500,000 new residences per year for a sustained period of 5+ years?
Labor isn’t the primary deal-breaker for aspirational housing goals:
Will enough private capital be allocated annually to produce record-setting volumes of housing over a sustained period?
Would investors & lenders find new housing development an attractive investment if California had to absorb 500,000
new units per year? Presumably growth of sales prices & rents would flatten or drop at a time when interest rates –
which are critical to real estate investment & asset valuation – are rising. High return-seekers likely will look elsewhere.
What happens to construction contractor prices paid by developers if/when demand spikes? They will increase, which
will make developers’ pro formas less attractive to capital (unless sales prices/rents escalate).
Contractor prices largely are a function of demand for contractors’ services & the depth of the contractor supply pool.
Contractor price spikes are not for the most part attributable to average labor compensation costs per worker. Blue
collar construction labor costs are less than 20% of total development costs. Inflation-adjusted, average residential
construction pay has been stagnant. (sources of data charted below: U.S. BEA, GDP-by-industry data).

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 Labor
IMPORTANT: Unless & until residential builders & state leaders figure out how to attract pools of capital for housing
when housing price growth trends won’t outpace development cost trends, what follows is all academic.
Spending on new residential construction is about 30% of total California construction spending (see chart on page 3).
Assume that nonresidential construction demand, home remodel demand, & productivity all remain constant, but new
residential construction quadruples or quintuples, as McKinsey & Co. say is necessary. The residential construction
workforce would constitute over 60% of all construction.1 There is precedent for big jumps in employment, but, in the
past 40 years, spending & employment for new residential construction never has been proportionally that high.
The 1995-2006 housing production boom: builders faced light competition for male workers w/o college degrees
•
•

1995 - 2005, a period when the industry went from the doldrums to the height of California’s housing boom,
residential building employment in California more than doubled, growing at a compound annual rate of 7.7%.
Overall California employment of men without college degrees grew only 2% CAGR & nonresidential
construction employment grew 4% over the period.

2010-2016 has been different:
•
•

Statewide, residential building employment grew at a CAGR of 5.7%;
Unlike ’95-’06, Nonresidential construction employment grew annually at a compound rate of 6%; total
employment of men without college degrees grew faster than the ’95-’05 period (3% vs 2%).
 Residential builders & specialty contractors face greater competition for labor now than during the boom.
Residential builders currently complain of ‘labor shortages,’ when California is building only 100,000 units per year.
There is not evidence that residential builders face a broad supply shortage, at least not as economists understand
shortages, because average residential wages haven’t risen to an extraordinary degree. Average pay in the
nonresidential building industry is about 50% higher than the average in the residential industry (see figure on page 4).
We not only need people to help address California’s affordability crisis, we need highly productive people. Many
residential builders haven’t come to grips the fact that they need to compete in the market for labor for productive
workers by transforming housing jobs into good careers.
California Carpenters union members and their employers divert tens of millions of dollars annually away from pay,
towards programs dedicated to the missions of recruiting and training building trades careerists. Most of those trainees
are destined for or already have jobs in nonresidential construction. The rate at which Carpenters apprenticeship
programs take in apprentices exceeds the rate of exit of our skilled journey-persons, and still have long waiting lists.
There is no parallel set of non-union, residential building-targeted training institutions that has developed anything like
the scale of capacity of the joint programs. This is so because residential developers and builders chose to exit from the
system of joint labor-management training a generation ago. The industry followed a “low road” workforce strategy,
relying on less-skilled, lower-paid workers.
Workers aren’t widgets. People who are willing to go into the trades aren’t in short supply. There is one important type
of shortage: a shortage of investors & housing developers who are prepared to blaze a new trail through industry-wide
investment in training & retention-oriented pay and fringe benefits for residential building trades careerists. The
residential industry must reckon with the exhaustion of its race to the bottom strategy, which has included underinvestment in workforce recruitment & retention (see national construction recruitment intensity index).

1

Increasing residential employment threefold would mean that residential employment would be 63% of total employment:
(.30+.90) ÷ (1.00+.90) = 63%; (.30+1.20) ÷ (1.00+1.20) = 68%

2

 Source: Littlehale calculations using U.S. Dept of Commerce Economic Census of Construction current values for California
construction deflated by U.S. Dept of Commerce Bureau of Economic Analysis ‘chain-type price index’ for construction gross output.

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