Construction Workers, Immigration, and Recessions
What the mix of variables tells us about the year(s) ahead
The home market has a problem: there aren’t enough of them for sale. One key factor in the inventory shortage is that the number of existing homes for sale is near a multi-decade low. This is due in large part to the interest rate lock-in effect; millions of Americans are staying put rather than giving up the 3.0% or better mortgages that they obtained or refinanced into from 2020 through the early part of 2022.
The second piece of the inventory puzzle is that not enough new homes are being built. There are a number of reasons why: onerous local rules and restrictions, the rising costs of materials, higher interest rates impacting both buyer demand and builder capacity, and last but not least, a shortage of workers.
The labor supply question is particularly striking in states like the one from where I write here in Maine, which has an older population (in fact, the oldest in the country by median age), not enough working-age adults, and relatively little migration into the state, foreign or otherwise.
To build more homes, we need more workers. I regularly speak to one homebuilder here in Maine who often tells me there is enough demand for him to build 10 times as many homes as he is building now, but he doesn’t have enough crews. There also aren’t enough subcontractors in certain fields like electrical work and plumbing to keep up. Tech and trade schools are trying to respond to this, but it may take a decade or more to catch up. Low birth rates (again, especially in places like Maine) don’t help things either.
Per data from the U.S. Bureau of Labor Statistics, nationwide there were nearly one million people working in residential construction at the end of 2024, which was the highest number in nearly 20 years. Good news, right? Well, when you consider the population of the United States in 2007 was about 300 million people and the population today is about 343 million, the proportion of people working in residential construction has actually declined on a per capita basis since the mid 2000’s.
What the Number of Construction Workers Tells Us About the Economy
This is not a policy paper on how we can get more young people into the trades, although that is a worthy topic. There is an interesting correlation between the number of construction workers in the residential market, though, and the health of the overall economy.
Observe the chart below, which shows through the undulating blue line the number of workers employed in residential building construction. The peak in 2006 is evident, followed by the subsequent crash in the housing market. Evident, too, is the brief drop at the outset of the COVID-19 pandemic.
What is quite interesting about this chart are the vertical grey lines. What those represent are periods of time when the U.S. economy was in a recession. Throwing out the COVID-recession in 2020 as that one was particularly brief and also especially atypical, there is a similar pattern to the other three recessions, which is that the number of workers in the residential construction field started to decline one to two years prior to each recession. This is quite a clear leading indicator: a decline in residential construction workers precedes every recession we’ve had over the last forty years (other than the COVID mini-recession).
The story the data tells today is that the number of residential construction workers has been steadily increasing since the momentary drop at the beginning of the pandemic. In, fact, if you look at the chart above from even one step before the pandemic, the rebound in workers has been on a near-steady exact growth line since bottoming out in 2010.
It is worth paying attention to. If we start to see a decline in home construction workers, it could signal an economic recession is on the horizon.
What About Immigration?
There are a lot of atypical things happening in the housing market right now, so what has happened in the past may not be typical going forward. For example, home construction may stay elevated because of the aforementioned interest rate lock-in effect. Lacking existing inventory of homes to buy, would-be buyers may more commonly hire a builder instead to construct something new.
The other big factor is immigration. It feels a little bit crass to talk about the impact to the housing market of thousands (and potentially hundreds of thousands if not millions) of immigrant workers being deported under President Trump. There is no doubt the impact will be significant, though.
Per the National Association of Homebuilders, which is hardly a knee-jerk liberal organization, about one in four construction workers is an immigrant. Further:
The concentration of immigrants is particularly high in construction trades essential for home building, such as plasterers and stucco masons, drywall/ceiling tile installers (61%), roofers (52%), painters (51%) and carpet/floor/tile installers (45%)…
…The two most prevalent construction occupations — laborers and carpenters — account for over a quarter of the construction labor force. A third of all carpenters and 42% of construction laborers are of foreign-born origin. These trades require less formal education but consistently register some of the highest labor shortages in the NAHB/Wells Fargo Housing Market Index (HMI) and NAHB Remodeling Market Index (RMI) surveys.
The impact of mass deportations of immigrants, not to mention the anticipated declines in new migrants coming to the United States, will be devastating to the home construction market. I don’t care what your politics are on immigration, illegal or otherwise; the home construction market depends on immigrant labor. This is a fact.
The Impact
Even before President Trump won the 2024 election, homebuilders (not to mention farmers, manufacturers, warehouse operators, etc.) were reporting labor shortages. The pools of workers in these areas are now likely to contract further. This will lead to fewer homes being built, higher costs of construction, and therefore higher prices for homebuyers and tighter margins for builders.
The politics of immigration (and yes, notably illegal immigration) are blisteringly hot these days. Securing the border and deporting millions of immigrants who are in the country already was arguably the issue that won Trump the election, as Democrats just could not articulate a policy on immigration that spoke to enough Americans to find positive traction on the topic.
But now comes the part where politics meets policy, which then intersects back with political reality. There are many wealthy donors, for example, particularly on the Republican side, who own real estate firms, construction businesses, and farms (which, as noted above, are also specifically and significantly dependent on immigrant labor). Where will their support of Trump and his hard line on certain topics like immigration run afoul of their own bottom lines? It’s worth following, and is likely to lead to political and economic fireworks in the months ahead.
Meanwhile, the country (especially, at this moment in time, Trump supporters) will need to come to terms with the fact that, like it or not, certain industries depend on immigrant labor. If we are looking at a contraction of that labor pool in the months and year ahead, it will throw certain industries into turmoil. In fact, almost no industry will be immune: farming, healthcare, hospitality, service work, and, assuredly, construction.
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Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Very interesting, Ben. I wonder if the urban boom in commercial construction, wave of energy transition construction and recent surge in AI / data center investment has drawn laborers from the residential construction field? In NYC and other large/mid cities, there are armies of construction people making stuff that was spurred by low rates 3-4 yrs ago and fiscal stimulus from 23-24. Resi builders may have to pay up for this labor.
I don't think immigrants who are in this country legally are the concern. Reputable employers check an employee status before they hire. It is the huge number of violent, murderous illegal gang member immigrants who have arrived over the last 4 years who are being deported at this time. I doubt any of them are looking for jobs in construction or elsewhere.