Real Estate

Arizona's New Housing Crisis: No Workers


Construction workers pass a bundle of shingles on the roof of a home in Phoenix

Photograph by Joshua Lott/Bloomberg

Construction workers pass a bundle of shingles on the roof of a home in Phoenix

There’s a whiff of 2005 in the Arizona air. While D.J. Hughes hunts for carpenters to join his team at a Phoenix-area house-framing company, competitors are tracking down his workers at building sites and offering them more money. “Everybody is trying to pull crews from everyone,” says Hughes, a project manager for J.L. Baugh Construction in Gold Canyon, Ariz., who admits to attempted talent raids on rivals. “I’ve been doing this for a quarter of a century, and this is the biggest shortage of skilled laborers I’ve ever seen.”

Cash-wielding investors are driving demand as they snap up properties, and Arizona’s builders are having trouble finding skilled crews. Building permits are at an almost four-year high, creating a dearth of framers, roofers, and masons, many of whom moved elsewhere when work dried up. Laws aimed at curbing illegal immigration added to the shortage by pushing seasoned hands out of state. After declining by more than half since 2006, construction jobs, a category that includes residential, commercial, and government projects, jumped 9.3 percent in May from a year earlier, to 120,300, according to Arizona’s employment statistics office. Nationally, construction employment rose 0.4 percent. The average hourly wage for construction workers in Arizona increased to $20.72 from $19.53 a year earlier.

Arizona was among the areas hit hardest by the U.S. housing crash. Home prices in April were down about 47 percent from the peak in 2006, exceeding the 31 percent decline nationally, data from CoreLogic (CLGX) show. The state ranked second in the rate of foreclosure filings in May, according to RealtyTrac. “The industry is so wound down that it’s hard to flip the switch on and build as many homes as there is demand right now,” says Ben Sage, director of the Arizona region for Metrostudy, a Houston-based firm that tracks new construction. “The subcontractors are scrambling for workers.”

The inventory of previously owned houses for sale in Phoenix dropped 50 percent as of June 1 from a year earlier, according to a report by Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business. The tight supply helped push the median price for single-family homes up 32 percent to $147,000 in May. Purchases of new houses surged 57 percent in May from a year earlier, according to the report. The median price for new homes rose 3.7 percent, to $224,759.

Downtimes of a few days at construction sites are becoming more common as builders wait for crews to finish other jobs before starting work, according to Reed Porter, chief executive officer of Trend Homes in Gilbert, Ariz. The average time to complete a house in the area is four months, twice as long as it took in February, says Jim Belfiore, president of market researcher Belfiore Real Estate Consulting in Phoenix. “A lot of builders were caught on their heels,” Belfiore says, surprised by “how rapidly the demand situation turned around.”

Arizona, which depended on workers from Mexico to assemble many of the houses commissioned during the boom, has new laws that will make it more difficult to lure back skilled immigrants, says Magnus Lofstrom, a policy fellow at the San Francisco-based Public Policy Institute of California. Arizona’s population of unauthorized immigrants aged 18 to 64 fell by about 17 percent as a result of the Legal Arizona Workers Act, according to a study Lofstrom co-authored. The law, which took effect in January 2008, requires companies to check employees’ legal status with a national verification database. A provision of a 2010 law makes it a state crime to be in the U.S. illegally. On June 25 the Supreme Court invalidated that part of the law while upholding the provision that requires police officers to check immigration status when they arrest or stop someone and have “reasonable suspicion” that the person is undocumented.

Hughes, the Gold Canyon project manager, last month called three former foremen who returned to Mexico four years ago when local construction activity slowed. He persuaded one of them, who has proper documentation, to come back. The others, who he says also have documentation, are hesitant because they don’t like Arizona’s immigration laws and are worried that the market will fizzle out. Hughes wonders how long the demand for workers will last. “It’s busy,” he says. “But everybody still has their hands behind their back, crossing their fingers that this continues.”

The bottom line: After declining by more than 50 percent since 2006, Arizona construction employment rose 9.3 percent in May.

Gopal is a reporter for Bloomberg News in Boston.

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