New York City Construction Spending Heading Down 20 Percent in 2009; Led by Sharp Decline in Private Sector Building, According to New York Building Congress Construction Outlook

NEW YORK, October 21, 2009 – Led by sharp declines in private sector building, overall construction spending is expected to decline by 20 percent in 2009, according to New York City Construction Outlook 2009-2011, an annual forecast and analysis prepared by the New York Building Congress.  The situation seems to be stabilizing, however, and it is possible that the City will get through the current downturn without further deterioration in annual spending.

Overall, construction spending in New York City is expected to reach $25.8 billion in 2009, a 20 percent decline from 2008 when spending reached an all-time high of $32.4 billion.  Spending is forecast to remain steady in the coming years, reaching $25.0 billion in 2010 and $25.6 billion in 2011 – for a three-year total of $76.4 billion.  While the decline from peak spending is substantial, these numbers, if realized, are still robust.

Despite the 20 percent reduction in spending, construction employment may decline just 8.3 percent this year. After reaching a high of 130,000 jobs last year, 2009 industry employment should reach 119,000 jobs, which is a greater employment base than all but four of the past 15 years.  The analysis forecasts 116,000 jobs in 2010 and 120,000 jobs in 2011.

The Building Congress projects that government spending, which includes investments in mass transit, public schools, roads, bridges and other essential infrastructure, will reach $15.5 billion in 2009, up from $15.0 billion in 2008.  Spending in this sector is expected to drop slightly, to $14.7 billion in 2010 and $14.3 billion in 2011.  The $44.5 billion in government spending forecast from 2009 through 2011would represent the largest three-year output achieved to date in New York City.  However, if revenue shortfalls precipitate substantial cuts to any of the large capital programs, forecasted construction activity would surely decline.

The residential market has experienced a precipitous decline after an unprecedented boom period.  After five consecutive years in which residential construction exceeded 30,000 new dwelling units, the Building Congress projects construction of just under 6,300 units with a total construction value of $3.5 billion in 2009.  The forecast calls for 7,900 units ($4.0 billion) to be produced in 2010 and 9,900 units ($5.0 billion) in 2011.  These 24,000 units constructed between 2009 and 2011 will fall 10,000 units short of what was constructed in 2008 alone.

Non-residential construction, which includes office space, institutional development and sports/entertainment venues, is experiencing a similar decline.  Non-residential spending is expected to reach $6.9 billion in 2009, down from $11.1 billion in 2008, a decline of 38 percent.  Spending in this category is expected to decline further, to $6.3 billion in both 2010 and 2011.

“While there is no ignoring the 20 percent decline in annual spending over the past year, there is reason to be encouraged given that 2008 was one of the most productive in New York City history,” said Building Congress President Richard T. Anderson.  “Even with the decline, 2009 construction spending remains 45 percent greater than was achieved five years ago, in 2004.  While external events could affect the forecast, it is encouraging that our initial projections show no additional deterioration, with annual spending hovering between $25 billion and $26 billion through 2011.”

Added Building Congress Chairman Stuart E. Graham, “The government sector is far and away the biggest source of activity, accounting for 60 percent of all spending in 2009, but it is also the area of greatest concern.  Our forecast, which is based on current government spending plans, calls for only modest declines in government spending thanks to an influx of federal stimulus money.  The big question is whether City and State government will maintain these planned levels of spending in the face of growing budget deficits and declining revenues.”

According to Dominick M. Servedio, Chairman of the New York Building Foundation, which co-sponsored the report, “The recent downturn in demand for construction services and materials has resulted in declining construction costs throughout the region.  As such, government should view this period as an opportune time to get more for its construction dollar rather than back away from current commitments in the face of budget deficits.  At the same time, it is important that government continue to pave the way for private sector building to resume quickly once the credit markets thaw and the economy starts to pick up.”

In the report, the Building Congress recommends the following steps:

• Maintain current commitments to the region’s capital programs, even in the face of growing operating deficits.
• Officials in Albany and City Hall should work together to ensure that the region maximizes its share of federal stimulus dollars while minimizing delays in enacting infrastructure projects approved for funding.
• Affirm and extend other dedicated sources of revenue for capital budget priorities, such as the New York City Water Board.
• The City Council should quickly enact legislation to make it easier and less costly for builders to resume work on hundreds of stalled projects once the economy rebounds.
• Government must be an ally, rather than a hindrance, as major education, healthcare and cultural institutions move forward with critical expansion plans.
• New York City needs to maintain the Bloomberg administration’s successes in rezoning neighborhoods to permit sensible and sustainable growth in the decades to come.

The New York Building Congress prepared Construction Outlook with the assistance of Regina B. Armstrong of Urbanomics, an economic consulting firm.  It incorporates reviews of private construction data as well as public capital budgets and plans at the City, State and Federal levels.  The New York Building Foundation, which is the philanthropic arm of the New York Building Congress, co-sponsored the report.

Copies of the full Construction Outlook report are available to
Building Congress members only. For information on membership e-mail rchapman@buildingcongress.com or call 212-481-9230.

The New York Building Congress is a membership coalition of business, labor, association and government organizations promoting the design, construction and real estate industry in New York City.