Japan's construction bottleneck hits $100bn as labor crunch deepens

Nikkei Asia

17 hours ago

TOKYO -- Backlogs in factory and commercial building projects are piling up across Japan, with unfilled orders soaring to an all-time high of more than 15 trillion yen ($103 billion).
The construction slowdown, fueled by a chronic labor shortage, has intensified since last year, when new overtime limits further strained the sector's already thin workforce.
Long a pillar of domestic demand, the construction industry makes up about 5% of Japan's gross domestic product and roughly a third of total capital spending. Unless the sector accelerates its project delivery rate, private investment and public infrastructure spending could stall, threatening broader economic growth.
One company facing project delays due to the labor crunch is Aeon Mall. The retail developer has postponed the planned opening of its shopping mall in Date, Fukushima prefecture, north of Tokyo, from the end of 2024 to the second half of 2026, citing an inability to secure enough workers to complete construction on schedule. "The challenge in the Tohoku region lies not only in the limited pool of construction workers, but also in their wide geographic dispersion," a company official said.
Similar cases have cropped up across Japan. As of March, the backlog of orders at construction companies reached 15.3 trillion yen on a 12-month moving average basis, according to statistics from the Ministry of Land, Infrastructure, Transport and Tourism. Driven in part by rising prices, this is the highest level since April 2011, when comparable industrywide data first became available.
The volume of order backlogs surged in the early 1990s, before the prolonged period of economic stagnation that hit like a delayed hangover years after the collapse of Japan's bubble economy. Today's delays are largely driven by labor shortages rather than swelling demand.
As of 2024, the construction sector employed 4.77 million workers, down 6% from a decade earlier, according to a survey by the Ministry of Internal Affairs and Communications. Of those, 800,000 were aged 65 or older, accounting for nearly 20% of the workforce, up 5 percentage points over the same period.
The growing societal emphasis on work-life balance has made it more difficult for the construction industry to secure labor. Regulations that took effect in April 2024 generally limit construction workers' overtime to 45 hours per month and 360 hours per year. As a result, the industry's average working hours per person fell 32.3 hours in 2024 compared to the previous year, far exceeding the all-industry average decline of 14.3 hours.
Competition for workers is intensifying. In Hokkaido, where Japanese semiconductor manufacturer Rapidus is building a mass-production plant for advanced chips, the number of construction workers employed by contractors with a workforce of 10 or more reached about 130,000 in 2023, up 23% from the previous year. Monthly basic salaries in the region averaged around 326,000 yen, an increase of more than 30,000 yen, compared with a national average rise of about 14,000 yen.
Construction companies are tightening their criteria for new projects, with greater scrutiny of profit margins. In 2024, the average unit price of construction starts for private-sector industrial buildings climbed 18% from the previous year, reaching about 300,000 yen per square meter.
"We carefully evaluate projects based on their profit potential and expected completion timelines," a top executive at a major construction company said.
Unable to secure sufficient labor or win projects with healthy profit margins, many smaller companies have been forced out of business.
The construction bottleneck has also been exacerbated by an industry-specific factor: the sector's continued reliance on a labor-intensive structure.
"Japan's construction industry has been slow to adopt IT, largely because the sector is dominated by smaller companies," said Takayuki Sueyoshi, senior economist at Daiwa Institute of Research in Tokyo. Japanese builders invest only about one-fifth as much per worker in labor-saving and efficiency-enhancing software as their British and French counterparts, according to an estimate by the institute.
Given the construction sector's vital role in the Japanese economy, enhancing builders' capacity to manage workloads should be a top priority. If labor shortages continue, the industry will need to accelerate digitization and implement other productivity-enhancing measures.