The MAJOR Way a Shrinking, Aging Skilled Labor Force Will Impact U.S. Real Estate

by | BiggerPockets.com

Did you know if you put a frog in a pot of room temperature water and bring that water to a boil, the frog will not realize the slow change and will boil to death without ever noticing?

If you toss that same frog into a pot of already boiling water, it will hop right out with minor burns.

As humans, we are not all that different. It is our nature to notice change that is drastic, is rapid, and affects our daily lives. We tend to not see the slow, little changes, especially if they do not play a role in our day-to-day routines.

Like a pot of water slowly heating, there is a trend happening in our nation that could forever change everything. It goes relatively unnoticed because it is a very slow shift that has yet to accelerate at the rates it undoubtedly will.

This trend is going to change every niche of real estate forever. As a sophisticated real estate investor, I use all my experience in real estate investing, property management, and construction to see trends as they begin to develop so that I can adjust our business to capitalize on these shifts. In this article, I share how I do this, specifically on a massive trend that is on the horizon and that so many are failing to see because they do not have the lens to look through that I do.

If someone asks me, “What do you do for a living,” I respond, “I am a real estate investor who buys apartments through syndication.” On the other hand, if they ask me, “Who are you,” I respond, “I am a blue collar hard, working family man who loves working with my hands and a simple life.” I realize this is not the typical combination of responses you would expect. I know a lot of syndication sponsors. Most have degrees from prestigious schools and have likely spent years at some big firm where they held some kind of impressive white-collar position. That isn’t me. I started as a base-level handyman working on low income housing for a small local investor. I built on that knowledge to later form a construction company. I then parlayed that into buying distressed real estate to be renovated, rented, and maintained that slowly and organically grew to what it is today.

While I do now hold what would be labeled as a white-collar position, at my core I will forever be the same blue-collar, dirty-jean, work-boot-wearing contractor. And what a gift that has been. It gives me a perspective that so few have. I am immersed in things that few in my position are. It is this perspective that has made me realize the coming trend that is going to change real estate in major ways.

For the past 11 years, I have worked in the trades in some aspect. The undeniable truth is that the large majority of those working in the trades are over the age of 45 and/or an immigrant. When was the last time you heard a high schooler say, “I want to be a carpenter” or “I think I am going to service residential HVAC equipment for a living”? This article was sparked by a conversation with my HVAC subcontractor who said he had just returned from a large HVAC convention for small HVAC business owners. At this convention, they reported the alarming fact that the average age of HVAC technicians in the United States is 57 years old.

contractor-perspective
Related: Investors: Don’t Compromise Your Numbers Just to Buy Deals in a Hot Market

Unfortunately, the older age of tradesmen is not limited to my own experiences, my specific markets, or even one specific trade. According to a huge study conducted by EMSI, 53% of all skilled trade workers were over the age of 45 in 2012. Nearly 20% of all trade workers were between the ages of 55-64. Those are just the national averages. In Connecticut, Rhode Island, New Jersey, and New Hampshire, more than 60 percent of the skilled trade labor force is 45 or older. Other Northeastern states such as Delaware, Maine, and New York also have aging skilled trade workforces, as do Illinois, Ohio, and Pennsylvania. What makes these even more troubling is that over the age 65, the percentage of trade workers falls off dramatically, likely due to the heavy physical demand these jobs have. Only 1.9% of the trades are made of up of those who are 65+. Contrast that to the labor market as a whole, which is made up of 4.8% workers 65+ years old. This means that once tradesmen hit 65, they are pretty much all done and do not work past that age like in other industries.

There is a Huge Shift in Labor Costs Coming

Another benefit to not having an MBA behind my name is that I don’t overcomplicate things. So here is the simple truth: The majority of people fixing our properties as those properties inevitably fall apart or building our new properties are going to begin dying or retiring very soon. And there is nowhere near enough individuals ready or willing to replace them. This will undoubtably result in an even greater shift in demand for skilled tradesmen as their supply is squeezed to never-seen lows. Guess what? When demand goes up, so does price.

Another reality of the trades is that immigrants play a vital role in this industry. Immigrants make up a sizable percentage of the labor force. The detailed 2013 American Community Survey (ACS) shows that while foreign-born workers represent a substantial component of the U.S. construction labor force, accounting for almost 23 percent, their share is even higher in construction trades, reaching 28 percent. Concentration of immigrants is particularly high in some of the trades needed to build a home, like carpentry, painting, drywall/ceiling tile installation, brick masonry, and construction labor.

You may be thinking, “Well, that’s good. If the American youth wont carry the torch of our nation’s skilled trade’s needs, then the immigrants in our nation will step up to the plate.” Not so fast on that thought. Let’s take a look at where those immigrants are likely to come from. In 2013, of all immigrant workers in the construction industry, 84% came from our southern friends in Mexico or the Americas. But here is the thing; immigration numbers from those places has been falling since 2000. Finally—and I am speculating on this last point—with President Trump in office, I have a feeling we will see those numbers continue to fall at a much faster pace.

So if all our tradesman are dying, retiring, or leaving, who will replace them? Truthfully, the answer is no one—at least until the market adjusts and labor costs adjust, drawing in more demand for workers to enter the trades.

I am writing this article for an audience of real estate investors. Because of this, I think we are all already aware that it is difficult to find a professional, skilled contractor. Now think about if we removed half or more of them from the marketplace. The ones left will have more work than they could ever handle. What will happen? They will jack up prices on you so fast, you will not believe you’re having to pay your plumber three times what you pay your attorney or that the electrician is making 10 times what you make an hour.

Related: Will Massive Retail Job Cuts & New Tech Trends Transform the Rental Market?

For many decades, parents and children alike have followed the advised path to go to college, get a degree, and find a corporate, white-collar job. The result is that companies now have a ton of accountants, business managers, engineers, psychologists, and whatever else. It’s simple economics. The income distribution will balance itself to the demand. The cost of construction labor is gong to go up, and it is going to go up a lot in the coming 10-20 years. It will likely come back down as the market adjusts to the initial skyrocketing of costs, but undoubtedly expect a quick climb for several years followed by a new era of how we view white-collar/blue-collar jobs.

The Ripple Effect Will Be m=Massive

Do you own real estate? Do you rent real estate? Do you ever buy goods and services from someone who does? Then this is going to affect you.

The results of this shift are already very noticeable if you look. One of the many examples of this is the affordable housing shortage across the United States. According to HUD (Housing and Urban Development), there is a shortage of affordable housing in every county in every state of the U.S. Although there are several ways of defining it, the most basic definition of affordable housing is property that costs the residents less than a third of the median income. Simply put, if the people in the lower half of the income range for the area can spend less than a third of their money on housing, it is considered affordable housing for that area. Every county of every state is lacking in this type of housing. Why? Because there are smaller margins in building these types of homes and apartments, so they simply don’t get built. Many builders instead focus on luxury apartments or premium homes where the margins are better. With fewer and fewer quality tradesmen and women to hire, builders are forced to pay more for their workers. In turn, they have no option but to seek out higher margin work to cover their costs—and this is fine because overall, there is less competition as the number of skilled tradesmen decreases.

The result of this is twofold:

  1. The housing added to the inventory is too expensive for entry-level buyers to come up with the needed down payments.  This keeps them bound to the rental market longer.
  2. Rental property owners have to pay more for the increased prices as well as the increased labor cost of maintenance and upkeep of their properties. They turn around and pass that cost on to the renter through high rents. This further increases the length of time they rent and are in need of more affordable housing, which is not being built. It is a never-ending cycle that drives up rents, demand, and property valuations.

But that’s just inflation—inflation is normal.

If it sounds like what I am describing is typical inflation, here is the difference. Housing is the single largest cost for an American household, and that is the expense that will be greatly affected by this increase in housing costs. According to the Bureau of Labor Statistics, the average American spent 26.4% of their income on housing in 2015. If the prices of housing goes up significantly, it will have a relatively much larger impact on the average American household than any other expense. Take gasoline, for example. The average American spends 4% of their income on gas. If gas prices double, people freak out. But for the average American, if gas doubles, annually they only spend $2,000 dollars. On the other hand, if housing doubles, the average American has to come up with an additional $18,000+. Obviously, this would slingshot us into an economic depression if nothing was done.

So, what do we do as a nation? Well what we should and what we will do are likely two different answers. Let’s focus on what we will likely do because “should” is beyond the scope of this article. When the natural forces of a free market economy raise the price of housing to record highs at record paces due to the increase in labor costs in the trades, the middle and lower class will scramble to keep up with the financial burden this will place on them. Either we go into an economic depression or we increase everyone’s income to keep up with the cost of housing. The government will be forced to step in to raise minimum wage, run more cycles of quantitative easing, and perform other government manipulation of the market to keep the demand for affordable housing under control and homelessness and economic depression from sweeping our nation. The jump in minimum wage and additional currency in the market will send a ripple effect through the more skilled professions, pushing income up to meet the new demand of housing. Companies will likely increase prices of goods and services to keep up with the costs incurred by the companies on increased payroll expense. If you’re thinking this just sounds like hyperinflation, I would say you’re correct.

I believe it to be very possible that the lack of skilled workers in the trades will force housing cost to record highs, which may very well be the domino that tips the chain reaction to hyperinflation. Because housing accounts for such a large percent of an American expenses, it could very well be a big enough domino to set off a chain reaction, giving government a reason to push hyperinflation into effect to keep our country’s economy from crashing.

Why would our government let us go into a period of hyperinflation?

The U.S. Treasury is taking on trillions and trillions of debt—roughly $20 trillion upon the writing of this article—but you can see the real time debt figure here. They have done this by borrowing dollars into creation from the Fed. If you want to learn more about how this works check out my article titled “Want to Make Money? Then Understand How Money Works! Here’s Your Complete Guide.”

Why would the treasury want hyperinflation? It makes their massive debt figure hurt less and easier to pay. Let me explain. For a simple example, let’s say the treasury borrowed $2 trillion. Let’s say that $2 trillion has a purchasing power able to buy 100 aircraft carriers for our military.

But 4 years later, since the magically created $2 trillion has worked its way through our banking system and has become $20 trillion in private debt, the currency supply has magnified through the fractional banking system we operate under, and because of that, the prices on everything have gone up to reflect the excess supply of currency. This increase in prices includes prices on aircraft carriers. So, the government used to be able to buy 100 aircraft carries for $2 trillion, but now maybe $2 trillion will only buy 90 aircraft carriers because their prices went up with everything else. This means their 100 aircraft carriers may now be worth $2.2 trillion, but they still only owe the fixed $2 trillion they borrowed. So, we want to know why the government would choose hyperinflation over a depression. It is as simple as because inflation makes the dollar worth less. When the dollar is worth less, it makes paying off existing debt easier. And no one holds more debt than the United States Government.

The government understands this. Their debt is easier to pay as the dollar’s purchasing power becomes diluted through inflation. On top of this, the increased inflation helps slide income levels up, pushing individuals into higher tax brackets, which makes it easier to collect more taxes to pay for all that interest on the debt.

If you don’t believe me, take it straight from the Federal Reserve’s mouth: “The decrease in purchasing power incurred by holders of money due to inflation imparts gains to the issuers of money” (St. Louis Federal Reserve Bank, Review, Nov. 1975, P.22).

hire-a-contractor

So What Do We Do About It?

I pile a lot of stats and information into these articles, and I really do put a lot of thought into them, but the truth is the economy is too complex for any one man or woman to predict. Nonetheless, even without a crystal ball, it’s easy see an undeniable trend for a major shift on the horizon in labor costs, specifically related to housing. That workforce is made up of people who are not replaced as they exit the workforce. This demand will continue to push cost up. I strongly believe government will choose hyperinflation over an economic depression for many reasons, the big one being that it is a great way to dilute the massive burden of the nation’s $20 trillion debt. This is kicking the can down the road, but I do believe the can has a few more kicks left in it.

Knowing all this can help us immensely in deciding how and what we purchase. My experience in construction and property management allows our company to do everything we can to shield our investments from the inevitable increase in labor costs as well as exposure to the good demand and price increase it creates. To do this, we purchase more newly constructed apartment buildings that are well built with durable construction and finishes to ensure minima, and predictable labor costs in the future, while still falling well within the affordable housing classification. Too many investors look only at the spreadsheet and past performance of the investment to determine if it’s a good purchase. Those same investors will feel the squeeze of the coming trends in labor costs.

Secondly, we align our position with the government and use debt just as they do. We align our interest with the interest of those in charge. We use safely structured debt to receive the benefits of leverage and the potential for huge gains when inflation does what it does best by eroding the purchasing power of the dollar. Because of our debt, we will be left with an asset worth more dollars but still have the same amount of debt. This if the main benefit of using leverage to buy tangible assets.

In addition to how we buy property, we take the coming trends into consideration on when we operate. Vertically integrating for in-house management and construction will allow more control over those labor costs. Within our property management company, we are constantly doing everything we can to ensure our maintenance tech’s time is being used to maximum efficiency, using technology to cut down on miscommunication, scheduling, and ordering.

At my core, I am a dirty-jean, work-boot-wearing contractor. But that very perspective not only allows us to see this trend coming but it will also allow us to prosper from it for years to come.

The current workforce of tradesmen and women are getting old, dying off, or not entering the country. There is no one to replace this workforce and yet there is more need for them than ever. This coming squeeze on the construction labor market will affect every niche and strategy of the real estate market. So far, this has been a slow change that does not affect most on a daily basis, so it has easily gone unnoticed. Don’t be the frog sitting in the warming water. Pay attention to your surroundings and learn to capitalize on them.

What do you think will happen due to a decreasing skilled labor population?

Let me know your thoughts with a comment!

About Author

Jered Sturm

Jered Sturm is co-founder and director of sales and marketing at SNS Capital Group. Jered began in the real estate industry in 2006, working for a successful real estate investment company as a handyman. From 2009-2012, Jered co-founded the construction company Sturm Properties. Using his background in contracting and construction, he began investing in “Value Add” real estate. Now, after co-founding SNS Capital Group, Jered has conducted over 10 million dollars in real estate transactions. He currently co-owns and operates a portfolio worth over 3.7 million dollars in investment real estate.

48 Comments

  1. Jered, spot on piece. I see this every day in my market ( suburban Chicago). I am a buy and hold landlord. I stopped doing flips because the junkers, labor, and materials are going through the roof. Both my main rental maintenance guys/ contractors are in their early 60s, never went to college. They probably make over 100 grand a year, but they bust their tails. They can’t keep guys. They pay double minimum wage for unskilled labor. The issue is not really people going to college. About half of the high school kids go to college, less than 40% graduate. The non college kids have zero skills, zero work ethic and zero opportunities. There is a HUGE mismatch between skills and opportunities. This is the largest issue facing the nation. If we could fix this, we could put another 5 million to 10 million people to work, plus create wealth. Their are junker houses that need to be rehabbed. There is nobody around to rehab them.

    For all the geniuses on BP saying get 3 contractor estimates, gip down your contractors , etc. you need to spend some time in the real world. You have to treat your contractors right, pay them on time, and be fair. There are a dozen other investors that want to hire them.

  2. John Bierly

    Jared – excellent article. I am a registered architect by background and have diversified into construction, development, and RE investment over the past decade. I too have observed the changing age and background demographics on job sites over the years. While I completely agree with your list of changes within the construction labor force, I would add the impact of the 2009-2012 recession as an additional factor. Many skilled tradesmen left the construction workforce during that time due to a lack of work and have not returned – in my area, for instance, I know several framing contractors who took jobs working at the Puget Sound Naval Shipyard and who have stayed on even with the resurgence in construction. Thus, the trends you have identified are taking place on top of an already diminished labor force from 2006-7 levels and as a result we are seeing an unprecedented level of construction cost inflation currently (in our area at least). I too am looking at investing in newer properties over aging ones and attempting to “harden” maintenance for existing ones as much as possible.

    • Jered Sturm

      John- Great additional point. Thank you for taking the time to share your own experiences with this topic it sounds like you have a great background to speak to this topic. I believe we will likely see increased automation in other blue collar professions that will hopefully draw some of those skilled tradesmen back into construction which I believe will be many many years before technology, automation, or AI begins replacing jobs in.

  3. Paul OBryan

    Great article! Thanks Jered. I think you are right on about looking at the coming trends and adjusting investment strategies accordingly. That said, I don’t believe it will be as dire as you paint it. This is optimism speaking not experience, but based on some hopeful trends:

    First of all, births to immigrant mothers are higher than those of native mothers. * And specifically, our southern neighbor immigrants (both legal and illegal) have more children per household than native born Americans and other immigrant groups. Won’t a large number of those children go into the trades?

    Also, when there’s a great supply of work, I don’t doubt that workers will find their way across the border, legally or illegally, border wall (who’s going to build that thing if it ever moves forward?) or no border wall, as they have done for decades, if not centuries.

    And what about all the born blue collar workers who are losing and will lose coal mining jobs as well as factory jobs. Factory automation will unemploy tons of workers but they might be the perfect fit for construction.

    Just my nickels worth.

    Paul O

    * http://www.pewsocialtrends.org/2016/10/26/growth-in-annual-u-s-births-since-1970-driven-entirely-by-immigrant-moms/

    • Joe Semifero

      Our southern neighbor’s citizens are not coming here like they used to come to the US. From 2009-2014, net immigration from Mexico to US was negative, with more Mexicans leaving the US than coming to the US. This isn’t going to just impact construction, it is impacting all lower paid labor. The local economy here is having a difficult time staffing the kitchen at many restaurants. Labor is being impacted dramatically everywhere.

      https://www.washingtonpost.com/news/worldviews/wp/2017/01/27/even-before-trump-more-mexicans-were-leaving-the-us-than-arriving/

    • Jered Sturm

      Thanks for the comment Paul! Children born from immigrants parents are American citizens and while I don’t think there is a data subset to track this specific group the data on American youth is clear they are not entering the construction industry in numbers that are needed to keep up with demand this includes those born from immigrant parents.

      I believe there is an over simplification of the construction industry and when we use the broad term of construction many people think of someone digging a ditch with a shovel and think “anyone can do construction as long as you’re willing. But it is far more in-depth far more skilled. Many of the trades are a mix of art and science that take years to perfect. For example Most places it takes 6 years of schooling to become a master plumber. If someone thinks being a Mason is grunt labor, that anyone can do you have never done masonry work… it is a craft that takes decades to perfect. Even drywall a trade that is viewed as a low paid skill. If you have ever watched someone try to mud and finish drywall that never has it is embarrassing. The men and women who can finish drywall well are half artists the way and speed they can create a seamless transition with a swipe of a mud knife. My point is I do agree technology will replace some of the other blue collar professions and yes those workers may be displaced into the construction industry but it’s not that simple. People think if you have hands and want to work you can do construction its simply not the case and shifting from factory workers to construction worker is no different than someone moving from being a financial advisor to an IT analyst. They are completely different and just because the financial advisor was able to complete that white collar job it does not mean he/she will be able to transition into another. I would go one step further to say Skilled white collar jobs are far easier to teach than skilled blue collar jobs the reason is white collar is more science than art while the skilled blue collar is often more art than science. I have sat a both sides of this table. If I want to learn how to value apartment buildings I read one book and within a week I understand it. If I want to learn how to tape and mud drywall I don’t care how many books I read on drywall it does, and did take me years to get good at it.

  4. Dan Redmond

    Jered,
    Probably the best post I have ever read on BiggerPockets. I will be 65 this fall, have been a contractor for decades and a small investor for 20 years here in San Francisco. Actually very sorry to hear this is going on in other locals. I do not have any answers yet, and may never.
    The situation here is just getting too difficult and strange. Techrification (generally known as gentrification) is intense. The majority of my subs have closed down, retired and moved away. The lack of (and cost of) employees has been an issue for all of us. I am joining the movement. Selling out and moving soon.
    New sheds are getting built, with prices that are just silly. Our hood was forever working class, not any more. Now all key punchers and paper shufflers. The new builders are major commuters but I have serious concerns of how long this will last. And this concept is much harder for small issue fixers.
    Thanks for putting this issue in front of many.
    Dan

  5. Jade S.

    Great article about the demographic changes impacting the skilled trades. We’ve also seen local tightening on the availability of contractors to perform work. My own brother in law stuck it out during the recession, and now is a supervisor on a home construction crew at a salary level he never imagined. He is constantly recruited by construction companies!

    While home prices will remain higher in the face of a lack of product in the starter home segment, I’m not of the belief that a full blown depression will ensue. Free market forces will eventually begin to take hold, and its likely you’ll see an influx into those trades as the income potential increases dramatically. I also hope the government does not get involved in pricing controls as that kind of market distortion could do more damage long term.

  6. Darin Anderson

    This is round two of hyper-inflation mania. Some people just seem to be committed to the idea that inflation is right around the corner despite continuing to be wrong for years on end. To be fair I don’t know how long Jered has been expecting hyper-inflation but it sounds very similar to the stories I have been hearing for decades.

    The advice of using debt and buying quality properties to avoid the predicted calamity in inflation and labor shortage is good advice at all times. It doesn’t require the doomsday predicted here to make it good advice. So the author will do well even though his predicted calamity will never occur.

    This article is mostly a rehash of the same hyper-inflation fear that was presented in the article he referenced above written 9 months ago. I commented there multiple times about why the points about hyper inflation based on the money supply and fractional banking were invalid so I won’t repeat those here.

    Since that time the Fed has raise rates three times, has indicated it is about ready to start reducing its balance sheet, and inflation which was approaching the rip roaring rate of 2% has recently backed off to around 1.5%.

    I have been hearing hyper-inflation predicted in earnest ever since the Fed went to 0% interest in 2008. It is now 9 years later and we are still in a dis-inflation environment. Inflation hasn’t even shown up yet and the Fed is raising rates. If inflation were to actually start rising to 3-4% the Fed would raise rates rapidly until it killed it and likely the economy with it.

    As to the concern for a labor shortage, that is completely misplaced. Automation, robotics, and AI are displacing blue collar workers all the time and the speed of that replacement is picking up. The real concern is that we are going to have a future labor force where there are likely to be too few blue collar and entry level jobs for the massive numbers of people who can not do high tech jobs. That is likely 10-20 years away but it is coming. The only question is how much blue collar labor can automation replace.

    A labor shortage that leads to hyper-inflation is no where on the horizon. We won’t see sustained meaningful inflation for a long time.

    • John Bierly

      I’m not going to get into the hyper inflation issue as I don’t think that was the main point of the article. But as someone who has spent time both on job sites and in the CAD/BIM world I can tell you that automation in construction is going to be one of the last areas where robotics and AI displace hands on labor, it simply is not standardized and process oriented enough to where those trends are going to start eliminating jobs in great numbers in your 10-20 year timeframe. Perhaps blue collar workers from other industries will migrate to construction work, but in the near to intermediate future (now to 10 years) the shortage of both skilled and unskilled construction labor that Jared describes is not a prediction, it is a reality that is having exactly the impact he describes on construction costs.

      • Darin Anderson

        BP – I accidently hit report comment when trying to reply. There is nothing to report in the comment above.

        I didn’t say Automation would replace construction workers, only blue collar workers. Construction workers are not some unique field that cannot be filled by other blue collar workers. Displaced blue collar workers will absolutely migrate to construction if other jobs are eliminated. The point is there will be a glut of blue collar workers, not a shortage. Demographic issues may be very real in construction, but that will not be the dominant factor affecting the labor supply in the next two decades.

      • Jered Sturm

        John-
        Thank you. Great to have your perspective with the background you have. I agree when the idea of automation withing the residential construction industry comes up I know immediately that person has never worked in the construction industry. MAYBE we get more automation on new builds in 10-20 years and that could help the issue the article is about but never in the renovation of existing property. I believe if AI and automation advances to the point it is very prevalent in construction we will have already automated half of the white collar positions that are more system and procedure oriented.

        I believe there is an over simplification of the construction industry and when we use the broad term of construction many people think of someone digging a ditch with a shovel and think “anyone can do construction as long as you’re willing. But it is far more in-depth far more skilled than that. Many of the trades are a mix of art and science that take years if not decades to perfect. For example Most places it takes 6 years of schooling to become a master plumber. If someone thinks being a Mason is grunt labor, that anyone can do you have never done masonry work… it is a craft that takes decades to perfect. Even drywall a trade that is viewed as a low paid skill. If you have ever watched someone try to mud and finish drywall that never has it is embarrassing. The men and women who can finish drywall well are half artists the way and speed they can create a seamless transition with a swipe of a mud knife. My point is I do agree technology will replace some of the other blue collar professions and yes those workers may be displaced into the construction industry but it’s not that simple. People think if you have hands and want to work you can do construction its simply not the case and shifting from factory workers to construction worker is no different than someone moving from being a financial advisor to an IT analyst. They are completely different and just because the financial advisor was able to complete that white collar job it does not mean he/she will be able to transition into another. I would go one step further to say Skilled white collar jobs are far easier to teach than skilled blue collar jobs the reason is white collar is more science than art while the skilled blue collar is often more art than science. I have sat a both sides of this table. If I want to learn how to value apartment buildings I read one book and within a week I understand it. If I want to learn how to tape and mud drywall I don’t care how many books I read on drywall it does, and did take me years to get good at it.

    • Jered Sturm

      Darin-
      Thanks for taking the time to comment. Good to hear my articles are memorable enough to reference back 9 months on!

      This articles focus was less on hyperinflation and more so on the shrinking labor force within the construction and how that is and will continue to affect housing costs. I do my best to explain a possible outcome of these results (hyperinflation) but always follow up my speculations with the fact that myself and no one can or ever will be able to predict the markets fully. Also, I mention in the article This will likely take 10-20 years to fully develop. I personally wouldn’t label that as right around the corner. Anyway, I always appreciate an alternative perspective. I hope you are correct and we will keep plugging along at 2% inflation and somehow people find a way to absorb the increase in housing costs that way is a whole lot easier to deal with.

      Whether I am correct or you are correct only time will tell. The good news is, we seem to agree on how one should invest and proceed to see what comes in the future.

  7. Paul B.

    In a free market, there shouldn’t be shortages. Of course, a totally free market is an ideal situation that can never be fully achieved.

    But if people are choosing not to enter the trades, is it because they have better options for the same money? Or more money for equivalent work? It’s hard work, seasonal, tough on the body, and the construction industry tends to be boom or bust. One year you make six figures, another year you’re unemployed.

    I agree with Darin’s point above (above) that automation may be a bigger crisis. But I’ll add that it’s also replacing white collar work. One day there may not be enough jobs to keep everyone employed. Many believe it’s not government’s place to solve that problem, but if it happens, there will be millions of hopelessly unemployed people and they may vote for politicians who promise to solve it…

  8. Robert Starnes

    And at the same time the tail end of the greatest generation is dying off, and their Baby Boomer children are moving en masse into the late stages of life and starting to pass away in greater numbers every day. I don’t think the sky is falling just yet. I also personally know quite a few “IT Professionals” that are now working in the trades. They finally have steady jobs with good income instead of the uncertain “gig economy” career.
    I know more older folks, whose homes are going to be coming onto the market, than Millenials who will be able to afford a home with their student loan debts for “Social Sciences”. And most that I have seen also lack the sense of responsibility to have a place of their own…

  9. Robert Soto

    Jered, thank you posting this. This article articulates the ideas I have felt for quite a while however were never able to express as eloquently as you have. Allow me to add a small piece onto this. The choices our nation’s young professional people make, Are not only based income and potential future income. They are based on a perception of respect and image of success that don’t exactly exist in the construction field. All too often, myself, my co-workers in other trades, our bosses tell stories about how in social situations once the conversation shifts towards professions, we are often snubbed at and looked down upon. This effect creates a perception that construction workers are bad, even the ones who are successful enough to move into the property investing field. When something is perceived as bad, it cheapens its value, therefore the young people will be more likely to not participate in it as a profession. I would also like to thank you for bringing attention the wages paid to construction workers, especially those tied to residential construction. Twice the minimum wage is nothing short of a joke for qualified construction expertise and work ethics. However, people in my area will pay a lawyer $400/hour. So I doubt a labor shortage will allow us to charge more than that. I love working for investors, and actually prefer it over homeowners. The investors I work with receive quality attention and service. They do not run around getting twenty quotes to get a $15k job down to $14,500, because their spreadsheet/budget says so. They’ve been burned, and realize quality costs money, this article only enhances that belief. So I thank you again, and wish you continued success in all of your future endeavors.

  10. Jacob Vincent

    I listened to a conversation where Mike Rowe discussed the same topic. Though he might not be a blue-collar worker, over the years of the Dirty Jobs show, he has spoken with many blue-collar company owners. Regardless of the economy, their consistent lament has been the lack of workers.

    A solution to his problem would mint an instant billionaire, because it easily impacts tens of millions of people in the US alone. It’s perplexing that paying twice minimum wage for unskilled labor isn’t enough to keep a consistent stream of labor. But paying more might not even be feasible because consumers have been trained to buy the cheapest service .

    Maybe the solution is automation – but even then you still need humans to build and maintain the robots. And I can imagine that labor situation becoming another version of this current one.

    If anyone wants to become a billionaire, here’s your chance.

    • Herman Virgen

      I would love to see a robot hang drywall, tape and mud it properly. Not going to happen, every job is different. Only prefab work can be automated like this. For example, some chain hotel brands are building rooms and transporting to the job site so they “stack” together and then they are structurally tied in to the foundation of the building. this saves them time and money.

  11. Chris Majors

    Jered,

    Your article is spot on. I’ve been in the game just like you since 2006 and have always noticed that the “older guys” are the only ones that have skills and want to work. Dudes our age were generally taught to get good grades, go to college, and get white collar work (Sounds rich daddish, but it’s true).

    My best workers are 40-65 years old most of which I have dealt with for years. I am constantly forced to fire guys that are about my age (32) and younger because they don’t have the work ethic of the old-school folks. Our generation wants something for nothing. It’s crazy, but I get more respect from guys that are about twice my age than 20-somethings I pick up needing work.

    I too am worried where my work force is going to come from in the next several years. Most likely I will have to brush up on my spanish because that is where our labor is now in my market.

    • Herman Virgen

      If you are in construction and don’t know spanish that is a big problem. I am 27 and everyone in my crew is at least 35 and up. Its funny because sometimes we bring in other workers and they don’t know I am in charge so I can figure out who is a good worker and who is not by just working alongside them.

  12. Jameson Triplett

    If only there was a source of inexpensive, skilled labor available that would be thrilled to work for less than your average 57 year old HVAC technician. If only we had labor laws and immigration policies that would let these people come into the country and work for the betterment of their families and our economy.

    Oh wait, there is, they are called immigrants. Like our forefathers before us who came to this country for opportunity.

    • Herman Virgen

      Agreed. there is still plenty of people here in Los Angeles standing outside of 7-11’s and Home Depots looking for work but I would not recommend any of these people to bring to professional jobs. Also, none of them will work for less than $150 or $200 a day and they want you to bring lunch and beers.

  13. Herman Virgen

    Love this article. I dropped out of high school to play in a rock band and eventually ended up in construction. I build and design recording studios for a living but now looking into real estate. I make more money than most of my peers that went to colleges. Some are architects, aerospace engineers, and others are working retail (they couldn’t land a job with their degree). I suspect most people working retail now will end up with Amazon at some point in our lifetime.

    I worked construction in 2006-2007 and was able to drop out of high school, buy nice music equipment (including a pro tools rig that made me additional income) but after a while the market got way too saturated with “recording engineers” so I took advantage of my previous skills and built rooms for these people.

  14. As a landscape company owner and investor I think you hit the nail on the head. I haven’t grown my company much the past few years. It’s hard to find good labor! On the other end I’ve raised prices to a point that I don’t really need more work…..Good contractors are hard to come by. I’ve found some good folks and always make sure they are paid and don’t haggle with them. Now I’ve got a group of guys who move quick for me and do a nice job!

  15. John Murray

    This spells great opportunity for me and no so good for people that don’t know a branch circuit from a tree branch. Necessity will always spur new paths of lives, when the young cannot find a job sending emails to each other the change will occur. Until then journey levels skills will be at a premium, pay up unskilled people.

  16. Ron Flatt

    The trades do seem to be dying off. Unfortunately, I have tried to hire some of these either high school drop-outs or high school graduates to teach them, some of what I know. I am not a master carpenter, plumber or electrician but can get things done, (and realize when I am in over my head and I need to hire a professional). These are unemployed young men, some ex students of mine, that say that they will not work for me.
    My point is that they are making nothing, I offer them 8 an hour the first week, and if they prove they are trying and working they get $10 per hour after that, with raises coming as I see their progress. Most do not finish the 1st week. These are young men in their 20s, but will not work beside me an over 50 overweight man or my maintenance guy who is over 50 also with breathing problems. + They are offended when I will not pay in cash, but have to pay them with check.
    As long as the government handouts will allow a person to live without working, some and unfortunately many will choose to survive on a handout than work and maybe learn a trade to earn a Great Living. I will get off my rant.

  17. I made $15 an hour under the table in the 70’s as an unskilled worker. I can’t see anyone who has a good work ethic starting out in any sort of construction at less than that. Building, landscaping, tree work what have you. Standard rate here for unskilled under the table is $20 – 25 pr hour depending on skill level- ie- untrained common sense level. Over the table a bit more. Most will work harder at that rate. If they don’t, they generally don’t last a day. I don’t think you can accurately gauge some people’s work ethic if they make less.

  18. Robert Soto

    The best professional move I ever made after graduating college and leaving the white collar world was working towards getting my electric license. It allows me to own and operate my own fully bonded and insured LLC, in a highly skilled business. Of course there are people who feel because we work with our hands we are “unskilled” and don’t deserve a fair wage. I would be very wary of anyone who feels this way, as they have very limited knowledge of the pieces that make the world around them work. Knowing which pieces of metal are safe to touch and which ones energize entire buildings should probably be regarded slightly more respect than twice the minimum wage. Furthermore, using that knowledge to properly wire an entire house to perform the tasks necessary in every person’s daily lives, requires an higher level of skill. To then take that skill and use it efficiently to make a profit requires even more skill.
    Let’s put it this way, the investors that understand what my crew and I go thru to solve their problems the right way, get the best treatment from us. The ones that flounder, overnegotiate, shop around, get put on the back burner. It’s not intentional, it’s just how the free market works. When investors need to solve problems, it usually needs to happen fast, and if you are said investor, you want people willing to jump through hoops for you to get it done. Acting unappreciative, not performing proper relationship building tasks, not respecting other people’s abilities, and not acknowledging your own lack of abilities all lead you down a path where you will be stuck waiting for return phone calls and complaining how good help is hard to find. When I employ someone, I take care of them, I make sure their job can be performed in the simplest manner possible and I pay them immediately. After doing one job for me, my calls always get returned.

  19. Jeffrey Allen

    I’m on the board of directors of the manufacturing trade association representing my W-2 job, and for at least four years the number one complaint of our group has been the skills gap. IE, we all have employment postings for a variety of manufacturing positions, we all are located in areas where employment is far from “full”, and no one can consistently get positions filled.

    I also think that the demand is likely to increase simply by the number of new homeowners that have no clue how to patch drywall, change a heating element, replace a single tile, wire a light fixture, or a number of other relatively simple tasks that the average home owner would have done themselves a generation or two ago. Those calls take resources as well.

    Specifically to real estate, I think these costs have been somewhat disguised in the last couple of decades as the cost of a lot (not all) of materials have dropped relative to inflation. However, I think we already bottomed in that regard, and I fully anticipate accelerated costs going forward.

    Great Article!

  20. Eric Duhaime

    Great article! I am 31 and have been a plumber now in Massachusetts for 13 years. What i’ve seen was many of my high school friends being pushed directly into college and they were brainwashed to think they were going to make big bucks after graduation. This was not the case for 95% of them. A couple have since found their way into the trades of plumbing,electrical, and glass glazing all while still footing the $100,000 bill of school. I know education is invaluable, but as weird as it sounds you have to be smart about it. I now have no debt, a couple rental buildings and my employer is paying fully for my night college courses.
    The one other point I would like to make is in Massachusetts to become a plumber you have to apprentice under a Master Plumber for 5 years along with going to night school. This is similar to electrical(4 years). This is no easy task and when it is officially realized of there being a shortage of tradesmen (which I absolutely already see today) there will be a gap for quite a fews years before the young people can be trained and licensed. In the mean time, rising wages for us! Thanks again for artical Jered!

  21. Peter Bowen

    Jared,
    You have no idea how right you are in the fact that the trades are in a critical state…I have been a Commercial carpenter for 20 yrs. At 38 I am still one of the youngest on the job site.
    The trades are trying to recruit.. The issue is the high
    school kids just are not prepared enough for this work. About 20 percent of new apprentices make it.
    I don’t know what the answer is, but costs are rising.. Contractors have to figure training hours and overtime on every project. The next 5 years is going to be interesting to say the least.
    Thanks for posting. I really enjoy reading everything you have put out.
    Peter

  22. Lloyd Stanton

    Yesterday I had 5 mid-20’s unskilled labors respond to an ad to help demo a house for $15/hour. Every. single. one of them:
    1. Asked for MORE money
    2. Bitched about how much work it was going to be
    3. Told me it would take them ATLEAST 3-4 days.

    Today myself and a 65 year old retired GC knocked out 90% of it in about 4 hours. (He said $15/hr was fine by him, he just liked to keep busy!)

    This is a bad sign of things to come for the construction/real estate industry and our country in general

  23. Steve Shewmake

    I have been in the trades for over 40 years, for the past ten years labor has been my number one issue. Finding people with a work ethic , who is drug and alcohol free is a challenge. I always have more work than I can do , I pay very well but still struggle to find help, especially skilled help. I do agree with this article , construction costs are headed up I don’t know if we are headed towards hyper-inflation but they are headed up. The author makes an excellent point about investing in newer properties to reduce maintenance costs because I know there are other contractors like myself who cherry pick jobs and maintain my profit margins.

  24. Susan Clark

    Great article. Having a husband who is a contractor, now in construction material sales, we have always taught our five kids, two boys and three girls, how to do many of these construction tasks knowing what’s coming. None have yet chosen a construction trade as their main income but it may well serve them well to have a better knowledge of the field as things tighten up. Thanks for this article

  25. Brian Head

    Well written article.

    Honestly I didn’t read every comment, but if it hasn’t been said it is great to see some of the training programs and scholarships from the likes of This Old House “Generation Next”, Fine Homebuilding “Keep Craft Alive”, etc.

    https://www.thisoldhouse.com/ideas/building-skills-generation-next

    http://www.keepcraftalive.org/

    They have had several similar stories and profiles of folks going through their programs, or others at local tech colleges, etc, and hopefully it continues to gain more momentum with my generation.

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