secretary at the Houston Gulf Coast Building and Construction Trades Council, said more workers are retiring without young people to fill the spots. For Makenzie Plusnick, communications manager for the Dallas-Forth Worth-based National Association of Women in Construction, sour public perception of construction work means it's few young people's first choice. National data suggests many in the industry are leaving for greener, less backbreaking pastures.

What is sure is that shortages are at crisis levels. Data from the Associated Builders and Contractors last month showed the country needs 650,000 more construction workers this year, and ABC Chief Economist Anirban Basu said in a release that the workforce shortage is the most pressing national issue for the industry.

“ABC’s 2022 workforce shortage analysis sends a message loud and clear: The construction industry desperately needs qualified, skilled craft professionals to build America,” ABC President and CEO Michael Bellaman said.

To make matters worse, as $1T in bipartisan infrastructure funds begin rolling into Texas and other states and post-pandemic projects pick up, the labor shortage is only set to get worse. 

"Labor shortages and commodities costs [have] impacted every project," Kashani said.

Many workers say that they are resigning their jobs due to work conditions and low wages that aren't keeping pace with inflation. But Kashani, comparing his business to a restaurant that can't raise costs on a meal and stay in business, says he's eating the cost amid industrywide demands for higher wages.

"[You] can't just raise your menu costs, nor can you raise your room rate by 30%," he said. 

Horizon pays its exempt construction managers and superintendents about $80K to $100K a year, plus benefits and tuition reimbursements, Kashani said, which is roughly in line for 2020 averages, according to the Bureau of Labor Statistics. He estimated construction workers on the ground make around $50K to $60K, though benefits will depend on the company they are subcontracted under.

But higher pay is not enough. In his union work, Puente advocates for apprenticeships for construction workers. In Houston, which has no city or state license requirements for general contractors, very few construction workers have received state or federal training through apprenticeship programs, he said. Meanwhile, it's not just workers that the construction industry needs, but skilled workers.

Though the number of workers starting through apprenticeships is growing, just 16,000 Texans are currently participating in state or U.S. Department of Labor programs, according to Puente. That's compared to about 700,000 total people who work in construction in the state, per the Associated General Contractors of America

Puente attributes this lack of workers with formal training to the high death rate in the city and state, which for years has made the state one of the deadliest places in the nation for construction workers. A 2020 report from the Division of Workers Compensation states that construction is by far the deadliest occupation in Texas, with 127 reported deaths that year.

"It's a risk, but it's a risk that a lot of [companies] have taken and won, and sometimes they've lost," Puente said. "It depends. It's not their life on the line, it's the individual's life on the line."

Nonlethal hazards make the industry unappealing for other groups. For women, who make up a small but growing percentage of workers in construction, some became fed up with sexist comments on job sites and pay gaps. Companies are making greater efforts to hire diversely amid diversity and inclusion efforts nationwide, and Plusnick says they can't exactly afford to be picky.

"We're seeing a lot of companies starting to realize that they need to focus on the inclusion portion and focus on how do we retain women and other … minorities in our companies," Plusnick said. "You don't want to lose the people you already have."

To gain better-trained workers, Kashani has an idea in mind: He's building a trade school to create them.

Horizon Workforce Development School, a new school in the former Peck Elementary School in Houston's Third Ward, will train construction managers. Instructors, Kashani said, are not trained teachers; instead, the nine-month program requires instructors have $15M worth of project experience. The program, which will initially be free until Kashani can get successful alumni to encourage outside funding, will cost the company about $600K for 75 students. The school is underway and set to open on an undetermined date.

"If you have a shortage of tomatoes, what do you do?" Kashani said. "Create a tomato farm. If it's cold and freezing, what do you do? Build a greenhouse. Our idea is to come up with solutions [for the labor shortage]."

Puente, who advocates for more job training from construction companies, says one of the reasons many companies do not already pay for training, besides the expense, is because they're afraid they will train employees only to have them leave for another company — a fear Kashani dismisses as the cost of training.

"[It's] just the nature of the beast," he said.

Kashani is still optimistic about his upcoming projects as the industry climbs out of the pandemic, and says the company is committed to restarting the W Hotel later this year, as millions have already been poured into it. The last several months have seen projects expedited and he's begun to see what he calls the light at the end of the tunnel.

"[At] the end of the day Texas, especially Houston, has a bright future," he said.

Tyler Durden Fri, 03/25/2022 - 12:45