Tariffs, Labor Shortages, and Hip Pain

Where the big picture meets the rubber in the road is forever fascinating to me.  When I see my clients impacted by economic trends, my job is to do the research so I can discuss this impact in practical terms and make sense of things like rising costs or construction delays.   In our team meeting on Tuesday of this week, we were discussing how tariffs on Chinese imports are affecting the cost of construction and how labor shortages are lengthening construction timeframes for both new homes and home renovations. 

On a general level, I’m always interested in how the headlines in the news are actually impacting daily life.  In this case, I cannot judge the increase in costs and lengthening of construction timeframes as good or bad, but they will be trends we can expect to see for at least the near future.  On a practical level, I was ordering new flooring for our basement last week and my flooring contractor said they are about to see price increases over the next 3 weeks, with most hitting his industry around the first week of October.  The increase is expected to be as much as 25%, passed directly to the consumer, on many different types of flooring and specifically in our case, vinyl planks.  A day after I placed the order on the flooring, I was notified of labor shortages delaying construction by a reputable home builder in Loudoun County.  Because most of my business comes from resale homes and a smaller portion in new home building, I was curious how prevalent this trend has been in the DC Metro area over the last few months.

Analyzing how the cost of labor has continually outpaced inflation over the last few years isn’t the sexiest topic but it does render helpful information as you look at the value of a potential investment.  In essence, labor shortages result in increased home prices.  The NAHB sites a 22% increase in home prices since 2015 and labor shortages are one of the largest contributors to this increase.  One of the reasons for the labor shortage is that during the recession of 2009, many workers were let go.  As the economy improved, they found other jobs, many with increased wages or benefits.  As a result, the construction industry now has hundreds of thousands of jobs to fill and is finding it harder to recruit new workers.  I also suspect that the recent headlines about crackdowns on immigration are also affecting the reduction in a pool of workers within the construction industry who were an easier target for cheap labor.   

New homes have always come with a premium, and for good reason.  Just as a resale home with a new HVAC, new roof, and new updates on the interior will typically sell higher than a similar home without those updates, it should cost more to have something newer versus older, depending on the location.  In new communities, the premium is also tied to brand new amenities – pools, clubhouses, walking trails, and potentially new retail space within close proximity.  And, if the population grows enough, then you can expect new schools in the near future. 

I don’t see a way around the increasing cost of construction.  Either builders will have to increase their wages to attract new workers, or the labor shortages will continue, which will lengthen schedules and ultimately add to the total cost of construction.  In either of these scenarios, the costs will be passed to the consumer.  If the President’s plan to increase tariffs does drive consumers to purchase more goods made in the U.S., then it’s unlikely we would see any reduction in the cost of goods for some time.  Maybe we will become more innovative in our ability to cut the cost of materials as Americans get used to purchasing American-made goods in larger volume. 

In the DC Metro area, in particular, potential construction workers – contractors and subcontractors – know how busy the market is for new homes and home renovations.  A contractor I work with frequently, said he is constantly being asked to increase wages to his subcontractors and laborers because they can see the demand from consumers and the labor shortage.  Over the course of the last couple of years, he’s increased the wages he pays by an average of $5/hour with subcontractors’ pay going from an average of $13/hour to $18/hour this year.  We had a general discussion about the generational views on manual labor and working in the construction industry versus working in an office environment.  The curmudgeons in both of us wonder about kids playing video games and sitting on iPads and seeing all of us sitting at computers and then seeing us hire other people to work in our yards or come fix things in our homes.

There are a lot of sociological rabbit holes I could go down to fully investigate the view children in affluent areas have of manual labor.  (As yet another aside, it’s unlikely we would all be taking Advil for hip and back pain, or that we would be having orthopedic surgeries at younger ages than our parents, if we got up and mowed the lawn, or raked leaves, or lifted an I-Beam with our own hands.) 

I’m not saying I would ever be able to tackle carpentry or tile installation as well as the experts and so I guess, I, and maybe you too, will have to be willing to pay what it costs to have an expert do it the right way.  In the meantime, I have a renewed interest in making sure my kids see the value in working with their hands, moving their bodies, and being able to do at least some fundamental things around the house so that they are not always beholden to paying wages that outpace inflation, or waiting for a contractor to do the work when demand is greater than supply.  Heck, maybe they will learn how to build a house or how to restore an old house, or how to manage a construction site. 

Just think about how reassuring it is to know someone who can come fix a leak in a pinch, or help you tear down your gazebo with their new saw, or spruce up your house so you can have a larger profit on your sale.  It sounds like a pretty satisfying position to be in, to be so handy.   We may not be able to control the price of goods, or the cost of buying and operating construction equipment at a micro level, but we can control what we know and we can consider discussing with our children how the construction industry envelopes so many great life skills – people management, human interaction, physical fitness, mathematics…the list goes on.  (I built a cheap table the other day that I had ordered online and it came with very limited instructions.  That task required more spatial reasoning than I’ve used since used college math.)  Oh, and children, if you don’t want constant hip pain at the age of 38…limit your time in a desk chair! 

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