Labor crunch in Twin Cities adds up to homebuilding delays, higher costs

The labor crunch is hitting home in the Twin Cities.

A persistent shortage of carpenters, plumbers and other trades workers is jacking up the cost of new homes and remodeling projects in the Twin Cities metro and causing frustrating delays at a time when demand for new housing is growing.

Nearly 90 percent of builders and remodelers surveyed recently by Housing First Minnesota say they have experienced a labor shortage in the past 12 months; 63 percent of them said the labor shortage has caused their firm to actually turn away business.

"It's never been like this," said Peter Jacobson of Lake Country Builders, a small custom homebuilder and remodeler who's been in the business 42 years. "We've been advertising for two years for carpenters with very little response."

The dearth of labor comes at a precarious time for builders, who are preparing for the key spring homebuilding season. A shortage of existing houses, especially those affordable to first-time buyers, is putting homebuilders on track in 2018 to have one of their best years since the Great Recession.

At the same time, high demand and a new raft of tariffs mean builders are paying more for lumber, concrete, plumbing supplies and wiring. Land prices, too, are skyrocketing, especially in the areas most in demand from buyers.

Worst of all, builders are trying to fill crucial positions at a time of nearly full employment. The Minnesota Department of Employment and Economic Development (DEED) said last week that the state's unemployment rate continued to hover at a 19-year low of 2.8 percent in November. At a time when construction jobs normally wane, that sector remained steady last month.

The situation is particularly challenging for builders who don't employ their own teams of subcontractors but rely on companies that provide workers with a broad range of expertise. That includes framing crews, laborers, drywallers and skilled carpenters who are essential to every phase of the homebuilding and remodeling process.

Jacobson said a typical suburban project that would have cost $600,000 last year would cost an additional $50,000 this year and that a six-month project would take an extra month.

"Eventually it's going to affect the economy and how much you can produce," he said. "It's a tightrope."

So far Jacobson's customers have been understanding, and he hasn't lost work, but he's not planning to remove the Help Wanted sign from the side of his work truck and the front of his Excelsior office anytime soon.

Jacobson said that skilled carpenters can now make about $40 an hour.

He used to hire apprentices for $10 to $12 an hour tops, but these days "people are walking through the door out of jobs from McDonald's and asking for $20," Jacobson said.

The situation is so difficult tha Housing First Minnesota helped launch Project Build Minnesota, an industry-sponsored work group that focuses solely on recruiting new workers.

David Siegel, executive director of Housing First Minnesota and a Project Build Minnesota board member, said the labor shortage is now contributing to Minnesota's housing shortage and affordability problem.

He cited a recent call from outgoing Gov. Mark Dayton for the industry to build 300,000 new homes during the next decade, a figure that includes single-family houses, apartments and other types of housing. "That will be exceptionally difficult if we don't address this labor shortage," Siegel said.

Companies that supply millwork, cabinetry, flooring and other important building components are also feeling the squeeze. At Lyman Companies, the situation is affecting every segment of its business, which has five divisions in the metro.

Right now, the company is trying to fill about 150 positions — more than 10 percent of its total workforce.

The company has four full-time recruiters who spend their time identifying job candidates for a broad range of openings, including crane operators and estimators. One of them, Megan Blakeborough, says she travels the state visiting high schools on career days and vocational-technical schools during job fairs. She's even added middle schools to her itinerary in hopes of making an early impression.

Some divisions of the company are offering signing bonuses, apparel and even goody bags.

"It's hard to find the right candidate for the right job," she said. It's especially difficult to find people with class A licenses to drive for the company with a starting wage of about $21 per hour.

By nearly every measure, the Twin Cities is one of the healthiest construction markets in the nation, but it's also one of the most expensive. Already, new houses in the Twin Cities are selling for 23 percent more than existing houses.

Construction has returned to pre-recession levels, but there's a growing gap between starts and completions, according to quarterly data from Metrostudy, which tracks construction activity across the metro. That widening gap is an indication that houses are taking several weeks longer to finish building.

"Homebuilders are not keeping up with demand," said Danielle Leach, Midwest regional director for Metrostudy.

She said that price appreciation in the resale market over the past two years has enabled builders to take only modest price increases.

"But that was more of a reaction to labor and material cost increases than a response to consumer demand," she said. That has put pressure on profits.

For Tom Wiener, a second-generation owner of Cardinal Homebuilders in Oakdale, a $400,000 suburban house, including land costs, will cost him a few thousand dollars more to build than it would have last summer. But he has yet to pass that increase along to his customers.

"We are eating it at this point," he said.

Like Jabobson, Wiener outsources most of his labor. He's worked with the same carpenters for more than 30 years, but they've lost half their crew and have hadn't much luck replacing them.

"We don't have control over some things we used to have control over," he said.

It's now taking at least two weeks longer to schedule those crews, he said. He's been trying all year to hire a general laborer position. A year ago he was offering to pay $11 or $12 an hour, now he's offering $16 to $18. Still, no one has applied.

"In my mind, it's gotten worse," he said. "Not only is it taking longer, but we can definitely see it in pricing."

Jim Buchta • 612-673-7376