Overall Construction Spending Grows; Funding for Capital Programs Is Uncertain
October 19, 2012
By Marc Bussanich
The city’s construction industry is currently experiencing strong growth, with spending expected to rise 9 percent in 2012, according to a New York Building Congress forecast. But there are challenges as well. Richard Anderson, NYBC’s president, said that while the forecast is more upbeat than previous forecasts, construction employment is expected to decline, 20 million square feet worth of office space is shovel-ready but hasn’t started because of market conditions and funding for the city’s capital programs is uncertain.
Speaking to an audience of construction management professionals on Wednesday, October 17, Anderson presented the highlights of the organization’s annual forecast, the New York City Construction Outlook 2012-2014. After Anderson’s presentation, the guest speaker, Deputy Mayor Robert K. Steel, spoke about the Bloomberg administration’s vision for economic development in its waning days.
“The headline from the report is that construction spending by the end of the year will reach $30.7 billion, compared to $28 billion in 2011 and $10 billion in the mid 1990s,” said Anderson.
Anderson characterized residential construction as a roller coaster over the years. In the mid 1990s, about 5,000 units were constructed annually. By the mid 2000s, over 30,000 units were built, only to drop precipitously to less than 9,000 in 2011.
The building congress is projecting a total of 10,000 new units will be built in 2012, increasing to 12,500 new units in 2013 and 15,000 units in 2014. But Anderson noted the city needs at least 20,000 units annually to accommodate the city’s growing population.
Non-residential spending, which includes office space, institutional development, sports/entertainment venues and hotels, is on a strong upswing, led by continuing work at One World Trade Center, construction of the Barclays Arena in Brooklyn and the renovation of Madison Square Garden. Spending in this sector is expected to reach an all-time high of $12.6 billion, up from $10.5 billion in 2011.
But as these big-ticket projects near completion, construction employment will decline, even though overall construction spending is up.
“We were as high as 132,000 construction jobs a few years ago, but we’re forecasting that the number of jobs will drop to 110,800,” which would be the lowest level of overall industry employment since 1998, according to the building congress. Anderson attributed the jobs decline to “less-labor intensive construction, improvements in technology and increases in costs.”
But as Anderson bemoaned the projected job losses, the industry is revved up over the anticipated “decades-long building boom in higher education” as Cornell prepares to build a new engineering campus on Roosevelt Island, NYU proposes the largest expansion in its history and Columbia University readies for a 17-acre expansion just north of its historic Morningside Heights campus.
Anderson noted that the city’s construction industry depends a great deal on government spending, i.e., the city’s capital programs, and he thanked city officials for their commitment to the city’s construction industry.
In a statement released after the morning’s event, Anderson said, “Mayor Bloomberg, Comptroller Liu and Council Speaker Quinn understand that when the construction industry is strong, New York City thrives. Their innovative plan to fast-track planned investments in our schools, roads and waterfront will…allow the [city] to maintain its competitive edge.”
One particular funding concern for the construction industry is the MTA’s capital plan. Although its current capital plan is fully funded, there remains uncertainty over dedicated revenues. Anderson stressed that the industry, along with public officials, must work together to ensure that the Regional Mobility Tax, which taxes businesses in the Metropolitan Commuter Transportation District, remains in place. In fact, Anderson said that the building congress would be making an announcement on the tax soon.
While Anderson expressed optimism about the construction industry’s outlook, he lamented the city’s barriers and high costs of building in the city compared to the rest of the nation.
To ensure that the industry continues its trajectory of growth, Anderson and the building congress recommend five steps for the industry to take through 2014. As noted, the industry should work with city officials to identify dedicated revenues to help fund the MTA’s next five-year capital plan.
In addition, Governor Cuomo’s administration and the state legislature should pass legislation to make use of public-private partnerships on major infrastructure projects. The government also must continue to support higher education, cultural and healthcare institutions that are seeking to expand their facilities. Furthermore, the city and MTA should speed project delivery and reduce costs using streamlined procurement practices like Design-Build, and city government should continue efforts to spur office construction, particularly the proposed Midtown East rezoning plan and the development of central business districts such as Downtown Brooklyn, Willets Point, Long Island City and Jamaica.
Deputy Mayor Steel reviewed the building congress’ recommendations and said the administration will try to get done as much as it can before its term ends. But the administration is currently trying to push through its Five Borough Economic Opportunity Plan, which focuses on “creating jobs for New Yorkers today, implementing a long-term vision for growing the city’s economy and building affordable, attractive neighborhoods in every borough,” according to the Mayor’s office.
An integral aspect of the plan is diversifying the city’s economy in order to maintain the city’s position as a global leader. Steel noted the city will focus on eight industries that hold promise for the city’s workforce: Bioscience, Fashion, Financial Services, Green, Manufacturing/Distribution, Media/Technology, Non-Profit and Tourism.
“The reality is that the city’s economy has done pretty well since the recession. The good news is that the economy has come back. The city’s $1.2 trillion economy is the 13th largest economy in the world.”
Some other good news, Steel noted, was that the city in the 2010-2011 period added as many private jobs as the next ten largest cities combined in the nation.
“Industries such as technology, tourism, film and design have significantly expanded in the last decade.” Almost 50 million tourists visited the city last year, “making it the #1 tourist destination in the United States for the second year running.”
The expansion of major university facilities such as Cornell, Columbia and NYU, will also play a significant role in turning the city into a hub of innovation and start-up activity. For example, Cornell’s $2 billion investment to build its new Roosevelt Island campus will leverage a $100 million contribution from the city.
“New York has passed Boston to become the 2nd largest recipient of technology venture capital investments. New York has more post-secondary students [over 600,000] than Boston has people,” Steel said.
But when there’s good news, sometimes there’s bad news. Steel noted the city must tackle “an unattractive level of unemployment.”
“For people of color in their 20s living in the Bronx, their unemployment rate is 20 percent. We need to create more jobs,” said Steel.
And he said the city has to tackle public pensions.
“The current model is unsustainable.”