New York City’s climbing construction costs are a harbinger of the strongest new residential demand in over half a century, according to New York Building Congress President Richard T. Anderson.
An NYBC report released today (Wednesday), shows that costs rose at twice the national rate over the course of 2015 but remain below the watermark set during the 2006-2007 building boom. “We could come close to 40,000 (new or significantly refurbished) units or more and we haven’t had a year like that since I believe the mid 1960’s,” Anderson told Real Estate Weekly while discussing the production he expects in 2016.
Anderson said that New York is still enjoying a level of demand that most of the world does not.
“New York City is pretty much unique in the strength of its construction market,” Anderson continued. “We’re much stronger than the surrounding suburban areas and generally stronger than the rest of the country.”
Even with the return of affordable housing incentives being shrouded in significant doubt — a situation that could possibly “moderate” expectations — and public developments hovering around an unusually weak 40 percent, Anderson doesn’t foresee a catastrophic dip in construction demand in the near future.
“It’s not going to fall off the cliff like it did in 2009,” he said, pointing to the slide of 33,000 new or significantly rehabilitated projects that were started in 2008 compared to the 6,000 which got underway in 2009.
“(Demand) fell off the cliff because of what happened to the national economy. Now, there’s nothing on the horizon that would indicate any collapse like that. But there is going to be moderation,” he said.
“It’s already starting in the ultra-luxury. It depends on how the spreading residential market to the outer boroughs evolves. So far, Brooklyn and Queens have been doing great. We’re going to have the best residential year in New York City’s modern history in 2016.
“I anticipate that the office growth and institutional work will continue at a fairly strong pace for at least a couple of years,” Anderson added.
NYBC estimates that, for the third consecutive year, construction costs rose by roughly five percent across the five boroughs. By comparison, U.S. construction costs increased between 2.5 percent and three percent annually between 2013 and 2015.
During the height of the last building boom, cost increases exceeded six percent nationally but were nearly twice as high in New York City, with reports of increases reaching 12 percent in 2006 and 11 percent in 2007.
“As we noted last year, the fact that hard construction costs are rising at a five percent annual rate is a cause for concern, especially when you also consider the rising cost of land in the five boroughs,” said Anderson.
“But it is also worth noting that while the construction market is as strong as it was during the previous building boom, we have not seen a return of cost increases in the double-digits, like we saw from 2006 through 2008. This may be due in part to the growth of non-union construction work.”
The overall cost of construction materials, such as fuel oil, steel, gypsum products, and lumber, was relatively flat in 2015 due to declines in global demand.
“While the cost of construction in New York City, as well as other major cities, is based in some part on global demand for services, labor, and materials, we must continue to look for innovative ways to reduce costs locally,” said Anderson.
“This can be done through innovations in construction methods, improvements to procurement policies and procedures, and by eliminating burdensome regulations and costly red tape. Finding ways to promote more cost-efficient construction must continue to be a key priority for our industry and government.”