High Cost of N.Y. City Construction Due to Land, Wages, Materials, Insurance

July 31, 2008

Construction costs in New York are far higher than in other major U.S. city due to factors ranging from hefty wages, high land prices and costly insurance, according to a survey by a trade group coalition.

Costs in New York are nearly 60 percent higher than Dallas, which ranked second in the annual survey by the New York Building Congress and the New York Building Foundation, a coalition that promotes the construction industry in the New York area.

The report, released on Tuesday, raised concerns about whether the high construction costs will threaten public projects in New York.

“Though the current white-hot demand of construction in New York City is largely undiminished, the question arises as to whether, and at what point, these inflationary pressures and increased costs will finally begin to dampen the enthusiasm of developers and threaten to overwhelm the funding for public projects,” the chairman of the New York Building Foundation Richard Tomasetti, said in a statement.

According to the survey, construction costs in New York are nearly 50 percent higher than in Atlanta, which ranked third; 25 percent more than in fourth-ranked Seattle, and 20 percent higher than in fifth-ranked Los Angeles.

Building a new school in New York City costs $512 per square foot, nearly double the $289 per square foot it costs in Chicago, the report estimated.

New York City’s builders must pay “high and escalating” prices for land, partly due to stiff environmental rules for cleaning up sites, the survey found.

Faulty planning by the public sector, which delays decisions and fails to stick to budgets, also drives up costs, as does a new trend of hiring top architects, the report said.

New York City businesses, institutions, from hospitals to schools, and the government sector will spend $83 billion on building projects from 2007 to 2009, according to the survey.

New York City construction costs rose 11 percent last year. That was just 1 percentage point less than in 2006. In the last 35 years, these expenses have skyrocketed more than 400 percent, the report said.

The group’s suggested cost-curbing remedies included rezoning efforts to maximize available building sites, pursuing prompter payment to keep projects on budget and on time, and increasing job apprentice programs.

Labor and soft costs also play a role in the upward trend of construction costs nationally. With regard to labor, while overtime has risen overall and wages have grown at a moderate pace, the cost of fringe benefits, such as health care, have been on the rise. Soft costs have tended to keep pace with hard costs as the price of insurance and compliance with public regulations increases.

[Insurance is by no means a chief contributor but “comparatively higher insurance rates and liabilities” do play a role in higher costs, according to the report.

Among the recommendations for solutions is a lowering of performance bond requirements to 50 percent of payment on jobs of $100 million or more.

The report also recommends exploring ways to address the high insurance and judgment costs related to the state statutory imposition of absolute liability on owners, contractors and subcontractors for injuries to workers falling from any height during the construction period.]

(Reporting by Joan Gralla; Editing by Leslie Adler)

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