How Soaring Construction Wages Are Reshaping the Housing Market Landscape

Construction costs in the U.S. have escalated significantly in recent years, making homeownership increasingly elusive for many. A historical perspective reveals that in 1978, the U.S. Government Accountability Office sounded alarms about rising costs impacting the American dream, when the median home price was just $44,300. Today, that figure exceeds $419,000, surpassing five times the median household income.

One key factor contributing to this increase is labor costs. Our engineering team conducted an extensive study analyzing wages and workforce trends in over 20 construction occupations from 1999 to 2023. Notably, unskilled workers have experienced the most substantial wage growth, a trend with significant implications for the entire industry.

The construction landscape has evolved dramatically since the last comprehensive analysis 25 years ago. Back then, construction wages were on the decline, influenced by the rise of affordable vocational training and diminishing union memberships.

Now, the industry faces a persistent labor shortage, with more than half a million workers needed annually. Wage dynamics have changed, as unskilled workers—performing demanding tasks like trench digging and concrete mixing—have seen the most significant increases in earnings. Our research shows that their wages have risen by 2.75% to 3.5% annually, compared to under 2.5% for many skilled positions.

Construction firms are increasingly struggling to find workers, with 88% reporting difficulties. The shortage is particularly acute among unskilled labor; for instance, the number of unskilled helpers has halved since 1999.

To navigate these challenges, contractors should anticipate higher costs for low-skilled workers. Our study provides methods for forecasting wage trends, helping firms estimate future labor expenses effectively.

The rising wages of unskilled occupations also influence compensation across the industry. Through econometric modeling, we found that occupations involved early in construction projects significantly impact later trades. Unskilled laborers, performing essential tasks such as site preparation, are key drivers of wage trends. Their wage increases tend to precipitate rising costs in other trades.

Therefore, monitoring wage trends among early-trade workers is crucial for contractors. An escalation in these wages often indicates broader increases in labor costs, enabling firms to plan more effectively.

Recent global events—including the COVID-19 pandemic, the Russia-Ukraine conflict, and tariffs on steel and aluminum—have compounded challenges facing the construction sector. Ongoing labor shortages and supply chain disruptions are set to continue affecting the industry.

However, analyzing market data offers a pathway to understanding emerging trends. Our research team, in partnership with major U.S. contractors through the Missouri Consortium for Construction Innovation, is investigating solutions related to material costs, cross-border trade with Canada and Mexico, and persistent labor shortages.