The Real Deal New York

Nonunion labor keeping wage growth down: report

NY Building Congress finds hard costs grew 5% last year, less than half growth rate before the recession

March 16, 2016 08:00AM
By Rich Bockmann

Richard Anderson with a rendering of 111 West 57th Street and a photo of the construction site

Richard Anderson with a rendering of 111 West 57th Street and a photo of the construction site

Construction costs in the five boroughs grew steadily for the third year in a row at roughly 5 percent.

That’s still less than half the rate that costs climbed last cycle, according to a new study by the New York Building Congress, which found that nonunion labor is likely one of the main culprits behind the relatively slow rate of growth.

Using an average of five different indices that track hard costs such as construction materials and labor, the Building Congress found that the overall cost of materials such as fuel oil, steel, lumber and gypsum products remained nearly flat last year as global demand declined.

The high demand for construction work in the city, however, was most likely the main driver of rising costs as the tight construction market put upward pressure on wages and bid prices, the Building Congress found.

President Richard Anderson, who is stepping down at the end of the year after nearly 25 years as head of the trade group, said that the rate of inflation is “a cause for concern, especially when you also consider the rising cost of land in the five boroughs.”

“But it is also worth noting that while the construction market is as strong as it was during the previous building boom, we have not seen a return of cost increases in the double-digits, like we saw from 2006 through 2008,” he added. “This may be due in part to the growth of non-union construction work.”

Nonunion workers make up as much as 50 percent of the construction market today and are taking on high-profile jobs like JDS Development and Property Markets Group’s 111 West 57th Street that have traditionally been dominated by the union workforce, as The Real Deal has reported.

In the early years of the recovery between 2010 and 2012, construction costs in the city increased at a rate no greater than 3.25 percent. But in 2013 they jumped five percent and continued that rate of growth until spending hit a whopping $40.9 billion last year.

At the height of the last building boom, construction costs increased 12 percent in 2006 and 11 percent in 2007 – more than twice the rate at which they’re growing now.

According to a Building Congress survey of construction executives that looks at costs on union jobs, labor costs are the highest on hospital projects, ranging from $800 to $1,000 per square foot.

That was followed by university buildings ($600-$900 per square foot), five-star hotels ($700-$800 per square foot), secondary schools ($500-$800 per square foot) and speculative office space ($425-$500 per square foot).

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