Why construction jobs are up despite housing ‘recession’ — and why it won’t last
Zachary Halaschak
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Construction employment rose last month despite the housing market being in quick decline, although the job gains are not expected to last.
The number of construction jobs grew by 20,000 in November, Friday’s jobs report revealed, and the sector has added more jobs per month in 2022 than it did in 2021. Residential construction employment, specifically, grew by 3,900 in November, an increase from the month before.
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Those gains have come as the Federal Reserve’s efforts to curb inflation have caused mortgage rates to soar and sent housing into what the National Association of Homebuilders called a “recession” earlier this year. New and existing home sales have fallen fast over the course of the year as demand has dried up, and starts of new construction have also declined steeply.
Why then, has construction employment gained steam, rather than declined?
One reason is that the housing market went from overheated to cold so fast that there is a glut of homes still under construction.
There are now nearly 800,000 single-family units under construction, which is likely due in part to supply constraints that are making the construction process for homes take longer from start to finish. Additionally, there are 928,000 multi-family units under construction — the highest level since December 1973.
Combined, the number of single-family and multi-family units under construction is a record — explaining why more workers have been needed to finish them.
As those construction projects finally start to come to an end (and as far fewer new projects are begun) those jobs will soon start to evaporate.
Desmond Lachman, senior fellow at the American Enterprise Institute, said that job levels in the construction sector are a bit of a lagging indicator because, as the housing market gets worse, it takes some time for jobs to take a hit, given the length of time it takes to build homes.
“That’s the reason that you can still see construction employment going up because they are ongoing projects. But when those projects come to an end there is going to be nothing to replace them. So that’s when you’ll get the big drop in employment,” Lachman told the Washington Examiner on Friday.
Another reason that construction employment has stayed strong is the post-pandemic demand for home improvements.
“Strength in remodeling and multifamily construction were responsible for the 3,900 job gain for residential construction,” National Association of Home Builders Chief Economist Robert Dietz told the Washington Examiner. “Non-residential construction was also higher.”
The Fed’s rate hikes have dramatically shaped the course of the housing market. The average rate on a 30-year-fixed-rate mortgage has soared from nearly 3% at the start of the year to nearly 6.5%, putting home purchases out of reach for many would-be borrowers.
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At its past four meetings, the Fed has implemented consecutive increases in its target rate (which is a different, very short-term rate) of 75 basis points — the most aggressive pace of hiking in four decades. Since the start of the year, the central bank has jacked up rates by a massive 375 basis points in an effort to quell the country’s explosive inflation.
While Fed Chairman Jerome Powell has made it clear that rates will likely remain high in the near future, he has hinted that the pace of increases might be slowing, and most economists and investors are expecting a milder 50 basis point hike when the Fed meets later this month.