ULI Panel: Controlling NYC Construction Costs No Easy Task

A panel on controlling construction costs convened in New York City today by the city’s chapter of the Urban Land Institute found that there are myriad reasons why construction costs continue to climb at a rapid rate. One major one is the sheer amount of construction projects ongoing in New York, which makes the competitive atmosphere hot for both material and labor. “The amount of building is on the scale that we saw in the late ‘50s and early ‘60s,” said Charles Murphy, senior vice president & general manager of Turner Construction Co., noting that in addition to the high level of private development, there are large public infrastructure projects underway as well, such as the construction of the Second Avenue subway line and the extension of the No. 7 train. Costs have risen so fast that Turner, which has been building in New York since 1902 and has compiled a large database of material costs, said the database is frequently of little use. “[Prices are] what the market will bear,” Murphy said. The panel agreed that massive construction projects in China and India have also raised raw material costs. Another issue that is raising the cost of construction in the city is that there is a contractor shortage. “With 1,000 buildings being built, you’d think there is a sizeable base of contractors,” said Eli Zamek (pictured), senior vice president of Vornado Realty Trust. “But, there are three or four in each trade. Less competition equals more cost. One trend that the panel has seen is the use of non-union construction labor. “The unions are busy, so they care less about it,” Zamek said. But the use of non-union labor could increase a development’s timeline, perhaps from two to four years, he said. The panelists agreed that there is no silver bullet to control costs. “You have to assemble the best team possible,” said Dominic Dunn, senior associate principal of Kohn Pedersen Fox Associates. He said ordering construction materials far in advance of when they are needed can also lower costs. City government should also make more brownfield sites available for redevelopment, which could lower costs, Murphy said. Alastair Lamb, senior manager at Ernst & Young, said a “fully transparent” construction budget process is another key to cost control.