Thank goodness for old friends.
An old schoolmate, AL, who sees my posts on Facebook, pointed out a key potential implication of Trump’s election that I missed in yesterday’s post: the effect on construction pricing.
I expect that Trump’s election will have the effect of materially increasing construction pricing over the next few years, for two distinct reasons.
- Tax cuts and increased infrastructure and defense spending will spur economic growth, which, because the labor market is already tight, will likely lead to increased competition among employers to hire workers. More leverage for workers means higher wages, a major component of construction pricing.
- At least in my experience, immigrants from central and south America make up a large portion of the construction workforce in LA. No idea what portion of them are undocumented, but I think it’s safe to say it’s material. And if Trump follows through on his threats to deport these people, this is going to shrink the construction workforce at precisely the moment when more workers are desperately needed (see above).
In an ideal world, the expansion in construction jobs coupled with the reduction in the labor force would draw unemployed citizens / green card holders off the sidelines and onto construction sites. But this can’t happen quickly enough to mitigate labor cost increases. Why?
Because construction workers are experts at their crafts. You can’t just snap your fingers and make a guy who has spent the last three years playing video games into a hard-working electrician or plumber or framer. It takes years of training and experience to become an expert in those skills and to learn the kind of work habits necessary to be productive.
Over the long-term, high wages in the construction trades will attract enough people into the business to stabilize wages. But that’s years away. In the interim, think we’re going to see some construction budgets blown out.