Bulldozing Through New York
Though construction in New York has always been more expensive than elsewhere in America, cost has not stood in the way of our recent building boom. Cranes, bulldozers, and orange-and-white cones have been ubiquitous sights over the past five years. Fueled by strong construction demand and plenty of money and credit to pay for it, the boom has encompassed residential and commercial buildings, public works projects, and institutional expansions.
The New York Building Congress expects the total value of construction projects in the city to top $28 billion by the end of 2008. However, over the past several years, construction costs have risen sharply. While many of these costs, like the price of materials, are beyond local control, the city can reduce expenses by taking steps in two specific areas: increasing supply of land through zoning and streamlining the regulatory process. Enacting such reforms could go a long way toward increasing the availability of affordable housing in the city.
Beginning in 2003 and 2004, world demand for key construction materials — steel, aluminum, copper, concrete, and asphalt — sent prices soaring. By 2006, costs were rising at the rate of 1% a month in New York City. Such a rise is unprecedented in the experience of veteran New York builders.
Meanwhile credit has become more difficult and expensive to obtain, and skyrocketing oil prices have tacked yet another premium on the transportation of materials.
At the same time, the city’s popularity has pushed up the price of land, and not just in Midtown Manhattan, where the rush to build luxury apartment buildings caused prices to more than double in fewer than five years.
Land prices increased as well in Harlem, along the Greenpoint and Williamsburg waterfronts, and in downtown Brooklyn. There is a finite amount of land, but there are artificial constraints on the supply as well.
The Bloomberg administration recognized early on that obsolete zoning restrictions left over from New York’s industrial heyday blocks residential and commercial growth today and has achieved remarkable success in rezoning one-sixth of the city’s land mass. But many opportunities remain to make more land available for development.
In New York City, rising construction demand does not spur an increase in the supply of contractors because special requirements serve as a barrier to entry for developers and contractors. The city’s regulatory burden discourages outside companies from coming to New York, the available supply is constrained, and prices are higher than they would be since there is less competition.
The shortage of skilled contractors and subcontractors and supervisory management has become a key cost driver. A good contracting firm generally has enough depth of talent to field one or two high quality teams. After that, it needs to dip down to the “B” and “C” level. That worries lenders, who charge more for financing, increasing the overall price of the job.One example of the city’s onerous and inefficient regulatory process is obtaining a Certificate of Occupancy. In New York, the process for approving a building’s plumbing, electrical, fire, and general construction can last four to six months or more. In Chicago, the same range of inspections takes about a month because agencies effectively coordinate the process.
All this has an impact far beyond the construction industry and city governance. Passed along to owners of major commercial, luxury, or mixed-use buildings in the form of higher rents or sales prices, rising costs seriously threaten the economic viability of housing for lower and middle-income New Yorkers.
The city faces a number of challenges if it is to maintain a thriving pace of development. With so many other costs driven by national or global economic forces, the city must exercise power and discretion where it can to ease the burden on its construction industry.
To lower construction costs, the administration should continue to increase the supply of land zoned for higher-density development. The city also should take action now to streamline the regulatory process for building in the city, which would help bring new players into the market to compete for construction business.
Other sensible reforms would include eliminating redundant design reviews and getting the building and transportation agencies to coordinate their permitting requirements. With an uncertain economic landscape ahead, it is essential that the city take steps to control costs that make affordable development possible.
This piece originally appeared in The New York Sun
This piece originally appeared in The New York Sun