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The Modern Construction Landscape and Its Opportunities with Ken Simonson, Chief Economist at Associated General Contractors of America

June 17, 2024 James Faulkner
The Modern Construction Landscape and Its Opportunities with Ken Simonson, Chief Economist at Associated General Contractors of America
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the Site Visit
The Modern Construction Landscape and Its Opportunities with Ken Simonson, Chief Economist at Associated General Contractors of America
Jun 17, 2024
James Faulkner

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Discover the hidden potential of a career in construction with Ken Simonson, Chief Economist at Associated General Contractors of America. With over 22 years of industry experience, Ken offers invaluable insights into the current economic landscape affecting the construction sector, from labor supply challenges to material costs. Broadcasting from Wichita, Kansas, he draws upon his diverse background, including his time at the Office of Advocacy US Small Business Administration and the American Trucking Associations, to provide a comprehensive view of the opportunities and challenges in construction today.

Learn why high school graduates should seriously consider a career in construction, where the average hourly wage outpaces the broader private sector by 19%. Ken also highlights the transformative power of cutting-edge technology, such as drones, 3D printing, and AI, and how these innovations are revolutionizing the way construction work is done, providing a sense of tangible accomplishment and long-term satisfaction.

Get a deeper understanding of the importance of teamwork and safety in the construction field, and how these elements contribute to job satisfaction and skill development. We discuss the diverse range of roles available, emphasizing that the industry values various skills from on-site manual labor to off-site coordination. Ken also touches on the need for a national accreditation system to elevate the status of construction professionals, making the field more appealing to young people and their parents. Additionally, we tackle the pressing issues of labor costs, regulatory challenges, and the potential for productivity gains through technology to make housing more affordable and sustainable.

PODCAST INFO:
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the Site Visit on Apple Podcasts: https://podcasts.apple.com/ca/podcast/the-site-visit/id1456494446
the Site Visit on Spotify: https://open.spotify.com/show/5cp4qJE5ExZmO3EwldN1HH

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Show Notes Transcript Chapter Markers

Send us a Text Message.

Discover the hidden potential of a career in construction with Ken Simonson, Chief Economist at Associated General Contractors of America. With over 22 years of industry experience, Ken offers invaluable insights into the current economic landscape affecting the construction sector, from labor supply challenges to material costs. Broadcasting from Wichita, Kansas, he draws upon his diverse background, including his time at the Office of Advocacy US Small Business Administration and the American Trucking Associations, to provide a comprehensive view of the opportunities and challenges in construction today.

Learn why high school graduates should seriously consider a career in construction, where the average hourly wage outpaces the broader private sector by 19%. Ken also highlights the transformative power of cutting-edge technology, such as drones, 3D printing, and AI, and how these innovations are revolutionizing the way construction work is done, providing a sense of tangible accomplishment and long-term satisfaction.

Get a deeper understanding of the importance of teamwork and safety in the construction field, and how these elements contribute to job satisfaction and skill development. We discuss the diverse range of roles available, emphasizing that the industry values various skills from on-site manual labor to off-site coordination. Ken also touches on the need for a national accreditation system to elevate the status of construction professionals, making the field more appealing to young people and their parents. Additionally, we tackle the pressing issues of labor costs, regulatory challenges, and the potential for productivity gains through technology to make housing more affordable and sustainable.

PODCAST INFO:
the Site Visit Website: https://www.sitemaxsystems.com/podcast
the Site Visit on Buzzsprout: https://thesitevisit.buzzsprout.com/269424
the Site Visit on Apple Podcasts: https://podcasts.apple.com/ca/podcast/the-site-visit/id1456494446
the Site Visit on Spotify: https://open.spotify.com/show/5cp4qJE5ExZmO3EwldN1HH

FOLLOW ALONG:
LinkedIn: https://www.linkedin.com/company/thesitevisit
Instagram: https://www.instagram.com/thesitevisit

Speaker 1:

Ken, how are you today?

Speaker 2:

Doing fine thanks.

Speaker 1:

And you're from Arlington, virginia. Is that correct? Is that where you're calling in from today?

Speaker 2:

My office is in Arlington. We're recording this while I'm in Wichita, Kansas.

Speaker 1:

Wichita, Kansas. So what takes you there today?

Speaker 2:

Actually I belong to an economist group that meets four times a year in different spots around the country. They've been to 47 other states and trying to tick off the last three.

Speaker 1:

Wow, so is it a nice place. Are you excited to be there, or is it just another pin on the map for you on your quest to go through your 22 years in this position?

Speaker 2:

Well, for me there are no flyover states. I've been to Wichita before. The Associated General Contractors of America has chapters in every state and while I haven't spoken to all of them, I do get around the country a lot.

Speaker 1:

Welcome to the Site. Visit Podcast. Leadership and perspective from construction with your host, james baldner.

Speaker 2:

Business as usual, as it has been for so long now that it goes back to what we were talking about before and hitting the reset button, you know you read all the books, you read the email, you read scaling up, you read 50 great. You know I go on. We've got to a place where we found the secret serum.

Speaker 1:

we found the secret potion we can get the workers in. We know where to get them. Once I was on a job trip for a while and actually we had a semester concrete and I ordered like a pre-finished patio out front of the sidechillers desk. I was down at Dallas and a guy just hit me up on LinkedIn out of the blue and said he was driving from Oklahoma to Dallas to meet with me because he heard the Favour Connect platform on your guys' podcast. Own it, crush it and love it, and we celebrate these values every single day. Let's get down to it.

Speaker 1:

Thanks for taking the time. I really appreciate it. You know we're up in here in Canada and you know we're obviously chatting with lots of folks in the United States and it's great to chat with you and get some of your perspective, you know from your knowledge, et cetera. So you've been in this for 22 years at the Associated General Contractors of America. I mean that's a long tenure. So just take us through what you've experienced in those 22 years and how you see things differently from when you started in that position to where we are today from an economic point of view and some of the narratives that you're reviewing with your different chapters these days.

Speaker 2:

Sure, well, first a little bit about AGC. We're the leading national construction trade association in the US for firms that do every kind of construction other than single family home building and, as I mentioned, we have chapters in every state. We actually have a total of 89 chapters. Some of them represent just building contractors, others highway and infrastructure contractors, but some represent the entire industry and while many of them are statewide, we also have some that focus on particular metropolitan areas. I joined AGC on September 10th 2001. So, as you can imagine, it was quite a dramatic start. On day two people started asking me what's going to happen to the economy, what's it mean for different kinds of construction?

Speaker 2:

And ever since I've been giving reports, including a weekly email called the Data Digest that summarizes a variety of economic information relevant to construction that I hope helps people figure out where things are going in terms of labor supply, materials, costs, supply chain issues, and then the demand for different types of structures, whether private or public.

Speaker 1:

Okay, so you've been doing this for a while, looking through your CV, or at least what's on LinkedIn. Anyway, you worked with the Small Business Association.

Speaker 2:

Right, I worked for a very small part of the federal government. It's called the Office of Advocacy of the Small Business Administration. While most of SBA is there to help small businesses with emergency loans, disaster assistance, other kinds of support, the Office of Advocacy was charged by Congress to provide an independent view of the impact of market changes or policy changes, legislation, regulations and so forth on small entities, small businesses, even small governments and nonprofits. So that was a very interesting perspective to work from also.

Speaker 1:

And then, before that, you were with the American Truckers Association. Is that correct?

Speaker 2:

Right American Trucking Associations was the leading trade association for the trucking industry. It represented long-haul truckers, both less than truckload and truckload carriers, but also a variety of specialized carriers and short-haul carriers. So, as with construction, it was a position that looked at a very diverse and central essential industry.

Speaker 1:

So I was, you know, looking through the your website and came across a number of initiatives. You know the diversity and inclusion things that are initiatives that are going forward and some great videos there. You know we see that as quite an interesting movement up here in Canada also. We won't get into that because I know that can be an interesting one, would call it a radioactive topic to a lot of people. So we're just going to keep this about economic factors and levers here. But I can see that there's a definite mirror of initiatives that are going on with your organization, as is there are other with other construction associations in Canada.

Speaker 1:

Can we just chat a little bit about, from the economic standpoint right now, what you see the opportunity is for young people in construction. You know the 20-some things, et cetera and how we all understand this labor shortage. And from an economist point of view, are there any statistics, numbers that you have just off the top of your memory that you could provide in terms of how much new building we have to do in the next number of years? It could be any segment of years. You decide that you have some information on what we need and what the attrition rate is of the generations retiring, et cetera, and how many new people we need.

Speaker 2:

Sure, that brings up a lot of different aspects, but let me start off at a top level. I think the outlook for construction in the US is very bright, but it's also varied. At the moment we see tremendous growth happening in demand for data centers, for giant manufacturing plants, for various types of infrastructure, for various types of infrastructure and for renewable energy, from solar fields to transmission lines, to utility scale battery storage and then delivering power to vehicles and homes and businesses. So those are a lot of opportunities. For the moment, I think commercial construction has been in decline and is likely to accelerate that decline in areas such as offices and warehouse construction. Apartment construction, which has been very strong, is dropping pretty sharply. So it will be a mixed picture in the near term, but the longer outlook very positive for construction overall.

Speaker 1:

Interesting. But I would suppose on the sub-trade side of things, the sub-trades support all those different types of industries as well, so they're going to be pretty much secluded some way from that impact. Secluded some way from that impact. I would say that you know, obviously, when you're talking about, you know some of the in commercial, like if you're dealing with warehouses, you're dealing with multifamily homes, you know there's the plumbers who are, you know, putting. You know, in a two 300 suite unit building you're going to be putting 200 toilets in. That won't be happening in these types of other projects that you're talking about. In these energy or infrastructure projects, some of those sub-trades might not be there, but electrical contractors, concrete, metal work, there's a lot of those things. The excavation, site preparation, there'll be a lot of those things that would apply that would seem to be somewhat secluded from that. Would you agree with that or do you have any more comments on that?

Speaker 2:

Oh. I think there's tremendous opportunity for careers in construction right now and that that's going to continue. You may have to be a little more flexible about where you'll be working, in terms of geographic areas or segments of the industry, but pretty much across the board contractors have been saying their number one challenge is filling positions. They don't see that getting any better as more of the workforce ages out. I like to say that there are economists who can keep doing their job into their 70s or later, but people don't generally stay out in the field in construction that long. So as more workers hit the 50s and 60s and fewer are coming into the workforce, construction is facing an even greater challenge than other industries in filling positions and I don't see that easing up. I talked to a major contractor at the beginning of May who said that they could use a thousand more electricians. So that's just one example of a specialty craft that is in huge demand. But we do a survey every summer to ask firms what their experience and their expectations are regarding workforce and consistently, among the 21 crafts that we ask about, at least two-thirds of the firms say we're having trouble filling those positions. So I would absolutely encourage anybody who's wondering is construction a career that will have opportunities? You know, once I get trained, you bet, and I don't see that changing.

Speaker 2:

Furthermore, the pay in construction is better than it is in the typical job, particularly for high school graduates. There's a series that the Bureau of Labor Statistics puts out with the employment report each month called Average Hourly Earnings for Production and Non-Supervisor Employees. That's a long mouthful. Construction takes in craft workers and office workers who aren't supervisors, and every month I look at that figure and compare it to the average hourly earnings for production workers in the broader private sector. So that would include all kinds of service jobs and also manufacturing jobs, and the average hourly earnings in construction are about 19% greater than they are across the total private sector. So the pay is good. The growth opportunities are terrific. I meet so many CEOs or other executives or owners of construction firms who started out in those straight out of high school jobs or summer jobs in college and have risen to head companies or start their own companies.

Speaker 2:

And then, finally, there are some things that you can do in construction that you can't in other jobs, certainly showing, first of all, working with cool tools. The industry was an early and big adopter of drones to document the progress or the needs for things in hard to reach places. They've long used laser-guided and GPS-guided equipment. They're experimenting with 3D printing and robotics and certainly a lot of software applications. A lot of things they're doing with the genitive AI and more traditional artificial intelligence. And finally, you get to show your friends and family the projects that you've worked on, how you've contributed to the quality of life or the skyline in a city. Those are things that you can't do when you're a barista or working in a family line, a barista?

Speaker 1:

Yeah, those jobs I mean everything else to me seems somewhat, you know, like meaningless when it comes to under a certain pay scale. And in construction, as you said, there's that feeling of satisfaction somebody has Actually they built something, there was something there at the end of the day that they made. I was just hosting a panel last Thursday in Whistler, um the construction leadership forum, and uh, we were talking about the brand of construction and essentially, you know how to attract young people. You know what you were just saying. Right there you speak to a lot of CEOs and owners of um of companies that started off with their skilled trade and now they own a company. What would you say is the?

Speaker 1:

Yeah, that's a common story and I think should be a powerful incentive for people who want to try running their own business and, to some degree, setting their own schedule or picking what they work on and one of the main aspects that we were talking about at the conference was that if you sort of remember back in the early 2000s when Silicon Valley was really on fire I mean it still is to some degree, but really when there's that exciting time of all the investors coming in, funding all these companies, these great companies being made, we're in that time right now in technology and construction where it's becoming less dirty every day and it's becoming more of an exciting place for people to put their investment of their time in. So that isn't just about collecting a paycheck, it's investment of where the result in that time is, if that investment of time that you're spending on that job site learning and understanding the new technology that is coming down the pike. It seems to me that the thing that needs to be sold or at least communicated to the younger generation is somewhat of a way to endure the patience that they're going to require in order to see the long game, because a lot of kids these days, even in their 20s, they want something now. They want to do something quick. They want to be a YouTuber and suddenly get, you know, 100 million views and suddenly get that badge behind their desk and to be able to have this thing now, because they're very impatient, because they've been so used to having things instantly since they've been young.

Speaker 1:

So I've seen a lot of ads, for instance of posters, where it would say this could be your life in construction. And so it's a guy, you know, mid-aged when I say mid-aged I'm aging, both of us right now but you know in his early 40s on a fishing boat, and it says this is construction and those are great aspirational images to have. But I think that there needs to be that message of purpose, because I think that would you agree that there's this meaning. Vacuum out there that construction as inherently a meritocratic action, as a job. You either built something and it's in front of you or not. There's no subjective opinion whether or not that building is built or not and it really is as you said. There's that satisfaction of building something and that can provide purpose for a lot of young people.

Speaker 2:

Yeah, I think that's right, and certainly you don't get to see the finished product in a week, but we've seen these speeded up videos of construction projects. You see the major changes happening on a construction site every month or even every week, and so that I think, can be a lot more satisfying than being on a big IT project where maybe you spend an entire year trying to get something done and then inevitably there are bugs that have to be worked out, are bugs that have to be worked out. So I do think that that can give you that immediate feedback that you're really contributing to something that is going to make a difference, and you can see yourself and other people can see, what difference you've made in the past week of work.

Speaker 1:

Yeah, that's interesting is that. The other theme that we chatted about was status. A lot of people are looking young men specifically looking for status. We were sort of hardwired to do that as males to have status, to have the best mates, et cetera. It's kind of ingrained in us from our primal days. We're still primal for many reasons, but what would you say to that? How to create status around a job in construction? I mean, pay is something that obviously is the result of hard work and essentially what people do things for. But once the pay scale gets higher and higher and higher, there has to be some sort of personal altruism to things in terms of why you want to do some things.

Speaker 2:

Yeah, I think that construction teaches you from day one that you really depend on others and they depend on you, that teamwork is essential, both to get the job done and to make sure that it's being done safely. So that, I think, is a really important life skill to learn or to reinforce and can be a source of satisfaction. You are not just competing against other people to climb the slippery slope. Help out in whether it's putting a particular piece of equipment or materials into place or having each other's back to make sure that you're safe and not going to be hit by a backing up a piece of equipment or some other hazard. So I think that construction definitely has the potential for giving you skills and satisfaction that you don't necessarily get in other jobs.

Speaker 1:

What would you say for there to be some type of rating scale of one's career, of one's career? And some of those levers that they could pull would be training, would be personal leadership, teamwork, and those will all be contributing factors to someone's personal score out there, so that they could establish some kind of personal stock value of how they show up in the construction world and it gives them some sort of a marker and a market to win that game if they understand what's at stake.

Speaker 2:

Well, I think construction does offer a much wider range of types of jobs and of skills and personal attributes needed than most people might assume. You drive past a job site and you see a whole bunch of people in hard hats doing what may look like dirty, dangerous, dead-end work, but really there are a whole range of activities happening on that site. So, depending on your mix of skills and whether you're preferring to work with your hands, doing the moving big equipment or installing things with a great precision, or overseeing and coordinating what goes on, all of those types of skills are needed on a construction site. But construction firms have a lot going on off-site also, whether it's dealing with the owner, the designer, the engineer, the vendors and suppliers, getting that scheduling right so that you have the right workers and not too few or too many of them on site when the delivery happens, when you can make adjustments, when you realize the design has some missing information or is creating some kind of conflict in where things are being placed, when the deliveries don't happen when you expect them to or the specifications are wrong in what gets delivered.

Speaker 2:

And then purely office jobs, where you're having to deal with the immense amount of what we still call paperwork, even though it may all be electronic. There are a huge number of parties that have to come together to get a construction project done, from the owner and the finance and the design, through the delivery of the specification, and then ordering and delivery of thousands of goods and bringing together what may be hundreds of subcontractors on a large project and again getting the timing and the payment for them correct and then finishing off the job and getting the inspection done. So all of those things require a full range of skills. The Bureau of Labor Statistics identifies 400 different specific job titles that are employed in construction firms in varying degrees. So while most of the jobs are on site or dealing with actual production, shall we say there's a whole lot happening in the background and a whole range of skill sets that construction firms make use of.

Speaker 1:

Yeah, it's interesting you say that about all the different jobs that are on a job set and that's what people see. What do you think the intersection is between the two terms? So construction worker and construction professional?

Speaker 2:

Yeah, I certainly would not suggest that someone on a construction site, whether they're moving materials, operating equipment or whatever is not a professional. They can do things that I would never be capable of doing, so you don't have to have an advanced degree or a college degree at all to be a professional in construction. In fact, many apprenticeship programs run for four years as long as a college program and yet from day one you may be getting hands-on experience. I did a press conference in 2023 at a high school that was training students how to do different craft type jobs, and many of them were spending time interning at construction firms and they were hired right out of high school working full time for construction firms, and yet they were also going through career and technical education and indeed it can be a lifelong learning process and a continued chance for advancement.

Speaker 1:

It's interesting, you know, when you the impact of somebody's work, when you look at a construction uh, professional, um out on the site doing mission critical work, and then you see somebody doing your books, for instance in accounting. Well, somebody doing your books needs to have an accreditation, they need to have a CGA or they need to have letters after their name that they've because of some you know, governing body that they needed to get some certification. You know, in terms of the intersection and moving that down the pay scale for people to reference themselves as professionals rather than I'm a construction worker. Is there any in the United States? Is there any national accreditation to be a certified construction professional?

Speaker 1:

There are quite a few of those. There needs to be one, though. If there's one, then it matters. If there's lots, then it's kind of.

Speaker 2:

Well, no, I'm not suggesting that there are competing ones, but, for instance, to be a crane operator, you definitely need. No, for sure, but something more general, and certainly the office professions also, to be an estimator or a financial, professional, specific to construction. All of those exist and I think can be useful in helping someone advance their careers, advance their skills and get recognition from their company and the industry as to what their level of proficiency is.

Speaker 1:

Yeah, no, that makes sense. I mean we've seen that in the carpentry Red Seal Carpenter, you know, in Canada here. So yeah, I guess what I'm trying to sort of nip at here is the main issue we have in terms of getting young people to be interested in construction is their parents want them to do something different than they did, and we have to sell the parents we were talking about this at this Whistler conference is the parents need to communicate to their children that construction is an amazing opportunity where they can do really well if they get in early. And it seems as though parents would be a little bit more enthusiastic about their child becoming a construction professional rather than a construction worker for five years.

Speaker 2:

You're right. I think that parents and school guidance counselors have been some of the biggest obstacles to getting kids to consider construction as a career, and the industry has really been losing out for decades now against the mantra of you've got to go to college to be a success, and unfortunately our federal government has also fed that in that about $4 out of $5 the federal government spends on supporting post-secondary education goes for colleges and universities and not for building people's skills for things like construction or other programs that don't require a college degree.

Speaker 2:

Now I have seen a little evidence that the pendulum is swinging back the other way. So certainly there is more skepticism, but it'll be a long time before construction is, let's say, competing on a level field to get the attention of parents and guidance counselors, school systems to provide those opportunities so students can even learn what they can get out of a career in construction, let alone acquire the skills while still in school.

Speaker 1:

Yeah, it's. The interesting part is is that Today, the personal brand of of someone's own identity of themselves, seems to be more important than anything to them at this specific juncture in history. And now we're at a point where the construction industry needs so many new bodies it will. Let's just say, for a site cleanup, for instance, can't get enough people, so anybody can show up at a job set as long as they don't have a terrible rap sheet of a criminal activity. They can probably get a job if they're reasonably clean. And the issue with that is that is fantastic. It gives people opportunity in construction who might not have had it in something else, but at the same time it conflates the brand of the people who want to go in it for the purpose of going in it rather than just getting a job looking at it for more of the long term.

Speaker 1:

This is a career. So the person who meets with the guidance counselor or goes to a skilled trades workshop that shows up at a high school in grade 10 or 11 and says, yeah, I would like to become, you go towards being an electrician, or I'd like to be going, I'd like to be a site superintendent, and you got to start and understand the site, the job site at that point. So you have to start off at a company and you first you're sweeping the concrete slab, getting ready for other trades to show up, and that's the kind of hard work you have to do. But the fact that that person might be doing the same job as the person that just needed a job and was only trying to just solve their life problems, the fact that those two people are doing the same job to get to a different end, creates a lot of confusion about who I am to be in construction in the early days.

Speaker 2:

Well.

Speaker 2:

I certainly think that there are a range of opportunities, and firms are looking more broadly at who they want on a job site. So the industry is reaching out and making things easier for women or people with different physical skills to do jobs that were once reserved for men with a certain physique or ability, for instance. And the fact that there is much more use of automation, robotics and other advances in equipment mean that you don't have to necessarily have as much training or as much brawn as you did before, and, conversely, if your training, shall we say, was working video games, that might well be applicable to a piece of equipment where you're using a joystick or you're rapidly interpreting what's on a screen. So I do think that construction has gotten to the point where there are opportunities for people with a broader range of interests, experience and skill sets than there were a few years ago.

Speaker 1:

I'm so glad you said that, ken, because it's exactly what I mentioned at that forum the other day was there will be a day and if you think of you're seeing this now where an excavator doesn't have somebody's actually not in the cage, they're off to the side, you know, it's controlled through a remote and they might be standing on the side of the site, they're not actually sitting in it and they're working through the screens. You know we can see that in a number of applications, in site preparation et cetera, where, yeah, it will be at the office with joysticks, you know, miles away, through telematics, communicating with robots. So the jobs are going to become, as you said, a lot more interesting. And you're correct, that brawn might not be the factor, that resilience of toughness around physical strength. It will be more about mental strength. So, yeah, I think that that's going to be an interesting time. What do you see? Where the rubber will really hit the road? How many years do you think we're away from that?

Speaker 2:

Oh, I think it's going to be a continuum that I do think we're going to see shortages of electricians, say, for a long time to come, simply because all of those growth areas that I mentioned at the outset whether it's building data centers or solar fields and connecting them with high-tension lines and putting in utility-scale battery storage, giant manufacturing plants to provide chips for semiconductors, or putting together electric vehicles and their batteries all of those require electricians as well as many other skills, and you can't become a skilled electrician overnight. So many of the jobs I think are going to be in very high demand for a long time to come. I think the opportunity for someone looking for a career in construction. They can rest assured that there will be opportunities and growth potential for a long time. And while I went into detail now about electricians, it certainly applies to pipe fitters and plumbers and carpenters and many other skill sets, heavy equipment operators, absolutely.

Speaker 1:

So you've mentioned earlier in the podcast here that you've seen somewhat of a decline in terms of output and demand for housing construction. Demand for housing construction and is that widespread over all?

Speaker 2:

of your different chapters or are you seeing the concentrations in certain areas? Oh, housing is very much a local story. It's true that nationally, the high mortgage rates that we've seen in the past two years have priced a lot of people out of the market and have also caused what we call lock-in, where people who have a home with a low mortgage rate they don't want to give up that mortgage and acquire one at a higher rate. So that has certainly discouraged single-family home building. But we've seen that market start to come back over the last several months and I think there will be growth on the single-family side. The real decline that I expect is on multifamily construction, which was booming at record levels just a few months ago. But at the moment lenders have tightened up their lending standards. They've raised their finance rates, their interest rates that they charge.

Speaker 2:

And they're requiring developers to put a lot more equity in. So all of these things have made it much more expensive for developers to produce multifamily housing at a time when some markets that had previously grown very fast are getting saturated with a whole lot of apartments hitting the market at the same time. So I think, there will be a downward shift in multifamily for the next maybe year or two.

Speaker 2:

But overall the US market is greatly undersupplied with housing and to the extent that builders can find lots that they can improve, can get the permitting, there will still be demand over the next few years. So I don't want to suggest that the housing market is oversupplied, far from it.

Speaker 1:

Okay, from your putting back on your economist hat, just answer this question Percentage of most jobs that are labor. What percentage is labor of typical?

Speaker 2:

let's say a project to project, but I would say very roughly, most construction projects, 40 to 60 percent of the cost is labor. Either general contractors own direct labor costs for both their field workers and their office workers or paid to subcontractors who in turn are supplying that onsite labor. But it really varies and it's a bit hard to track down because of the varying mix between self-perform and subcontractors being used.

Speaker 1:

Yeah, that makes sense. Because that leads me to another question is if there is a need, for I mean, you know this better than anybody you either have a buyer's or a seller's market in any exchange of any market, especially in the labor market. You're going to have people who are willing to pay more because they can't get enough people and, as that, 40 to 60% being labor. If we keep paying higher, higher salaries, what I keep hearing is construction pays so well, construction pays so well. That's pretty much all you hear. And if that's a value proposition, that is going to be a self-fulfilling prophecy where you're going to keep seeing those rates keep going up and up and up and what eventually will happen is the prices of these homes keep going up because the labor costs are directly correlated. So are we sort of cutting off our nose to spite our face here when it comes to that kind of thing?

Speaker 2:

It's very challenging for builders to bring in the price of a home at an affordable level, given the rising labor costs but also the rising regulatory costs. It's hugely expensive now to get approval to improve land, put in the utilities and so forth. The requirements for what you have on a house keep getting more extensive In California, for instance, having to have solar on all homes or the degree of electrification or of insulation required. All of those things push up the price, the cost of building a house and therefore the price that builders are going to charge Now, uh, just the pure labor costs. Perhaps that can be offset in some cases by improvements in productivity.

Speaker 2:

If you uh, if you're going to pay a worker more, uh, but uh, that worker is able to uh produce the end product faster. Uh, you're still at a savings.

Speaker 1:

Yeah, I would agree. That's exactly the same feedback we had up in Whistler was you know we have to. You know city permits, etc. All of that has to be way quicker, more efficient. But the issue is is that in these cities and in these planning departments they want to keep having, you know, the body syndrome of more people, more hiring, more hiring, and those jobs are increasing. The salaries in those jobs are getting increasingly high. So you know, in order to achieve that, you have to bring in more technology and lay off people.

Speaker 2:

Well, yeah, you have to achieve productivity gains in some way, and it may mean you're shifting the mix of workers that you have, so perhaps you're able to produce modules or panels or even entire rooms in a factory or do more assembly off-site. So I wouldn't say, lay off people.

Speaker 1:

No, I was talking about in the planning departments. I meant in order for planning to be faster, quicker, so that actually those people who you're paying can actually do the job quicker. So they're not waiting for permits, they're not waiting for approvals. All of that could be quicker, but the only way to do that it will quicker and when something takes less time. The question is are you throwing technology at it for that time savings or are you throwing people at it for that time savings?

Speaker 1:

It's one of the two and the people means so if the planning departments are throwing people at it, then departments become more expensive. Just for the sake they got to pay more people to make that department break even, et cetera, et cetera, et cetera. So yeah, I was not suggesting that construction people being laid off, but in order to create efficiencies, I mean the amount of waiting that construction companies have to do and with these high interest, the amount that the every minute costs is extremely high, especially these days. So you know, the issue is is that ends up on the bottom price tag of the property or the rental property or whatever the end product is, which is directly influencing the people we're trying to make things affordable for.

Speaker 2:

Yes, it's really a challenge to find ways to bring down the cost of producing housing, whether it's owner-occupied or rental housing, and government has an important role to play in getting that cost down, whether it's making sure that permitting and inspection go through faster or easing some of the requirements for how much is built on a lot what you have to put in or around the house. So allowing accessory dwelling units, for instance, or reducing the parking ratio to the number of housing units in a multifamily building and many of those other physical requirements that go with a design of a building make a huge difference in what the ultimate cost is.

Speaker 1:

Okay, ken. Well, this, I love talking to smart people. Thank you very much, it was awesome. So I do this thing. At the End of Each podcast, I have something called the big question. In your opinion, what is something that you're not hearing a lot of in construction these days? Or you're hearing not enough volume of in construction these days, or you're hearing not enough volume of, or the volume is not loud enough. What is a subject you think that we're not talking about it enough, that we should be talking about?

Speaker 2:

I'd say the importance of allowing employment-based immigration is just not getting attention because there is so much hysteria and angst about immigration, particularly at the southern border in the US but, as you know, in Canada also. Canada seems to be much more welcoming to immigrants who have skills and I would hope that the US gets to a point of rationality that industries like construction that can demonstrate that they just cannot fill jobs with US-born workers, that they would be able to bring in workers, whether from Canada or Mexico or farther away.

Speaker 1:

That was a very succinct, perfect answer. Thank you very much, Ken. Well, this has been a pleasure. I really appreciate it. We're in with the amount of time allotted, so it's been a pleasure to chat with you. Thank you very much. You're welcome have a great afternoon.

Speaker 1:

Well, that does it for another episode of the Site Visit. Thank you for listening. Be sure to stay connected with us by following our social accounts on Instagram and YouTube. You can also sign up for our monthly newsletter at sitemaxsystemscom slash the site visit, where you'll get industry insights, pro tips and everything you need to know about the site visit podcast and Sitemax, and everything you need to know about the SiteVisit podcast and Sitemax, the job site and construction management tool of choice for thousands of contractors in North America and beyond. Sitemax is also the engine that powers this podcast. All right, let's get back to building.

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