Andy Ball On Labor
Everyone appears to be employed in the construction industry—but there's a downside to that. (Nobody home to watch daytime soaps?)
Look for a gradual increase in pricing, Suffolk Construction West Coast region prez Andy Ball tells us. The former CEO of Webcor (responsible for the Cal Academy of Sciences, St. Regis, and Infinity Towers) says the first bump in pricing was just getting back to where we should have been. Another was realizing newly hired people were not the very small skilled group that once was. They require more supervision and produce work at a slower rate, which can result in a loss of productivity.
In 2007, there was a significant increase in material pricing. Andy hasn't seen that to the same degree because construction material pricing is no longer based on the price per barrel of oil index. It's now based more on natural gas—the energy the manufacturing industry now uses since it's less expensive and less volatile. We use natural gas at one fourth the cost as China does, Andy says. Suddenly manufacturing in the US makes sense. When you can depend on local manufacturing and lower energy prices, that's great, Andy adds.
At one point, China was sucking a lot of the resources, as was Russia, Brazil and India. Now the world is not using materials to the same extent, Andy says, which makes them more available for us in the US. One of the benefits of using union labor is you have a set rate and know that will go up every year. Whereas if you are not union, he says, you pay whatever the market is. Above, 340 Fremont's groundbreaking in April. (We've been meaning to follow up to see if they ever found that seventh shovel.)
When there are tons of projects to build and there's a labor shortage, you pay more. That means the nonunion rate has skyrocketed while the union rate steadily moved up. Productivity losses or quality control losses are already factored into the subcontractors' price, so Andy likes to think the big escalations in construction costs are already baked in. Hopefully we continue to have labor from around the nation come into this area, he says.
The rest of the US has not rebounded the same way we have. Heck, the rest of the Bay Area hasn't rebounded same way S.F. has, Andy says. So far he's happy with his labor pool, saying he's got an ample supply of highly qualified people who want to work for Suffolk. Specialized jobs like electrical, mechanical and plumbing are hot commodities and getting snapped up fast. His office has $641M in resi projects going on (340 is one, above).
