Albany and City Hall: Here's What You Can Do to Slow Down Construction Costs

Hope Cohen, July 2008

The Port Authority is scaling back the new PATH hub at the World Trade Center and will soon issue a revised budget and schedule for the site. The Metropolitan Transportation Authority (MTA) is delaying numerous station-rehabilitation and signal-upgrade projects. Vornado Realty Trust is shrinking its planned 21-story Harlem Park office building to 14 stories. The timetable for Atlantic Yards is in question. And the list goes on and on... In the current economic climate, financing is more difficult and expensive to arrange for projects large and small. Yet the already high costs of building materials and fuel continue to climb.

Those costs were treated as almost endearingly quirky during the height of the boom just ending. But now New York needs to find ways to build less expensively.

In Raise the Roof, Lower the Costs: Construction Costs and Housing Affordability in New York City, released this month by the Manhattan Institute's Center for Rethinking Development, economist Rosemary Scanlon identifies key cost components and recommends initiatives that local government can take. Land is the single most important cost that New York developers face. Moreover, a large assortment of regulations collectively add to costs by needlessly delaying construction or artificially restricting the supply of industry participants, both workers and developers, to a band of insiders. To ensure that construction continues apace, the city and state can and must address the factors that unnecessarily drive up costs.

INCREASE THE SUPPLY OF LAND THROUGH REZONING
First, the city needs to continue to do what the Bloomberg administration has been doing—increase the supply of land available for homes and businesses by rezoning underutilized, vacant, or derelict areas where industrial activity ended decades ago. Second, as it has with Jamaica and Harlem's 125th Street, it should allow greater population density where the infrastructure can handle it.

In a July 9 panel discussion coinciding with the release of Raise the Roof, Lower the Costs, architect Mark Ginsberg explained that although the city is currently zoned for 10 million residents, and the present population is more than 1.5 million people below that, space to build is scarce. "There are a lot of buildings you can't tear down, because they're landmarks, because they're valuable buildings. It explains why the land prices are getting so high. There's not much land, and there are few places to build, and so I think looking at rezoning, upzoning is extremely important. Although the administration in the last few years has done a lot of upzonings, it has [also] downzoned half the city."

Panelist Michael Lappin, president and chief executive officer of The Community Preservation Corporation, offered ideas for making more land available, several of them growing out of his interest in preserving the long-standing affordability of Manhattan's Stuyvesant Town and Peter Cooper Village, which were purchased by Tishman Speyer for $5.4 billion in 2006.

"What if we [had] proposed that the city upzone maybe five blocks of First Avenue?" he wondered aloud. Doing that could have created an extra million square feet of allowable floor-area ratio across the street from Peter Cooper Village. "It's pretty low-rise over there," Lappin pointed out. He went on to suggest that in exchange for agreeing to keeping rents affordable for a range of lower- and middle-income New Yorkers, Peter Cooper's new owners could have been given the right to develop across the avenue a million square feet more than the zoning resolution would otherwise allow. "The city has a long history of using zoning to create such incentives," he reminded the audience. As an example, Lappin cited City Planning's approval of the sale of development rights associated with property adjacent to West Chelsea's High Line, a defunct elevated railroad right of way. Some of the proceeds are being used to turn it into a major new park.

PLAN TRANSPORTATION AND LAND USE TOGETHER
Scanlon's report itself urges consideration of development possibilities in conjunction with transportation issues. Following the lead of planners such as Alexander Garvin, she recommends "eliminating or drastically limiting the obsolete 1961 requirement to provide on-site parking in mid-density residential zones" outside the Manhattan central business district (CBD), noting that "the requirement applies even to areas and projects whose residents are unlikely to own cars." Land now allocated for parking would thus become available for housing people instead. Where garage space is provided to meet the on-site requirement, construction costs would be lowered by $30,000 and $50,000 per eliminated space.

Scanlon advocates "upzoning more areas of low density, particularly those near subway stations outside of Manhattan's central business district." The city should turn particular subway stations into development hubs by doubling the floor-area ratios now permitted. Areas of Ridgewood, Queens, and East New York, Brooklyn, for example, might lend themselves to this approach. Citing "the superior economics of constructing mid-rise (twelve-fifteen story) buildings," Scanlon suggests that "City Planning should set density levels for some neighborhoods that would correspond to the residential capacities of such buildings as a way of promoting their construction."

AND THE CITY CAN STREAMLINE THE REQUIREMENTS OF ITS AGENCIES
New York's complex zoning resolution is just one example of the vast array of regulations that demand expert knowledge and savvy specific to doing business in the city. Laudably, the city just adopted a new building code based on a model used around the world, making available for use here building materials that had previously required special approval. However, environmental review requirements provide work for consultants, engineers, and lawyers, without doing much to protect the air New Yorkers breathe or the water they drink. And the process of obtaining and renewing building permits is so time consuming that an industry of "expediters" exists basically to queue up to submit paperwork at the city’s buildings (DOB) and transportation (DOT) departments.

Ginsberg is committed to environmentally sensitive good design, but inflexible rules and different agencies' conflicting perspectives make it difficult to bring into being. He also takes on projects requiring more inter-agency coordination than many other architects do. "One of the things we want to do for both green reasons and aesthetic reasons is put shading devices on the south face of the building," he related about one particular project. "But the building is right at the property line, and the shading devices would extend more than ten inches over the property line. Hence, you need a revocable consent from DOT. So we filled out the paperwork and submitted it to DOT three months ago. They were very helpful. It then has to go to the art commission, but before that, it has to go to [other] city agencies, [including] the Buildings Department, which has been very busy. Yesterday the Buildings Department [said] that these devices stick more than ten inches over the property line, and they’re not permitted by the building code."

To avoid conflicts along these lines, Scanlon recommends that permits for work on a particular building (for example, from DOT to erect a sidewalk shed and from DOB to do the actual construction work requiring the shed) expire at the same time—perhaps when the project is completed or when its insurance coverage expires.

The intricacies of compliance restrict the number of developers, construction firms, contractors, and subcontractors. With construction slowed in the rest of the United States but still holding on here, now is the perfect time to invite more of them in by streamlining and simplifying the local requirements.

WHAT ALBANY NEEDS TO DO
As numerous and burdensome as government regulations are for the developers and builders of private projects, those applicable to public projects are even more so. State and city agencies must adhere to a panoply of complicating procurement rules, for example. They were invented to serve some important public purpose, such as preventing corruption or fostering local businesses, but many of them no longer do that. Recognizing this, just this week Mayor Bloomberg announced steps to make the city's capital work more efficient and encourage more contractors to bid.

Perhaps the most burdensome of public contracting rules is the Wicks Law. Since 1912, it has required New York State and its municipalities to directly retain prime contractors for electrical, plumbing, and HVAC work, instead of directly retaining only a general contractor—as do other states, private entities, and the federal government. The general contractor would then oversee subcontractors performing those and all other kinds of work. For nearly 50 years, Wicks has applied to all public contracts having a value of at least $50,000. The law’s effect has been both to add costs and foster situations in which the several contractors on a job blame each other for errors and delays.

Attempts to amend or eliminate Wicks go back years. This past spring, as part of its budget enactment, the state finally approved some modifications. Now for Wicks to apply, contracts must have a value of $3 million in New York City, $1.5 million in the downstate suburbs, and $500,000 upstate. An exception is made for projects governed by comprehensive contracts, known as project labor agreements, which define wages and work rules for the multiplicity of contractors and building trades on a major job. But a great many projects, while exceeding the dollar thresholds, do not qualify for this exemption. These are especially plentiful upstate.

As Scanlon argues in Raise the Roof, Lower the Costs, New York also needs to change its Scaffold Law (Labor Law 240-241), which imposes absolute liability on builders in the event a worker falls, regardless of whether the worker has been negligent. Because of the Scaffold Law, some insurance companies refuse to write general liability policies in New York State, and others have publicly stated that their rates in New York are substantially higher than those in other states as a result. Legislation that would turn New York into a "comparative liability" state is regularly introduced but has never reached the floor of the legislature for a vote.

In one area, the most important action the state can take is to take no action at all, as Scanlon urges. For decades small developers (both profit-making and non-profit) have depended on non-union labor to build low- and mid-rise housing outside Manhattan's core. A major factor in keeping costs down, non-union labor made possible much of the affordable housing that exists today. Now, a movement is afoot to require private projects built with government subsidies (that is, "affordable" or "subsidized" housing) to pay construction workers the "prevailing wage," which is essentially the union-level wage for their particular work. Such wages must be paid on public works projects already, but advocates for prevailing wage would also impose it on private projects that use public money. Besides adding directly to building costs, prevailing wage would require yet another pile of paperwork to prove that the wage was paid. As they now do when they undertake environmental reviews, developers paying the prevailing wage would be devoting some portion of the government subsidies they receive to complying with the subsidies' terms, an ironic use of taxpayers' money.

WHAT’S NEXT
With construction booming around the globe, demand in the marketplace will keep materials costs high and rising.

In the state legislature, Assembly Member Robin Schimminger and Senator George Winner will be attempting to undo the new law that allows project labor agreements to supersede Wicks Law mandates.

In September, the Port Authority of New York and New Jersey will issue a revised budget and schedule for work at the World Trade Center site.

By December, the Commission on MTA Financing will issue a report proposing strategies to fund MTA capital projects and operations over the next ten years, along with an estimate of MTA capital needs through 2018. The commission is chaired by Richard Ravitch, who, as MTA chairman in the 1980s, saved New York's crumbling transportation network by developing its first long-term capital improvement plan—and then getting it successfully financed.