Led by government largesse and a spike in residential building, New York construction spending is expected to crest at record levels this year before sliding into an all but inevitable decline that even a third Bloomberg administration could be unable to arrest.
In a report released today, the New York Building Congress predicts that overall construction spending will reach $33.8 billion this year, a 16 percent increase from 2007 and a record for the city. Total spending will ease slightly in 2009 before dropping to $26.2 billion in 2010, according to the organization’s latest annual forecast, with declines seen across the board in residential and nonresidential spending, public infrastructure investment, and construction employment.
“Given the ongoing turmoil in the credit markets, a slowing economy and warnings of growing budget deficits,” said Building Congress Chairman Stuart E. Graham in a statement, “I am pleased to report that construction spending is expected to increase again in 2008 and, based on ongoing projects, could continue to be strong in 2009.” But as current projects leave the pipeline, he cautioned that the city is certain to be “further affected by recent losses on Wall Street and the continued tightening of the credit markets.”
All sectors covered by the report face an uncertain future. In the largest sector, public spending on capital projects—including mass transit, public schools, roads, bridges, and other infrastructure—will reach $17.0 billion in 2008, up from $15.8 billion in 2007. But it will drop to $14.4 billion in 2010, and could suffer even steeper declines going forward.
“Much of the funding for near-term government projects, which represent more than half of all construction spending, has been allocated and committed,” Building Congress President Richard T. Anderson said in a statement. “However, it is likely that some portion of these projects will be stretched out or deferred, if fiscal and economic problems worsen.”
Nonresidential construction, including office space, institutional development, and sports and entertainment venues, should follow a similar pattern, jumping by nearly 25 percent from 2007 to 2008 to reach $10.0 billion. The sector is forecast to increase again to more than $11.5 billion in 2009—more than triple the number achieved five years ago—but slide significantly in 2010 to $7.1 billion.
Of all the sectors, residential building remains most vulnerable to market conditions. And a development spike—partially attributed to a push to start new projects before a July 1, 2008 change in the 421(a) tax incentive program—means that residential numbers could see a dramatic decline in coming years. While the sector will exceed 30,000 new dwelling units in 2008, the forecast calls for 20,285 units in 2009, dropping to 18,500 units in 2010.
A related cut in construction employment is “the most troubling aspect” of the numbers, according to the report, which was prepared with economic consulting firm Urbanomics. The workforce will peak at a record 130,100 workers in 2008, and may hold relatively steady in 2009. But a steep drop to 100,250 is expected in 2010, which would mark the smallest industry workforce since 1997.
While acknowledging that such cuts will be painful, the report worked to put the city’s remarkable boom times in context. “Judging from the current data used for this forecast,” the authors wrote, “the numbers do not foretell an end to the sustained period of robust construction activity experienced this decade. If spending reaches $26.2 billion in 2010, as currently projected, the industry overall will remain a strength for the City’s economy, with spending remaining well above the levels reached in the 1990s and early 2000s, even when adjusted for inflation.”
To help check the downturn, the forecast did include a few policy suggestions, such as seeking dedicated sources of funding for the Metropolitan Transportation Authority’s capital program, as well as extending the Bloomberg administration’s ambitious push to rezone large swaths of the city. Of course, if Mayor Bloomberg has his way, extending such signature efforts in the coming years will not be a problem.