NYC construction costs rising again

Construction costs jumped as much as 2.68% last year and are on track to rise as much as 2.86% this quarter; labor rates in city projects account for up to 60% of building expenses.

Construction costs in New York City are rising again, following a recession-driven drop in 2009, according to a review of several surveys by the New York Building Congress.

Average construction costs rose between 0.54% and 2.68% in 2010, according to the Rider Levett Bucknall survey and the Engineering News-Record's Building Cost Index, respectively. Both surveys predict that costs will continue to increase in the first quarter of 2011, by 0.76%, and 2.86%, respectively.

“Costs are now creeping up again,” said Richard Anderson, president of the Building Congress. This is a reversal from a decrease in construction costs in 2009, which was explained mostly by the national recession and a steep drop in residential and commercial construction. Last year's cost increases, as well as those anticipated for the first quarter of 2011 are still far below those of 2007 and 2008, when costs soared at an annual rate of around 12%.

The Building Cost Index bases its numbers on New York City's prices for lumber the most common type of cement, the national price for structural steel and NYC union wages, plus fringes for carpenters, bricklayers and iron workers. The RLB survey also includes estimates of bid price changes, including overhead and profit.

Mr. Anderson attributed the increase in construction costs to the healthy construction activity level in the public sector. He noted that there has been too little activity in the residential and commercial sectors to see a significant increase there.

The Building Congress also found that New York City construction workers continue to earn considerably higher wages and benefit packages than their counterparts in other major U.S. cities.

Electricians in New York City, for example, earn $83.81 per hour in wages and fringe benefits in the city, compared to $73.08 in Philadelphia, the second highest in terms of compensation. Plumbers in the city earned $84.37 per hour in wage and benefits, followed by Boston at $68.20. Labor rates in New York City account for 50% to 60% of building expenses.

“They're just a large proportion of project costs,” said Mr. Anderson. “The cost of unionized workers in the city is superior to any other city in the U.S.” He noted that even as construction costs dropped in 2009, the cost of unionized workers didn't decrease because they were working under existing contracts.

Story by Marine Cole / Crain's New York Business
March 28, 2011