Construction: Florida will not see ‘a major slowdown,’ developer says
Royal Palm Companies CEO Daniel Kodsi joins Yahoo Finance Live to discuss the January jobs report, the construction worker shortage, unfilled jobs, rising rate hikes and insurance costs, and the outlook for the labor market.
RACHELLE AKUFFO: The construction labor market saw strong gains in January. The US added 25,000 construction jobs last month. And while employment in the construction industry grew by an average of 22,000 per month in 2022, our next guest says there is a shortage of, quote, "critical condition."
Here to discuss this Daniel Kodsi, Royal Palm Company's CEO. Good to have you on the show, Daniel. So for a lot of people, they might not understand on the ground what this is actually doing in terms of some of these investments that we're seeing in this space and what we're seeing with the jobs here. How are you seeing hiring for construction right now?
DANIEL KODSI: So, look, we're going through unprecedented times right now and in unemployment, as we were discussing whether it's the service industry, the hospitality industry, but big impact in construction. Currently, we have 360,000 unfilled jobs in construction. And so that's pretty significant. It's about a 19% increase in just since last year. It's tripled the amount of openings that we had since 2014. And so that's a significant amount of openings.
Couple that with the fact that we've had major increases in construction material, steel, concrete. I mean, all material costs have risen significantly. Somewhere, you know, where overall cost between labor and material have gone up over 30% in about a 12 to 16-month period.
And then, you know, on top of that, we've had interest rate hikes, you know, last year. So you combine construction costs interest rate hikes. And lastly, even insurance costs have gone up so it's a big impact on the construction industry.
RACHELLE AKUFFO: And for a lot of people pulling back on expenses right now, they're not trying to invest in real estate, even though a lot of analysts say that is still the smart move. So let's break some of that down. In terms of labor, we know that Latin America plays a big part in that. Immigration in the US plays a big part in construction job. How much has that impacted your business?
DANIEL KODSI: Look, so we have a jobs program. So just to give you a little background, I'm a high-rise developer. I build large mixed-use developments here in downtown Miami. It's part of Miami World Center. Miami World Center is a major-- master-plan project in Miami. It encompasses 10 blocks, 5 blocks of retail. We have a major transportation, the Brightline High Rail Station that connects all the Florida. So this is really the center core of Miami.
So in our jobs program, what we did is we, you know, originally, we started where we started taking people-- unskilled workers from neighborhoods around our downtown area, gave them skills. Out of 15,000 workers, about 20% of them were unskilled. We pay them double the minimum wage so we can bring them in, we can give them skills. A lot of these people were able to expand.
From an immigration standpoint, we did have a lot of immigrants that have come in to the program where you took immigrants, put them into the program, gave them skills. Even women have entered the program. Women today consists of about 10% of the construction industry.
So the combination of that. And, you know, I've actually met some of these folks where, you know, you hear the story where they were down and out. They came in, got the skills, moved up to a journeyman. Some people even supervisors, really changed their life. And gave people that American dream.
RACHELLE AKUFFO: And so then for people wondering just how serious is this construction worker shortage, what are some of the consequences? How bad is the situation? I know you said it was critical.
DANIEL KODSI: So, look, it is critical. It has delayed schedules. It's just harder to get construction workers to the jobs. Our subcontractors are constantly complaining. Some subcontractors can't even bid on jobs because they just can't get workers. You used to have, you know, six, eight subcontracts.
For instance, a plumbing contractor. You'd have about six bids on a project, you can't sometimes get one or two bids. There were some cases you couldn't even find a plumber because they couldn't find labor. So it's pretty impactful.
And so people trying to build today is very difficult. It does impact schedules. I think there will be some relief. The capital markets have pulled back out of construction, out of development. So we're not gonna feel the relief in the near future but probably in the next 12 months or so as construction slows down. That might-- that might help the situation some.
RACHELLE AKUFFO: And we know that, of course, Florida was one of the main states where we look at some of the Southeast where there was this migration during COVID. People, you know, they wanted, perhaps, some looser restrictions, the good weather, the income tax breaks, as well, of course. But then when you have that demand coupled with the shortage construction workers, what does that do? And are you still seeing as much demand right now?
DANIEL KODSI: Demand has-- demand has slowed down slightly, but there is still demand. I mean, high tax states-- as you mentioned, the high tax states that we used to not see people from places like California, for instance, have moved to Florida. So you have seen a major migration of high tax states to low tax states, such as Florida.
You know, Florida is probably gonna be one of the few states that we're not gonna see a major slowdown. We still have major inventory issues. We don't have enough inventory to house all these people coming into the state of Florida. So construction is still-- you know, and probably the rest of the country starts to slow down, Florida is probably not gonna slow down as much because of the migration into the state.
And so we're gonna have to-- we're gonna have to work through that. Now, in some cases when that happens, you'll see workers from other states come to states where there is jobs, if the job market starts to soften. So that could be an advantage for places like Florida or even Texas. You know, again, the Southern states that are seeing the upward migration.
RACHELLE AKUFFO: I mean, certainly people will go where the work is. And as you mentioned there, Florida, at least, not anytime soon, slowing down. Great stuff there. Daniel Kodsi, Royal Palm Company CEO, thank you for joining me in this morning.