By Daniel Geiger
Construction costs in the city are rising according to a report released on Friday by the New York Building Congress, which warned that the increases could hamper the construction industry’s recovery as well as the local economy.
“To secure and continue New York’s position as an important economic engine locally, nationally and globally, and help jumpstart stalled projects in all five boroughs, measures to control and reduce overall costs are needed,” Richard Anderson, president of the Building Congress, said in a statement.
Citing building cost indices, the Building Congress forecast that construction costs in the city could increase by as much as 2.86% during the the first quarter of 2011, an uptick that would appear to reflect a quickening pace to cost increases in the city. By some estimates, construction costs rose by 2.68% in all of 2010, the Building Congress said in its report and fell 0.9% in 2009, the worst period of the recession.
“After years of relentless cost escalation, New York City experienced a bit of a respite in 2009 as a result of the economic downturn,” Anderson said. “Unfortunately, these data confirm what we suspected in our September cost report: New York has given back most of those cost declines.”
The report said that the construction increase in the city was in line with price hikes across the country. The city may be particularly vulnerable to higher expenses however because the cost of building is already so great.
The Building Congress didn’t prescribe any particular solutions to the inflation but seemed to hint at the city’s high labor costs. The report concluded that New York City union construction workers earn significantly higher wages and benefits than their counterparts in other major cities around the country. Electricians receive $83.81 an hour in total compensation. In Philadelphia, electricians are paid $73.08 and hour, higher than anywhere else in the country outside of New York. Houston, a far cheaper market, pays $22.93 per hour.
In areas where union labor is less prevalent, the gulf in compensation was even more stark. The Building Congress said that union plumbers receive around $84.37 in total compensation in the city but in Houston receive $38.29, in Dallas $14.43 and in Atlanta take in $41.66.
“As any business leader can testify, New York City is an expensive place to conduct business, and the higher cost of living certainly has an impact on compensation for workers across the board,” Anderson said. “Having said that, however, the higher construction cost structure in New York City is bordering on unsustainable. While we must look carefully at all aspects of construction costs, it is hard to ignore the wide disparity in labor rates, which account for 50% to 60% of building expenses.”
The city is still cheaper than other major global hubs like London and Tokyo.
The report appears to insert the Building Congress’s opinion at a sensitive juncture for labor relations in the city. Unions in the building trades are in a tense opening standoff with the contractors that employ them as contracts that lay out the work agreements between the two come up for renewal this summer. As Real Estate Weekly first reported, contractors are seeking numerous concessions from the unions in order to cut costs and keep unionized labor competitive with lower cost competitors that have begun to gain market share, even in Manhattan, which used to be almost exclusively union town. So far, the concessions have focused on work rule changes and other ways to obtain efficiencies rather than wage reductions.
In a follow up email, Anderson said he didn’t want to single out the unions.
“All sides of the industry need to address costs, from government and contractors as well as labor and the design community,” Anderson wrote. “No one is free of responsibility.”