The big builders that build two out of every five of the nation's new homes collectively pay at least $8 billion a year to hire undocumented workers, according to an analysis by BIG BUILDER. And they like it that way. What they don't like to do is to think about how much more the same amount of labor would cost if proposed legislation to end illegal immigration becomes law.
The building industry has enjoyed the benefits of cheap, oftentimes illegal, labor for years and now it looks like, one way or another, those days may be over. With 15 percent of big home builders' costs directly tied to labor, builders have a giant stake in the outcome of two contentious proposals now being debated in Congress. Either version of the immigration bill would hurt. Builders could lose their illegal workers because they cannot get across the border, causing prices to rise because of worker scarcity. Or their prices will rise because they have to pay legal guest workers a more competitive market wage.
Although few experts are willing to venture a guess as to how much it would cost builders to pay for legal or guest workers, the photo: getty one effect would be dramatic. The bill for labor would be likely to increase at least $4 billion a year to at least $12 billion for on-site residential construction labor.
As industry executives peer ahead at months of uncertainty and declining sales, the last thing they want to hear is that costs are going to come under pressure—a great deal of it.
In the most conservative terms, a house selling for $200,000, which now includes labor costs of 15 percent, would increase by $4,200, according to Oscar Gonzales, president of the Houston–based Gonzales Group, a strategic planning organization.
A $500,000 house, which also includes 15 percent labor costs, would see an increase of about $6,300, he says. And that does not even include the ancillary costs of items, such as tile and lumber, which are often produced by immigrant labor. The home building industry, which had $381 billion in new-home sales in 2005, would face a major adjustment in finding, hiring, and keeping their workers.
“The cost will definitely go up if there is any kind of restriction on the labor force,†says Dennis McGill, a Credit Suisse First Boston analyst. “It is going to come straight out of [builders'] margins.†McGill says there would be no effect if a builder raised the price and a buyer would be willing to pay the higher price. But “it is difficult for builders to raise prices right now,†he says. The biggest problem, economists say, is not increasing the pay of workers, but the tightening of the labor pool. The Senate proposal to give amnesty to 11 million to 12 million illegal workers would make it harder to hire them at cheaper prices, cutting the workforce of unskilled day workers who often fill in for the skilled ones. The House version of the bill offers no free ride. It would impose penalties of up to $10,000 on employers for every illegal worker hired and double that for repeat offenders, as well as jail time. There is no guarantee that any piece of legislation will fix the problem even though the Senate version, which includes the amnesty provision and is backed by President Bush, is far more liberal than the House plan.
“If you reduce the available labor, you would be bidding up the price of what remained.†says Robert Curran, managing director of Fitch Ratings, which analyzes the home building industry
In the short term, it “will come out of the builder's pocket. In the long run, it will come out of the home buyer's,†says Jamie Pirrello, COO of Mandarin Homes, an Annapolis, Md.,–based home builder. “If we cannot hire people willing to accept lower wages, we will absolutely see an increase in our costs.â€
No one has actually counted how many undocumented workers reside in the United States. The PEW Hispanic Center says there are between 11 million and 12 million, but other surveys suggest that the number is as high as 40 million.
Construction professions with particularly large shares of undocumented workers include insulation workers (36 percent), roofers (29 percent), drywall installers (28 percent), construction helpers (27 percent), and cement masons (21 percent), according to the PEW Hispanic Center.
“Immigration to a large extent contributes greatly to the labor pool, and as a result prices would go up,†says one Texas builder. “But it will have more of an impact on subcontractors and contractors.â€
If the 11 million to 12 million illegal workers disappear in a “wink of an eye or a stroke of a pen, of course it would hurt the industry,†says David Pressly, president of the NAHB and a home builder from Statesville, N.C.
Most big builders will not even talk about immigration reform publicly even though some top executives are on record saying that the problem needs to be fixed. Robert Rivinius, president and CEO of the California Building Industry Association, says he is more concerned about the disruption it would cause to an already tight labor market in California than anything else that may be coming down the pike.
“Anytime there are delays [in hiring], it not only adds cost, it adds aggravation,†Rivinius says. “Time is money. If you add time, you add cost.â€
SOURCE: JOINT CENTER FOR HOUSING STUDIES AT HARVARD UNIVERSITY
WAGES DOUBLE
Along the Texas border, subcontractors are paying illegal workers about $10 per hour, often failing to check on their legal status. But if they seek only legal workers, the hourly wage doubles. That's the case for Texas concrete subcontractor Thomas Jagger, a small concrete company owner in Dallas and Austin whose revenues run about $450,000 a year. He would rather hire legal workers than risk breaking the law.
As a subcontractor, Jagger faces problems doing business whichever way he turns. If he hires legal workers, he must pay them at least $20 an hour, and his costs are far higher than the competition. If he hires illegal workers for $10 an hour, such as some of his competitors, he faces the prospect that he will get caught, fined, and put out of business.
“I'm afraid we'll get in trouble. It's illegal, that's why. If you use illegal labor, sooner or later, they will find out and shut you down,†Jagger says.
Subcontractors like Jagger are at the heart of the current debate over immigration reform. The reason: Although few people are willing to say it publicly, illegal workers form the backbone of the labor force for big builders in many parts of the country. And if the immigration legislation now moving through Congress puts a lid on illegal immigrants or imposes huge fines on companies hiring them, it would hurt the U.S. economy and the building industry in particular, according to many involved in it.
“It is very clear that the housing industry in the United States depends on Hispanic workers, immigrant workers, and frequently undocumented workers,†says Henry Cisneros, former HUD secretary and now president of City View, a San Antonio–based company building affordable housing. If big builders are cut off from this labor supply, “you would see immense slowdowns, lags in skill developments, cost rises, and impact on quality,†he says.
Not only that, he adds, the nature of the housing business is that companies do not control their workforces. Home builders rely on contractors and subcontractors, and “subcontractors are the principle employers of undocumented workers.â€
Those jobs are not ones that legal workers want, he says. “It's very difficult work to be on the roof of a house in Phoenix or Texas or Arizona in the summertime. It is not the kind of work many Americans want to do. The hours are long. The weather conditions, sometimes difficult, strenuous work, [are] even dangerous [and] all those things combined direct other Americans to other work,†Cisneros adds.
Add those dynamics to the volatility the industry is already facing, and you could have a catastrophe if the immigrant workforce is shut down. And that may be why organizations, such as the Associated Builders and Contractors and the NAHB, are lining up to support the Senate bill that would create a temporary guest worker program and make it easier to hire workers who are not citizens.
NATIONAL ISSUE
The issue is no longer at the southern border. The immigrant workforce can be found all over the country. Jim Lamson, president of L&B Electrical Contractors, in Lisbon, Maine, says in the past there were plenty of Canadian workers in Maine to augment the workforce. Now, he says, the biggest numbers are Mexican drywall workers who migrate north looking for work. “It does affect a lot of contractors,†Lamson says. “It is a big issue. There is a shortage.â€
The construction industry is the largest employer of short-term illegal workers, according to Gabriel Escobar, the PEW Hispanic Center director. “When we look at the data, we can say 14 percent of all construction workers are undocumented,†Escobar says. “All construction sites probably have a significant number of low-skilled workers.â€
They also are paid less than their legal counterparts, he says. Depending on how long a worker has been in the United States and if he speaks English, the weekly wage for an undocumented worker in 2005 was $350 a week. An unskilled legal worker would make about $500 a week.
“All construction sites probably have a significant number of low-skilled workers,†Escobar says. “You don't have to show up with a degree or certificate in carpentry.â€
The construction industry has a long, involved history with immigrants, says NAHB executive vice president and CEO Jerry Howard. At the beginning of the 20th century, construction workers were Irish and Italian. At the beginning of the 21st century, many are Hispanic.
“The construction industry, for a long time, probably from the beginning of this country, has been the first step on the job-market ladder for immigrants,†he says. “Roughly 25 to 30 percent of the labor market is comprised of immigrant workers.â€
And what would happen if those workers were shut out? “There would be fewer people so it would take longer to build houses and increase carrying costs. That would ultimately be passed onto the buyer,†Howard says.
The policy is so snarled right now that in May, Fischer Homes, a leading builder in Kentucky and Indiana, was raided by the U.S. Immigration and Customs Enforcement (ICE), and four Fischer supervisors were arrested. Fischer was charged with using subcontractors “to provide a layer†between it and some 75 illegal workers.
“We really never considered it a big issue, because I guess we never considered northern Kentucky as being a bastion for immigration. I think it got everybody's attention, if nothing else,†Dan Dressman, of the Home Builders Association in Northern Kentucky, told National Public Radio.
Similar incidents recently occurred in Hamilton, Ohio, where the local sheriff arrested 19 Hispanic construction workers, effectively stopping work at a site. In Las Cruces, N.M., an hour drive north of the Mexican border, workers scattered and completely deserted a construction site recently when they spotted a border patrol car heading their way, says Michele Marshall, CEO of the Las Cruces Home Builders Association. It turned out that the border official was off duty and just driving over to the site in his official car to check out a new home that he had purchased.
Several days later in Las Cruces showed just how big an effect the illegal workforce has. Fearing a roundup, an unknown number of immigrant workers didn't show up for work the week before the Las Cruces Home Builders Association's Spring Showcase of Homes. Builders were going to display 47 homes, but only 40 homes were ready for the event, and many of them lacked external touches, such as driveways, rock walls, and landscaping.
Although Marshall says her organization in no way condones the hiring of illegal immigrants, she says, “We desperately need the labor. They are not taking jobs away from any young people. They don't want to do this work.â€
The bottom line is simple: Drive by any building site anywhere in the United States, and you will likely see that the majority workforce is Hispanic. The market dynamics are such that illegal workers are part of the economic fabric for home builders and their subcontractors, whether they like it or not. And obeying the law, such as concrete subcontractor Jagger does, keeps many of them out of the competition.
The short answer to this dilemma is that it is a mutually profitable arrangement, and one governed by laws that are outdated and have not kept up with the times. And it is a problem that will only worsen unless there are changes, says Leigh Ganchan, head of the Immigration Law Group of Epstein Becker Green Wickliff & Hall in Houston.
“Those who need buildings constructed are experiencing greater difficulties locating builders with enough qualified workers to complete a job and must pay more to attract those builders who have an adequate workforce,†she says.
And ultimately, she adds, the buyer will pay the cost.
Immigration Reform Stacks Up
A comparison of the House and Senate bills to overhaul U.S. immigration policy
Senate bill Guest workers
Allows illegal immigrants who have been in the country five years or more to remain, continue working, and eventually become legal permanent residents and citizens after paying at least $3,250 in fines and fees, paying back taxes, and learning English.
Employers and subcontractors
Requires employers and subcontractors to use an electronic system to verify that new hires are legal. Increases the maximum fine on employers for hiring illegal workers to $20,000.
Border enforcement
Authorizes 370 miles of new fencing plus 500 miles of vehicle barriers along the U.S. and Mexico border.
House bill Guest workers
No provision for illegal workers. Makes illegal presence in the country a felony and increases penalties for first-time illegal entry into the United States.
Employers and subcontractors
Requires all employers to verify Social Security numbers of all employees. Increases the maximum fine for employers of illegal workers from the current $10,000 to $40,000 per violation.
Border enforcement
Authorizes a 700-mile fence along the border between Mexico and the United States.
SOURCE: BIG BUILDER RESEARCH
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