Local construction costs softening in tandem with economy
Evidence Suggests Costs Falling in NYC and the Region
Construction costs in New York City and throughout the region have receded in response to the softening economy, according to statistical and anecdotal evidence compiled and reviewed by the New York Building Congress.
While it is hard to pinpoint the precise rate of decline, given the lack of uniformity in various measurements of costs, there is no doubt that building in New York City is less expensive today than it was a year ago.
According to a Building Congress analysis of FW Dodge data on new buildings, hard construction costs (defined as physical costs of construction such as materials and labor) for offices and banks have declined 10 percent between 2008 and 2009, while apartment construction hard costs have declined 9 percent over that period. The category of new buildings that includes schools and libraries has similarly dropped by 8 percent.
According to Engineering-News Record's (ENR) Building Cost Index (BCI), construction costs in New York City have fallen slightly in three consecutive quarters since October 2008. From July 2008 through August of this year, the BCI has fallen 1.1 percent in the City. ENR uses local prices for Portland cement and lumber, the national price for structural steel, as well as local union wages, plus fringes, for carpenters, bricklayers and iron workers, to derive BCI.
A survey of the New York metropolitan region by Rider Levett Bucknall (RLB) finds that construction costs in the area have declined approximately four percent since January 2009. The RLB survey examines much the same data as ENR but also includes estimates of bid price changes, including overhead and profit, which tend to decline during down periods.
In addition to the most recent statistical data, conversations with government and industry officials confirm that costs have fallen this year and may fall even further than is reflected to date. A number of top officials at major New York City agencies recently told the Building Congress that contractor bids have been coming in well below project estimates.
Further, one top executive at a major construction firm estimates that construction prices in New York City have been reduced on average about 15 percent overall and 20 percent in the residential sector.
"While recent cost declines are no match for the run-up in prices during New York's prolonged construction boom, it is encouraging to see prices moderating in response to the economic downturn," said New York Building Congress President Richard T. Anderson. "Given the current state of the economy, these cost reductions are not likely to make a great deal of difference in the short-term in the housing and office sector, since private developers still are finding it difficult to get financing for new projects.
"Larger institutions and government agencies, however, stand to benefit to a much greater extent given their need and ability to continue building through all economic cycles," Mr. Anderson continued. "In fact, government should view such periods of lessened demand and decreasing costs as opportunities to get the most bang for the taxpayer buck."
