Report: NYC Construction Costs Up Over 8%

FRIDAY, AUGUST 12, 2022


In a second-quarter report, construction consultant Rider Levett Bucknall (RLB) recently found that building and renovation project costs in New York City rose 8.2% over the past year—one of the largest increases witnessed by any city in the United States.

RLB attributes the increase to ongoing supply chain issues and labor shortages, which notably delayed projects throughout 2021.

“The workforce shortage is just one piece of a larger confluence of challenges for the industry. The pandemic, which hit the construction industry hard with the immediate loss of 1.1 million employees from February to April 2020, is also challenging the supply chain,” wrote RLB President – North America, Julian Anderson.

“Nearly three-quarters of companies report that projects took longer than anticipated in 2021. And more recently this past May, inflation reached 8.6%, its highest rate in 40 years, with average diesel prices climbing over $5.81, up 80% in the last year.”

Anderson went on to note that construction job openings through the end of April totaled 494,000, which was a 40% increase year-over-year. In May, reports revealed that 36,000 new employees joined the construction workforce, however, that was just 7% of open positions.

“Construction hiring was up 14% but the amount of construction jobs posted was up 49%,” added Paraic Morrissey, an associate principal at RLB. “The biggest strain on the construction industry is labor shortage.”

In addition, while the industry continues to watch activity related to the Infrastructure Investment and Jobs Act (IIJA) for improving these issues, project success will hinge on timing and impacted values in wake of inflation, which could ultimately affect the size, scope and number of actual construction projects being carried out.

Upticks in Construction Costs

According to RLB’s North America Quarterly Construction Cost Report, during the second quarter of 2022, construction costs rose about 2.4% nationwide. However, in several cities, those increases were even higher, rising 2.7% across five boroughs in New York City. In Denver and Chicago, costs for labor and materials increased by 4%.

To compile the results, RLB observes the comparative costs from 12 cities, indexing them to show how costs are changing in each city, and against the costs in the other 11 locations. The index tracks these costs by collecting the “true” bid cost of construction, which includes, in addition to costs of labor and materials, general contractor and sub-contractor overhead costs and fees (profit).

The index also includes applicable sales/use taxes that “standard” construction contracts attract.

As aforementioned, the costs for building and renovation projects also witnessed an increase. In New York City, numbers grew by 8.2%, but Chicago, Boston and Seattle witnessed even larger surges, reporting 8.8%, 9% and 11.3%, respectively.

Costs also rose in Canada, with Calgary and Toronto reporting 10% and 14% year-over-year increases.

To view the full report, click here.

Recent Report Labels NYC, San Francisco ‘Most Expensive’

Similar to the recent RLB report, in July, global design and consultant organization Arcadis’ International Construction Cost Index found New York City and San Francisco to be among the report’s Top 10 most costly cities in the United States for construction.

With a scope slightly larger than RLB, the annual index covers 100 of the world’s largest cities for cost comparison across 20 building functions, based on a survey of construction costs, a review of market conditions and professional judgment from Arcadis’ global team of experts.

Arcadis noted that, in addition to providing a comparative index of global construction costs, the report also looked at the various factors affecting the world’s recovery from COVID-19, such as logistic networks, supply chain and inflation, among others.

The data was allegedly compiled during the first quarter of 2022, and it’s noted that the analysis was undertaken prior to the conflict in Ukraine, meaning that potential impacts of the invasion on the construction market were not included in the report.

Instead, Arcadis explained that costs used to calculate the index are based on buildings delivered to local specification standards, meeting both functional requirements and quality expectations. As a result, while the index compares the relative costs of delivering the same building functions in a city, it also reflects the different levels of quality expectation reflected in a specification.

The Top 10 most expensive cities, according to the report, include:

  1. London
  2. Geneva
  3. Oslo
  4. New York City
  5. Copenhagen
  6. San Francisco
  7. Zurich
  8. Munich
  9. Hong Kong
  10. Macau

Released around the same time, multinational professional services company Turner & Townsend issued its own International Construction Market Survey, finding that San Francisco was the most expensive city in the world for construction.

Costing roughly $4,728.50 per square meter ($439.29 per square foot) to build as a result of inflation, the report also attributes supply chain issues and demand from tech companies such as Google, Apple and more as to why the prices have skyrocketed.

In total, the Turner & Townsend report found four American cities to make its Top 10, with San Francisco taking the top spot followed by New York City in fourth, Boston eighth and Los Angeles ninth, respectively.

The report went on to note that markets were driven primarily by the strengthening of the U.S. dollar, higher building material costs driven by supply chain disruptions and high labor costs.

In June The Los Angeles Times reported that several affordable housing projects in California were costing more than $1 million per apartment to build. While key drivers of the increases are labor and material prices—having soared due to worker shortages, supply-chain issues and inflation—Times investigators found that other factors related to state and local government controls are also to blame for the high cost of building.

Assemblyman Tim Grayson (D-Concord), who was writing legislation aimed at simplifying state affordable housing financing, said that the current situation was “untenable.”

   

Tagged categories: Building materials; Construction; Economy; Maintenance + Renovation; Market; Market data; Market forecasts; Market trends; NA; North America; Ongoing projects; Program/Project Management; Project Management; Projects - Commercial; Upcoming projects; Workers

Join the Conversation:

Sign in to our community to add your comments.