Author Home Author Archives Search Articles Subscribe
Stay informed with the
NEW Casino City Times newsletter!
Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter!
Related Links
Recent Articles
Rod Smith

Las Vegas Faces Labor Shortage

6 March 2006

LAS VEGAS -- A 'material lack of qualified labor in Las Vegas over the next several years' threatens new casinos and high-rise condominiums being developed here, a Deutsche Bank study found.

"Despite the phenomenal growth of Las Vegas, the construction talent pool is not deep enough to provide the needed labor to build all currently announced projects," Deutsche Bank analyst Marc Falcone said. "We believe if all announced and anticipated projects were to proceed before the end of the decade, a significant portion would not get off the ground given the limited depth of the construction talent pool, most importantly subcontractors."

Brian Gordon, a partner in the Las Vegas-based financial consulting firm Applied Analysis, agreed that the level of investment being discussed, an estimated $10 billion to $15 billion in new construction over five years, makes labor and material supplies a concern.

"The question is whether the supply chain can keep up with planned development," he said. "We've seen employment up more than 12 percent over the last year, really a record pace. You have to ask yourself whether there are even enough bodies to fill the necessary construction positions. That question has yet to be answered."

Falcone said labor shortages have also created market pressures that have let subcontractors raise prices and be selective about project work. The higher prices have also pinched general contractors and delayed projects.

These market pressures are having a greater effect on inexperienced and independent developers, especially those not based in Las Vegas, Falcone said.

"The result has been some well-known developers are throwing in the towel on Las Vegas," he said.

"What we're having here isn't a demand constraint," real estate analyst Richard Lee said of the failed projects. "It's a situation that nobody predicted. The No. 1 problem is construction costs and lack of skilled labor."

Deutsche Bank's study suggested that MGM Mirage's Project CityCenter alone could use more than half of the licensed subcontractors in Las Vegas. Some general contractors, such as Perini Building Co., have limited flexibility to take on additional projects given their full pipelines.

Perini Chairman Dick Rizzo, in a recent conference call, told Wall Street analysts and investors the limited number of trade workers, general contractors and subcontractors, controls, or limits, growth in Las Vegas for now.

Because of the returns on investment, anything built on the Strip, especially casinos and hotel-condominiums, will likely get built, he said. The developers of these projects will be able to pay the wage and salary premiums to lure the workers they need.

"You're competing against a billion-dollar monstrosity," said Jim Stuart, co-founder of Centra Properties and a partner with actor George Clooney in the planned Las Ramblas condo project. "The gaming giants can afford to play in this market and anybody other than the three or four biggest companies in town have tremendous pricing issues to deal with."

Plumbers, electricians and ironworkers are hot commodities for union and nonunion jobs. Subcontractors say they've held back from bidding on projects for fear of not getting the labor. Their biggest problem isn't winning the bid, but staffing the bids they win.

"We do a labor forecast, we work on it on a daily basis. It's the hardest challenge -- you can't take work and just expect that you're going to get 50 or 60 guys for help," said Jim Manning, president of Interstate Plumbing and Air Conditioning.

He said he uses nonunion labor but pays union-competitive wages, offers benefits, training and a 401(k) to his workers in an effort to retain them.

"It feels like you're in a bidding war for your own people," Manning said, adding that the shortage keeps him from taking some jobs.

Although the cost of building materials are leveling off, construction costs have climbed high enough that no high-rise project can be built for less than $400 per square foot, which means units have to sell for $800 per square foot to $1,000 per square foot to turn a profit.

Other factors the Deutsche Bank study cites for crimping Las Vegas development include the time it takes to build a major resort; a 25 percent increase in construction costs over the past six months; rising interest rates and the added risks they create; the escalating cost of land; and the permitting process, which now takes twice as long to complete as it has historically.

The price of steel, diesel fuel and concrete, along with such materials as pipes and wiring, has driven up the costs of building a high-rise tower, said Ken Simonson, chief economist for the Associated General Contractors of America.

The cost of a cubic yard of concrete rose from 10 percent to 15 percent last year and will see a similar increase in 2006, he said. The average cost for diesel fuel used in construction trucks is up 36 cents a gallon from last year. The cost of gypsum, the main ingredient in wall board, rose 42 percent since 2004, and copper used in wiring and fixtures rose about 70 percent in two years, Simonson said.