RACINE COUNTY — The cost to simply build things in southeastern Wisconsin is rising. Rapidly.
According to area developers, the causes of rising costs are threefold: a shortage of workers, rising material prices and increased infrastructure costs.
“It’s too expensive to develop,” said Wolf Korndoerfer of Mount Pleasant-based housing developer Korndoerfer Homes. “You can’t make a full developer’s profit.”
It’s becoming harder to find workers to fill significant job openings, which has pushed wages higher, thus increasing overall costs.
“There are a lot of highly skilled construction workers that are retiring. And then during the recession of 2008, a number of highly skilled people left the construction trades,” said Stewart Wangard, the founder of Wauwatosa-based Wangard Properties.
Wangard Properties is the company working to develop the 269-unit apartment complex in Mount Pleasant near the Village Hall known as The Villages.
According to the U.S. Census Bureau, fewer than half of the construction workers who lost their jobs during the recession had returned to working in construction by 2015.
A 2017 poll conducted by the Associated General Contractors of America showed that nearly three out of every four contractors have reported labor shortages.
Current workers have been able to jump between different companies and jobs, bringing higher wages thanks to the tighter job market.
“Our company is one of the largest property managers in southeastern Wisconsin, and we lost some good people to the construction trades,” Wangard said. “Some have become cabinet installers. One who left us is now a heavy-equipment operator. We have some other ones who, through continuing education, went into the heating and air conditioning field. We also recruit from those same areas.”
In mid-2017, the average yearly wage for “construction and extraction occupations” in Wisconsin was $52,700 — nearly $6,500 higher than the state average for all jobs, according to the Bureau of Labor Statistics.
Even with good pay, Wangard says, many young people are still wary, or just plain unaware, of what the construction fields can offer.
“We have not grown the workforce as fast as the need … I don’t think that our education system has encouraged people to consider the construction trades for a career,” Wangard said.
“Yet, they are beginning the discussion … (construction workers) can make money faster, and probably have a more enjoyable lifestyle, than a lot of the people who are working on a computer keyboard every day.”
The Racine Unified School District has started offering more trades-based courses through its Academies of Racine programs, which help students explore potential career paths.
In December, RUSD announced another partnership with Gateway Technical College that will allow as many as 34 current students to learn the trade of welding. By the time those students graduate high school, they’ll be eligible for a welding apprenticeship.
Welders usually earn upwards of $20 per hour in Wisconsin, according to the Bureau of Labor Statistics.
“From a City of Racine perspective, what we’re seeing is people working really hard to acquire a workforce,” Mayor Cory Mason said. “Now, part of what we’re doing with the county and Gateway (Technical College) is working hard to make sure that employers have employees with the skills that they need.”
Tariffs on materials a factor
“You can’t ignore the fact that the tariffs put in place in 2018 have had a huge impact on construction,” Wangard said. “Steel in some cases is up over 20 percent. Aluminum is up almost 20 percent. Softwood lumber is up over 20 percent. And alternative materials, such as precast concrete, have shot up in some cases over 10 percent. Concrete has shot up over 10 percent.”
The widely publicized tariffs on Chinese trade — including 25 percent on imported Chinese steel and 10 percent on aluminum, imposed since March 1, 2018 — are only part of the problem for Wangard.
He said that quickly improving the U.S.’s trade deals with Canada would also be beneficial.
A 21-percent duty on Canadian lumber imports was imposed in November 2017, worsening an upsurge in the price of softwood lumber which is commonly used in construction.
Adjusted for inflation, the cost of softwood lumber more than doubled between September 2015 and April 2018, according to the Bureau of Economic Analysis.
The United States-Mexico-Canada Agreement, intended to replace the North American Free Trade Agreement, was signed Nov. 30 but still hasn’t been ratified by Congress.
“I think that on an international level, (national leaders) have to go and negotiate fair and reasonable trade policies,” Wangard said. “Canada is one of our top trade partners. We have to have a policy that works with Canada. We have to have a more balanced relationship with China, and I think we have a shot of getting there, but it’s not there today.”
Infrastructure and land
There’s another problem on the horizon, Korndoerfer says: There isn’t much infrastructure-ready land left in the area to develop.
“The land cost is significant, but it’s not the biggest cost,” Korndoerfer said. “There’s a perception out there that there’s plenty of land and sewer and water, and you just have to develop these lots to meet the demand. The problem is: Those lots are going to cost $50,000 or $60,000 more than the lots we currently have on the market today.”
Now that demand for housing is rising, it’s become more difficult to profitably construct new houses and apartments.
“The regulations to develop the subdivisions in communities continue to get harder and more expensive,” Korndoerfer said. “The increase in regulations did not rest during the recession, and now we’re trying to develop again with higher costs and higher regulations, and it’s a challenge.”
That said, Korndoerfer said that 2018 was Korndoerfer Homes’ biggest year ever, during which it started work on nearly 100 homes in southeastern Wisconsin.
Wangard Properties hasn’t slowed down, either. Despite some pushback, it’s moving forward with The Villages apartment complex in Mount Pleasant. The complex of up to 13 buildings is designed for middle-income tenants — perhaps construction workers who are new to the area or the trades.
“The increase in regulations did not rest during the recession, and now we’re trying to develop again with higher costs and higher regulations, and it’s a challenge.” Wolf Korndoerfer of Korndoerfer Homes
“We have not grown the workforce as fast as the need … I don’t think that our education system has encouraged people to consider the construction trades for a career.” Stewart Wangard, founder of Wangard Properties