Construction landscape laced with uncertainty

Potential of rising costs within the industry could threaten some projects that are already in the pipeline

The construction industry faces a multitude of uncertainties as it relates to business expenditures. I’ve heard many individuals voice their concerns about the potential of rising costs within the industry and how higher costs could threaten projects already in the pipeline. So, what is the culprit for the uncertainty? An array of policy decisions and proposals with real consequences. Let’s take a look.

Culprit No. 1: The workforce shortage

The workforce shortage is the single biggest issue for contractors in our region. According to the 2018 Construction Labor Market Report published by the Columbia-Willamette Workforce Collaborative, one-fifth of the region’s workforce is at or near retirement age. Couple that with the struggle of recruiting newer, younger employees and it’s the perfect storm. Unfortunately, labor scarcity often breeds higher construction costs.

The good news is this isn’t an issue that is being neglected. The region is seeing a renewed focus on the trades in schools (rather than the “college for all” efforts familiar to my generation), an increase in collaboration among industry and stakeholder groups, increased funding for career-connected learning endeavors, and innovative programs and trainings available to jobseekers and businesses desperate for workers.

A fresh solution to the workforce shortage is offered by superintendents across the state. Dr. John Steach, Evergreen Public Schools’ superintendent, is a proponent of a new bill that would remove testing as an exit barrier for student graduation, and instead re-link testing to inform students of their readiness in either college or a career pathway such as construction.

“High school testing is important but more so as entrance readiness to the next stage of the student’s life,” said Dr. Steach.

Culprit No. 2: Market force uncertainty

As many are well aware, steel tariffs implemented by the Trump Administration have been cause for uncertainty on contractors’ bottom-line. Dave Konz, Risk Management and Government Affairs representative for Tidewater, located at the Port of Vancouver, stated: “While no affects have been felt yet, steel affects ports. We need thriving ports to be successful for export and threat of retaliation is real. What happens this fall will be a telltale sign of what’s to come.”

While we haven’t been hit with skyrocketing prices yet, it’s hard to say what can happen in the future. I’ve personally already heard of companies upping their bids to protect themselves from having to eat the cost of increased steel prices down the road.

Transportation cost increases are also looming. Between the threat of potential tolling in Oregon on I-5 and I-205 and a new proposed initiative in Washington, business bottom-lines across the board could be affected. Initiative 1631 has not received much attention but will likely appear on the November ballot. What’s being called the Clean Air Clean Energy Act is essentially a tax on businesses not exempt within the bill’s text. If passed by the voters in our state, everyone could be footing the bill at the pump, paying an introductory rate of 15 cents per gallon to an eventual increase to 40 cents more per gallon over the next ten years, according to Todd Meyers, the director of Center for the Environment at the Washington Policy Center.

Meyers states that “the result of these broad exemptions is that the burden of the tax falls on families and the commercial industry.” An increase in transportation costs could translate to higher construction project costs in the future.

Land scarcity is also of concern, especially quality land that can be developed for mixed- use. When land demand is high and the supply is not met, there is a market imbalance. When that occurs, two things can happen: 1) Businesses can choose not to re-locate to our region, resulting in missed economic opportunities; 2) Land prices could soar, pinching the pockets of our local businesses. Unfortunately, the state’s Growth Management Act and Clark County’s Vacant Buildable Lands Model (VBLM) limits growth and development each year. Fortunately, local industry leaders are already collaborating with Clark County officials to alter current assumptions of these development inhibitors.

What this all boils down to is higher construction costs due to a culmination of public policy decisions and proposals lacking a concrete understanding of the consequences that would be felt by the companies that build our community.

Dr. Steach noted his worry about Evergreen Public Schools’ construction costs in the future. The school district recently passed one of the largest bonds in state history, totaling $850 million. He referenced $3 billion worth of school construction work that our region will see in the next six years. With so many threats that could translate to higher construction costs, it’s hard to estimate a project’s true cost years in advance. Will today’s project estimates be in-line with what is offered in future bids? This is a real concern of project planners and contractors.

Andrea Smith is the Marketing & Government Relations Director for the Southwest Washington Contractors Association.

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