Houston Construction Execs Push Back On Data Saying City Led U.S. In Construction Jobs Lost

Houston’s construction industry took a bigger hit than any other major city in the U.S. as the coronavirus pandemic raged in 2020, according to the Associated General Contractors of America.

The economic uncertainty of the pandemic, in tandem with the energy downturn, is considered to blame for the slowdown in construction activity and subsequent job losses. While the numbers are dire, some construction executives in Houston pushed back against the data, saying they don’t see that much pain in the market and are continuing to add jobs and move forward on schedule themselves.

From November 2019 to November 2020, the Houston metropolitan statistical area lost more construction jobs than any major metro area in the country — 22,500 jobs or 9% of the local construction job market, according to an AGC analysis of government data.

That figure was well ahead of the second hardest-hit location, New York City, which lost 16,700 jobs, or Midland, Texas, which came in third at 9,800 jobs. Nationally, large numbers of contractors have had to lay off workers once they complete projects that started before the pandemic, because private owners and public agencies are hesitant to commit to new construction, the AGC said.

AGC Chief Economist Ken Simonson told the Houston Chronicle that the Houston construction industry has likely been left much weaker than other parts of the country because the downturn in the energy sector suppressed demand for construction workers.

Incoming 2021-2022 AGC Houston Chairman John Marshall said that while he doesn’t know for sure, he also believes that challenges in the energy sector prior to the pandemic contributed to job losses in Houston. Combined with economic uncertainty, it isn’t surprising that projects were delayed or canceled in 2020, taking jobs with them.

“I think it's that continued uncertainty, almost being exponential on top of [the energy downturn],” Marshall said. “I think it's the uncertainty that's really driving the slowdown.”

Marshall is a vice president at Houston-based Satterfield & Pontikes Construction, and said the firm has seen some projects slow down or be pushed back because of the pandemic, though few have actually been canceled outright. Commercial development projects have been more likely to hit the brakes than public works, which have continued mostly as usual, Marshall added.

In terms of where job losses have hit hardest, Marshall said that delayed or slowed projects have forced subcontractors to bear the brunt.

“We've seen the effects of COVID on subcontracting firms, which can ripple through the owners that we work for, and how that causes people to react. So it continues to be the big influencer,” Marshall said.

Some construction companies and subcontractors have fared better. GT Leach Construction President Gary Leach said that his firm briefly laid off two people earlier in the pandemic, but has since rehired them. The company actually increased its total staff in 2020 because things have been so busy, he said.

Leach said that the AGC’s number of job losses in Houston surprised him to the point that he questioned the accuracy, as it didn’t add up to what he has seen in daily business life.

“It really surprised me. I mainly work in the residential high-rise area [and] hospitality, and we've actually added more jobs this year,” Leach said. “I've never been busier.”

Outside of his own firm, Leach works with several different subcontractors, and to his knowledge, none have said they have struggled for work because of canceled projects.

“The subcontractors I work with, everyone is still really busy right now in Houston. I haven't heard of anyone that's laid off any people,” Leach said.

Leach’s construction firm tends to focus on three or four large specialized projects a year. He speculated that AGC’s job loss numbers could be more representative of small development projects being delayed, such as suburban retail centers. Outside lenders and investors may have been spooked by both the energy downturn and the pandemic, potentially pulling the plug for a while.

Houston-based developer DC Partners CEO Roberto Contreras also said he was surprised that Houston’s job losses were more severe than New York City or Los Angeles. The development firm works with various general contractors, including GT Leach, and none have struggled to bring in workers during the pandemic, he added.

“With the general contractors that we work with, this has not been an issue on our projects,” Contreras said.

Contreras noted that even though the firm’s two current projects in Houston are financed, it is a difficult environment today to secure financing for new projects due to the drop in oil prices.

“Houston has learned from the past, and in many ways, this helps prevent Houston from experiencing big busts like other cities. Houston has always been seen as an energy city and that makes banks react faster than in other cities,” Contreras said.

Houston developers were already discussing costly delays to their project pipelines in April, with some expecting those delays to last as long as six months when accounting for issues around permitting and inspections. However, for Contreras, that has not been the case. He said he doesn’t anticipate any project delays for his ongoing developments in Houston, The Allen and 4411 San Felipe, which he hopes will control costs or possibly lower them.

Marshall said that despite the pandemic, the outlook for Houston’s construction industry is positive, as most of the usual market fundamentals are still strong. He does anticipate the first quarter of 2021 to remain limited in terms of available work, but once more certainty returns to the market, demand is certain to skyrocket, he said.

“I think you'll see a little further pullback before you see it jump up again. But I do expect it to, frankly, come roaring back when it does,” Marshall said. “There will be some pent-up demand and there will be these delayed projects that come back to life. And I think it'll be a rapid and a big return.”

In particular, Marshall expects to see more multifamily, mixed-use and industrial projects to create opportunities in Houston, as those have been the most popular asset types in the wake of the pandemic.

“The developers ... they are putting those plans in place. They're putting their teams together, to be ready to go to meet the demand. I think that comes with the return,” Marshall said.

Contreras said that construction would most likely continue to shrink in 2021, as things are not likely to substantially change in the energy sector, and financing for new projects will be difficult to obtain. However, he doesn’t anticipate significant job losses, as there is a backlog of development projects in Houston that will need workers.

“I do not expect big job losses because in the past we had some shortages, so this will allow things to catch up,” Contreras said.

Leach said he meets with his own banker once a month and has been told that there’s money still out there looking for viable projects to lend to. That’s likely to pick up in the second half of the year as more economic certainty returns to the Houston market.

“I think by this summer to third, fourth quarter, I think things are really [going to] pick up more than they are right now,” Leach said.