Cost of construction rising throughout Central Texas


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For the past few years, Chris Tovar said he has struggled to find qualified management to lead construction projects for his business, Tovar Construction Co., in Leander.

“Superintendents and project managers—that has been a very difficult position to fill,” he said.

His company specializes in renovations for homes and commercial businesses. To find qualified workers, Tovar said he has utilized the Texas Workforce Commission and searched online job services, such as Indeed, or even Craigslist.

“I’ve tried a few different options, and it’s hard to find qualified workers,” he said. “That is a real shortage that I’ve seen and that I’ve experienced.”

His company is not the only one in Central Texas reporting a shortage within the construction industry. Aside from qualified management, several business owners and contractors have reported a shortage in the labor force and a lower level of building quality.

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Jentri Quinn and Alex De Mola, the owners of Cotone Clothing + Beauty Bar, ended up going five months without a sustainable source of income when they closed their store in downtown Austin to relocate to The Domain.

“We were delayed for months because there was a lack of contractors,” De Mola said. “We were bounced around by two contractors. They themselves were overwhelmed by work.”

Their 3,600-square-foot remodel job in The Domain 2 near Dick’s Sporting Goods proved to be too small of a job for most contractors but too large to hire a handyman, Quinn said. When they finally found someone to do the job, Quinn said they were not pleased with the quality of the work.

“We paid a good price and were getting less-than-desirable outcomes,” she said, adding their new flooring was marred by paint. “The flooring workers disappeared for days … because they were working other jobs.”

Delays such as this are not uncommon during a time when the number of building permits issued has increased more than 25 percent in the past six years in Austin, according to city data. In Leander, the demand is even higher: Between 2011-16, the number of building permits issued for commercial and residential properties increased 379.4 percent, according to the city. The number of permits issued has been more steady in Cedar Park, with an increase of 11.46 percent since 2011, according to city data.

During the same time, the number of construction workers has increased by more than 27 percent in the Austin-Round Rock metropolitan area, according to U.S. Bureau of Labor Statistics data. The region includes Bastrop, Caldwell, Hays, Travis and Williamson counties.

Despite an increase in workers, many construction sites are understaffed, namely with skilled laborers who must have specific certifications or licensing before they can perform work.

“We have been adding workers, but companies are saying they aren’t the workers they ideally would like to have,” said Ken Simonson, chief economist for the Associated General Contractors of America.
SUPPLY AND DEMAND

In the Austin area, the shortage is noticeable because of the vast amount of construction underway and in the pipeline. Steven Burch, president and chief operating officer of Austin-based White Construction Co., said it comes down to supply and demand.

“Since people have choices and there’s a lot of work, prices are going up—not because it costs a lot more for materials, but in labor, it definitely does—because a lot of the subcontractors are competing for the same people, and the way they get them is they pay them more,” he said.

As a result, Burch said many owners have to rethink the project’s viability to stand up to delays and come up with a more realistic time frame and budget.

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“When there’s more demand than there is supply, [subcontractors] can raise the price, and [they] can be ultra-selective about who [they] do business with,” he said.

City departments are also not immune to the changes in the construction industry. On March 23, the city of Cedar Park approved an amendment to increase the budget for improvements to City Hall Building 6, which will house fire administration, fire prevention and fire training staff. The amendment added $300,000 to the project budget, which was rising due to construction costs, according to city documents.

Sam Roberts, Cedar Park assistant city manager, said the city works on horizontal projects—such as roads—and utilities, such as water and wastewater, as well as vertical projects, or buildings such as fire and police departments, recreation centers and libraries. The city has not seen much cost escalation on horizontal projects, but Roberts said the city has seen cost increases for vertical projects.

“The budget for this [City Hall Building 6] was increased because, as we are told by the contracting community, there is a major labor shortage in the Austin region, and this is driving overall construction costs upward,” he said.

Leander City Engineer Wayne Watts said the rising construction costs are cyclical. After the country fell into a recession in 2008, he said costs to build projects dropped drastically.

“We built a lot of wonderful things at very much bargain prices,” he said. “From 2008-11, for construction companies, projects were hard to get—there was a low supply of work and high supply of people to do the work, so we got bargain prices.”

At that time, Watts said his department saw bids for local projects come in at 20 percent to 30 percent below the city’s estimated cost. When Leander received bid proposals for its portion of the Brushy Creek Regional Water Treatment Plant, the best bid came in at about $45 million, saving the city about
$30 million, Watts said.

With the economy recovering, he said the cost of construction has gone up dramatically in the past few years.

“Those bargain days aren’t here [anymore]; that’s just the way the world works,” he said.

The lack of workers is a twofold issue, said Parker Holt, property and casualty broker and construction practice leader with insurance firm Higginbotham and president of the Central Texas Subcontractors Association.

When the oil boom occurred in the early 2010s in South Texas, many construction workers left their jobs in search of high-paying posts in the oil industry, Holt said. Although that industry has slowed, Holt said the jobs have not returned as quickly, and the labor pool is still thin.

“These guys are having a hard time finding good help,” he said. “A lot of times they are losing their good help who are going down the street to a job that has a better compensation plan or insurance plan.”

Because more infrastructure work—roads, bridges, transit and airports—is still on the horizon in the Austin area, Holt said he thinks the problem will continue.

“If there’s light at end of tunnel, that might be ambitious,” he said. “This is going to be an issue for a while.”

LABOR ISSUES

What could exacerbate the shortage is President Donald Trump’s immigration policies and the effect on Texas’ economy and construction industry, Simonson said.

“If people are being denied entry or deported or getting the message that the U.S. is not a welcoming place for this talent, this will put a pinch on the workforce and will slow economic growth on an area that depends on that talent,” he said.

Jose Garza, executive director of Workers Defense Project—an Austin-based organization that advocates for the rights of low-income workers, especially construction workers—said Trump’s executive order, which removes priorities for the standards by which immigration enforcement officials can detain people, will decimate the Texas economy.

“We’re seeing a slowdown because people aren’t coming to work,” he said. “That policy really starts to have a ripple effect on our economy.”

The effect can be seen at a local level as well. In March, Watts said a private developer parked alongside one of Leander’s road construction projects in a white SUV, and several workers left the site in fear of immigrant enforcement officials.

“We had crews that disappeared for half a day,” Watts said. “That could be a factor [in the shortage].”

According to an AGCA survey of 131 firms in Texas, 49 percent of firms polled reported worker shortages as their biggest concern.

Holt said the industry has been asking school districts to reinforce trade programs in high school to put students onto a path toward skilled labor. Garza said about 50 percent of Texas construction workers are undocumented immigrants, and 60 percent report not having basic training. He said few places besides labor unions offer workforce training programs.

“There’s a disconnect between the labor market and training options for that labor market and an insufficient emphasis on training,” he said.

Garza said the industry needs to focus on increased wages, increased training and a path to middle-wage jobs.

“You can’t import labor from other places in the country or from around the world,” he said. “We depend on a strong, well-skilled labor pool. If there is a labor shortage, it means businesses grind to a halt.”

Dead time is a concern for developers and business owners alike. The increased time to find workers not only can set a project back by months—it also affects businesses’ bottom lines because they have to pay more to obtain workers.

“They run into unexpected overtime costs because they couldn’t find workers,” Simonson said. “Once [the contractor] tells the owner a firm bid, they’re stuck with those costs.”

Sonny Horton, president of BCS Concrete Structures, a concrete subcontractor firm in Buda, said he had to start paying workers $2 more per hour to get positions filled, resulting in higher-than-expected labor costs.

“We’re just trying to keep our eye on the market a little better,” he said.

When the city of Leander estimated its Old FM 2243 widening project in 2013, Watts said it was priced to be $18.5 million, but the best bid for construction costs came in at $22.5 million. However, he said it is not always possible to predict costs in the market. When the engineering department went out for bids for the Bagdad Road project in December 2016, the city estimated a cost of $12.5 million but selected a bid for
$8.5 million.

“How about them apples?” he said.