print

One-Person Construction Trade Firms

From the trough of the housing downturn in 2010 through 2015, the number of homes under construction increased by 131 percent and the number of employees working in construction trade businesses increased by 18 percent.  Over that span, how much would you guess the number of one-person construction trade firms increased?  The answer, believe it or not, is not at all.  In fact, while the demand for construction work was on the rise, the number of one-person construction firms available to help perform the work actually declined by 0.6 percent.

Information on one-person trade construction trade firms comes from the Census Bureau’s Nonemployer Statistics.  Technically, these nonemployers can be corporations or partnerships, but in the construction trades, almost all are sole proprietorships, so for convenience this post refers to construction trade nonemployers as one-person firms.  In residential construction, it is relatively common for owners of businesses to handle a share of the physical work, and one-person firms constitute an extreme case of this, as they have no one except the owner to handle any construction work that is not subcontracted out.

Statistics on one-person construction trade firms are published with a lag and at present are available only through 2015.  Also, like most federal data, these statistics do not distinguish residential from non-residential specialty trades.  Many industry insiders suspect that the relatively small one-person construction trade firms are more likely to work on residential than non-residential projects, but there is no way to prove it.

Nevertheless, because there are over 1.5 million of these one-person construction trade firms, and because subcontracting accounts for three-fourths of construction cost in the typical home, it is worthwhile to take a look at them.  The graph below shows how their number has fluctuated since 2001, along with the number of employees in construction trade firms from the Department of Labor’s Current Employment Statistics, and the number of homes under construction at the end of the year from the Census Bureau/HUD Survey of Construction.

During the last housing boom, the number of homes under construction peaked at 1.36 million in 2005.  The number of construction trade employees peaked a year later at 4.90 million, and the number of one-person construction trade firms peaked a year after that at 1.92 million.  In the subsequent downturn, homes under construction and construction trade employees both hit bottom in 2010 (at 411,000 and 3.46 million, respectively).

By 2010, the number of one-person construction trade firms had fallen to 1.73 million.  After 2010, however, while the numbers of homes under construction and construction trade employees increased consistently year after year, the number of one-person construction trade firms failed to follow suit.  In fact, the number of one-person construction trade firms declined in three of the five most recent years for which data are available.

As a result, over the 2010-2015 period when the number of homes under construction more than doubled and the number of construction trade employees increased from 3.46 to 4.10 million, the number of one-person construction trade firms fell slightly, from 1.73 to 1.72 million.

The businesses have not been standing still entirely, however.  Like other factors of production, they became underemployed during the downturn and have since reversed this trend.  Average revenue for one-person construction trade firms was over $52,000 in 2006, fell to around $42,000 in 2010 and 2011, then bounced back to over $52,000 again in 2015.  So while the number of one-person construction firms has failed to grow since 2010, the aggregate dollar volume of construction work they perform has nevertheless increased substantially.

This, of course, may reflect an increase in the prices they charge for their services, as well as in the physical units they produce.

In any event, it is difficult to imagine the current shortage of construction labor and subcontractors improving significantly without some increase in these one-person construction trade firms, rather than the slight decline we saw in 2015.

By Paul Emrath

Source: NAHB