Economy to Put Hit on New York’s Construction Industry

The credit crunch, a slowing economy and growing budget deficits will strip almost 30,000 construction jobs from New York’s workforce by 2010, bringing industry employment to its lowest level in more than 10 years, according to a report released Tuesday, October 14, by the New York Building Congress.

Employment will fall 23 percent, to 100,250, in the next two years, and could drop even further if efforts to shore up the credit markets don’t bear fruit, the report says. The most substantial losses won’t show up until 2010 as projects financed in flusher times mean construction spending will reach a record $33.8 billion this year, a 16 percent increase from 2007.

“If we do not solve the credit crunch, I think we could be in for even a greater loss of jobs than is projected,” said Louis Coletti, president of the Building Trades Employers’ Association and a vice chairman of the Congress. “I’m really concerned about the future of the industry on both the public and private sides.”

Construction spending will fall more than 22 percent, to $26.2 billion, by 2010, driven by across-the-board drops. Residential, nonresidential and public sector work are all forecast to fall off by 2010. The steepest drops will occur on the residential side, where developers had rushed to get projects into the ground to beat changes to the 421(a) tax incentive program that went into effect July 1.

The number of residential units constructed is expected to be nearly halved by 2010 to 18,500, with a falloff in spending of $2.2 billion. Nonresidential construction, including office space, institutional development and sports venues, will fall nearly 30 percent, to $7.1 billion. And government projects—which remain the primary driver of construction activity in the city—will fall more than 15 percent, to $14.4 billion, by 2010.

The report paints a resilient picture of the industry, predicting it will stave off major losses until 2010. Even then, it says the $26.2 billion forecast for that year would be well above levels from the early 1990s and early 2000s, when adjusted for inflation.

But much remains unknown. A prolonged downturn could lead to further slashing of funds for public projects such as mass transit, schools and bridges. It’s already becoming nearly impossible for developers to fund new private projects. Coletti said banks that typically require 15 to 20 percent down for construction loans are now starting to ask for as much as 40 percent. For now, developers are biding their time.

“If you were in the market trying to finance something now, you’d have a real problem no matter how good the project was,” said David Picket, president of Gotham Organization Inc.

Fear is starting to spread from future projects to ones already under construction. The tightening of credit prompted industry leaders to gather last week for an emergency meeting on the future of construction in the city.

“It’s not only whether future projects can be canceled or delayed, but it’s cash flow for contractors currently building projects,” Coletti said. “If they can’t use credit lines, how will they pay for products or supplies they’ve already ordered? How do they pay the cost of benefits for their workforce?”

Filed by Daniel Massey of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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