Can Builders Stay Ahead of Deportations and Tariffs?

WSJ: Construction Industry Braces for One-Two Punch: Tariffs and Deportations

On August 17, 2024, I blogged about the sharp decline in construction job openings. Over the past three months, the trend has continued to tell the story of a serious slowdown in construction activity. This could be derailed by the double gut punch of tariffs and deportations.

Foreign-born workers will take the manual labor jobs that US-born residents don't want, especially framing, concrete, roofing, and stucco. These are the toughest, hottest, and hardest construction tasks. These are the people that make construction possible. What would happen if that labor force declined by half?

The impact will be different for residential and commercial construction. For commercial, it’s not zero impact, but there are less undocumented workers on commercial projects than residential. More commercial projects have labor law requirements for documented workers and most residential projects do not. The political argument that is intended to offset the cost of mass deportations is that easing state and federal regulations will mute the effect. Unfortunately, we know how long it takes for the government to do anything. Deportations can happen swiftly, while deregulation could take a decade.

Share of Unauthorized Immigrants in the Labor Force, by State

Note: Data are estimates as of 2022.  Source: Pew Research Center Alana Pipe/WSJ

Regarding tariffs, less than five percent of the finished goods for a self storage project are made outside the US. Items like electrical switchgear or HVAC units are made in China or Mexico. These goods can be easily onshored to the US. They might be more expensive when made in the US, but still cheaper than paying the tariff.  The decrease in construction demand has already lowered contractor and subcontractor profit margins. As the slowdown continues, contractors will be willing to earn less profit just to keep a team busy.

Overall, the cost of deportations and tariffs for commercial construction will be somewhat offset by the overall slowdown in construction. But just when homes were the most unattainable for the average American, I believe it is about to get even worse due to rising labor and material costs.

US Construction Job Openings

Source: fred.stlouisfed.org

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