Written By: Kevin Duffy
As a New Yorker, I’m used to paying more. The average cost of rent for an apartment in SoHo is an astounding $4, 829.00 per month, the average cost of a gallon of milk is over $4.50, and the cost of a beer or wine is approaching $9.00. To put it into perspective, the average price of rent for housing in the United States runs $1,469.00, a gallon of milk, $3.27, and a glass of wine or cold beer, $4.50. Considering the cost of living in New York City is more, the elevated cost of construction projects comes as no surprise. From a small scale plumbing job to a large-scale high-rise restoration, construction is going to be pricier in the Big Apple. There are a multitude of items that factor into this additional cost, and understanding them helps us justify that flow of cash out of our pockets….even if we hate paying it.
In a recent Yahoo Finance article, it was noted that the construction industry nationwide is still 350,000 workers short of where it was in 2008. It is 11 years later, and the industry’s manpower still hasn’t fully rebounded. You may look out the window and observe a skyline with construction cranes as far as the eye can see and think, “there’s no way we haven’t fully rebounded,” but on the contrary. Many of the medium sized Contractors in NYC that we have spoken to can employ anywhere from 10 to 100 additional workers and place them on job sites today.
There is a myriad of social and political reasons for the labor force shortage in this industry. Many undocumented workers who have been in the workforce are in limbo, which has posed a challenge to a strained workforce in the construction sector. Workforce development has been one of the larger challenges to keep up with the growth within the construction industry. There has also been a generational push from many parents for their children to go for college degrees and forego trade schools. This shift has taken a toll on the ever growing needs in the trades.
In addition to the workforce shortage, material costs are continually rising, year over year due to a strong economy. Recent changes in international trade agreements look like they impact the industry even more, too. If all goes as planned, certain imported materials will eventually be taxed as much as 25%. Since the most heavily tariffed items are steel and aluminum products, the building envelope restoration industry hasn’t seen the 25% increase just yet, and it is not clear how the import and export industry will be affected. However, Sullivan Engineering has observed approximately a 10% to 15% increase in unit costs just this past year. When we asked some of the restoration contractors we work with “why are these costs increasing?”, they all related it back to the rising costs of materials. Generally speaking, the rising costs of materials can be a sign of supply and demand. A stronger economy can be a driver of those costs.
In the past 2 years, contractor costs have also increased in the sector of worker safety. In 2017, OSHA enacted a standard for silica dust testing and protection. This new standard requires workmen to have annual check-ups if they are exposed to certain levels of silica dust for a certain number of hours per day. The respirator standards for those workers have also changed. In 2017, New York City implemented Local Law 196 of 2017. This law mandates that each employee must attend anywhere from 40 to 62 hours of safety training by December 1, 2019. While the law currently states that this training is required only for projects with a Construction Superintendent, Site Safety Coordinator, or Site Safety Manager, it is possible that it will become a standard across the board. The extra efforts to keep workers safe are absolutely necessary and absolutely applauded; however, there are associated costs with the new implementation of safety requirements. The costs for additional safety tests and training are being passed down the line from the contractors to the consumers.
The last item that is leading to increased costs throughout New York City’s construction industry is insurance. Currently, there are a limited number of insurance companies that will insure exterior construction contractors without building height restrictions. Typically, insurance companies cut off work above 30 feet above grade, which includes most buildings in New York City! This restriction is the result of the little known, but very important, Labor Law 240/241, also known as the “scaffold law.” This law states that property owners and contractors are fully liable in any gravity-related injury. This was first put on the books in 1885; however, New York State is the only remaining state with this type of law.
While professionals within the construction industry are actively seeking ways to reduce the cost of construction projects to stay more competitive, we shouldn’t hold our breath. It may be quite some time, if ever, before we see relief in the high costs of construction projects. It is likely that rising costs are part of the new normal.