Streamlining Construction in NYC: Strategies for Efficiency & Cost Reduction
Construction suffers from an image problem. It is often associated with inconvenience, messiness, negative environmental impact, and exorbitant costs. I was born and raised on job sites, so my entry to architecture came through the world of construction. Constructability, cost, budget, and logistics are inherent to my understanding of architecture. I knew how to build before I knew how to draw, and my career has involved finding ways to tie the often disparate notions of design and constructability together.
It is not a secret that housing costs are so expensive nationally, and New York City currently ranks first domestically among median home purchase price and rent. As a professional in the architecture and construction industry, I strongly believe there is a way we can tackle rising housing costs by developing more innovative solutions for building.
What Makes Construction So Expensive in NYC:
This article will bypass macroeconomic conditions because, in our industry, we are typically responding to, not implementing, these conditions. Two examples of macroeconomic conditions that are outside of the control of architects and builders are material pricing — which is mainly affected by supply, demand, and the price of commodities like oil– and interest rates — which influence construction lending and mortgage payments — affecting overall project costs. I will instead focus on the aspects of the design and construction process that can be controlled to reduce construction costs.
To narrow the scope of our examination, we can attribute increased construction costs to the increase in overall construction duration and inefficiency. Reducing durations and increasing efficiency is where architects and builders can have the most impact. Overall, the time to construct a building has been drastically increasing over the last 20 years, counter to the expectation that as industries mature, they become more efficient. US Census Bureau data shows that the average time to construct a multifamily building has essentially doubled since 1971, from 8.6 months to 17. Let’s be honest — do you really believe it when you read an article saying a project will be completed within two, three, or even five years? No chance. How many times have you heard about construction projects being over time and over budget? At this point, it’s assumed that most projects will have at least some setbacks.
To over-simplify, we can define the construction cost of a project as materials plus labor, with management fees on top of that combination. The major factor driving overall construction costs in NYC is definitively labor. Recent data shows that material costs only fluctuate a few percentage points based on location. In fact, NYC material costs are right about the national average as compared to the top 30 cities, a mere 0.3% points higher. However, when it comes to labor costs, NYC is dramatically more: 74.2% higher than the national average. If you increase the time and complexity required to deliver a project, you also increase the labor needed. But what about a site that’s sitting empty for a day, a week, sometimes longer? Even if a site is relatively inactive and workers are not on site, there is usually supervision or a management team overseeing that project billing hours despite no physical progress being made. Additionally, an owner incurs carrying costs on a stalled project, such as loan interest and taxes.
Imagine the simplicity of an open field, free from urban complexities. Now, contrast that with the bustling environment of NYC. It is hard enough to build a multistory steel or concrete building in an open field. Why? Well, you must first transport thousands of tons of material from across the United States or even the globe. You’ll then need to coordinate the day-to-day tasks of dozens or hundreds of tradespeople and ensure they are sequenced properly. There is a strong possibility you will have to shut down roads and divert traffic. Not to mention, there will be, without a doubt, dozens of permits, inspections, and approvals required at every stage of the project, which again need to be sequenced and coordinated.
Now, imagine doing all of this in a city as dense as NYC. Think about how hard it is to navigate a car — or even a bicycle — through the streets of Manhattan. How much harder do you think it would be to drive a flatbed truck with 20 tons of steel on it, get it to a job site, keep it parked there for the day, and unload it with a crane? To make matters trickier, NYC has strict regulations on truck sizes and access locations, loading and unloading, and street closures. Smaller trucks result in more shipments, more time, and more labor required. Permits are required to shut down streets, which also costs money and adds to the escalating bill of a construction project. So not only is labor expensive, but you simply need more of it just to get a project built in NYC due to compounding logistical factors — which are unavoidable. This issue plagues construction across the globe but is compounded by the unforgiving nature of building in NYC.
Project modifications that need to be made during construction are also a significant driver of construction overruns. Change orders are revisions to the initial contract that often address essential project costs not previously foreseen during the bidding process. Studies vary, but this one shows that change orders can account for 8 to 14% of the value of a construction project, with change orders accounting for over 10% of the project cost 24% of the time. Most projects experience some degree of increased project costs above the original contract amount. Unforeseen logistical issues, poor planning, and incomplete design are the main factors driving change orders.
Projects must move quickly and smoothly to limit cost overruns, and significant issues can arise without careful planning. It is critical to improve the efficiency and accuracy of project delivery, which is where architects and builders can have the biggest impact.
What are some advances in technology and strategy that can help?:
For thousands of years, humans have been pre-assembling constructed elements for efficiency and faster growth. The ancient Romans would construct sections of walls offsite and transport them for quick assembly. You’ve probably heard buzz recently about modular design or pre-fabrication, but it’s an age-old concept. This process has been deployed for centuries worldwide — in different ways and at different scales — and as technical innovation progresses, so do our construction methods. However, it’s important to note that even though pre-fabrication has existed for centuries, this thinking can be deployed in many different ways and scales, some of which have proven successful and others have not.
Pre-assembly, most commonly known as modular design, has many subsets, ranging from panelization (think Ikea and a kit of parts approach) to volumetric (entire preassembled apartments being shipped directly to the site). Companies are exploring different technologies to take more of the construction process out of the field and into a factory. Why? First and foremost, it is safer and quicker to build elements in a factory. Workers are not scaling the tall heights of buildings as frequently as they’d do onsite, and bad weather isn’t an issue. Also, factories are usually located far outside of dense urban centers so that more materials can be stored and space is horizontally sprawling and abundant. Finally, there are economies of scale associated with purchasing large quantities of materials and building elements that can be held and distributed across multiple projects. Each technique has its pros and cons, and it is an unavoidable truth that there is also no one-size-fits-all approach to every single project in NYC. Regardless, it’s worth recognizing that pre-constructing at least some aspects of any project, no matter the scope or scale, would probably result in gained efficiencies.
There are several materials that lend themselves well to pre-construction, one of which is mass timber. Mass timber is an engineered wood product and is a more sustainable choice because the sections and panels can be made from small-growth trees, which are increasingly sustainably sourced. It’s lighter, easier to manipulate, and more environmentally friendly than concrete or steel, as the amount of energy and carbon released to manufacture it is significantly less. It is also more forgiving on the job site, as it is lighter and easier to cut, drill, and fasten together. It lends itself to prefabricated construction methods because it is inherently made to be assembled like a kit of parts and is more directly translatable from drawing or a digital model to the physical environment. It is currently more expensive than concrete or steel but will likely decrease in cost as it becomes more readily accepted, available, and familiar to trades.
Material selection aside, leveraging advanced methods of project delivery that speed up the process and prevent many issues related to poor design and coordination can alleviate construction cost issues. Let’s revisit the labor cost issue for a second. Reducing workers’ salaries would be challenging, if not impossible — not to mention that reducing blue-collar labor take-home pay in a city as expensive as New York would further exacerbate income disparity and lack of access to quality housing. Plus, the skilled expertise required to successfully deliver a project in NYC warrants increased compensation. But there is still a way to decrease the overall cost of labor: instead of reducing workers’ salaries, we can reduce the amount of time and complexity required to deliver a project, while at the same time implementing strategies that lead to more projects to ensure consistent employment.
To offset this overall reduction in per-project labor cost, local governments can continue to relax restrictive zoning laws that limit density in and around mass transit and alleviate restrictions that prevent the building of, or conversion to, residential uses in commercial districts. Rezoning to encourage growth has been a priority for the last few administrations, and ongoing initiatives can be found here. Concurrently, there has been a post-COVID push to allow for the conversion of underutilized offices to residences. We must push our officials further to encourage transit-oriented development and expand allowances for residential buildings to be constructed in commercial districts. The net result here is less time to execute projects but more projects overall — by relaxing zoning, there will be more opportunity for larger developments and more housing units. Increasing the housing supply across all income classes will help alleviate the current demand problems while maintaining jobs for local labor.
Much of this complexity reduction and coordination must occur during the planning stage of a project, which contractors themselves typically do not manage. Architects must get better at this type of organization and project planning, or at least bring in contractors to assist with logistics planning and project estimating. Architects typically like to maintain full ownership over the design, and contractors are not used to providing early feedback related to design decision-making, which could impact things like budget and schedule. Integrated project teams are a powerful way to provide efficiencies that are not traditionally seen in this industry. This can be done in multiple ways. One example is to leverage different contractual arrangements, where two or more teams work under a single contract, usually design-build or, more ambitiously, integrated project delivery (IPD). Traditionally, there are two contracts — one between the owner and architect and one between the owner and builder. And the contractor is usually not brought on until later in the process.
Design-build involves a single contract holder, typically a contractor, who is responsible for delivering the design and will hire the architect directly. In this scenario, they can more tightly manage the budget and schedule. In IPD, everyone on the design and construction team enters into a single contract with the owner, and they all share in the project’s upside and risk, so it is in their best interest as a team to perform efficiently.
A second, more aggressive method is by fully vertically integrating all project components. A developer may also have an architecture team in-house, or a modular company might provide heavy design support for most of the project. Innovative new delivery models are becoming increasingly popular as companies test ways to improve efficiency. The more you frontload coordinated planning across multiple disciplines, the more you can evaluate all stakeholder considerations throughout the process. When teams are siloed, there is a greater chance of slower communication, confusion over responsibility, and key project decisions being lost in translation. Integrated project teams solve this by having faster turnaround times internally, more vertical planning, and consideration of more project aspects (cost, schedule, and product lead-time are a few examples) throughout the entire process.
Ever-evolving software, augmented reality, and real-time project tracking allow design teams to collaborate and coordinate in real time. Increased adoption and proper use of these tools — which are improving every day — as well as integrated processes, can improve efficiency and reduce change orders. Packaging everything into vertical delivery systems enables more logistical foresight and budget considerations at an early stage of the project. Finally, the later you change a project, the more expensive it becomes — it is much less expensive to change something on paper than it is in the field. By creating a vertically integrated or collaborative system, teams can front-load the decision-making that can hamstring a project if not done right.
Why aren’t these technologies taking hold? How can we incentivize their use?
It is easy to find flaws in the business model of modular construction. For the most part, it isn’t taking hold due to the high startup costs associated with setting up a factory, developing a system, and building a pipeline of work, all necessary to make modular fabrication possible and deployable. In contrast, general contracting, by its nature, has a low start-up cost relative to modular. And because most, if not all, of the labor is executed by subcontractors, general contractors only need to carry employees for management, accounting, site supervision, and other non-direct labor expenses. They can hire or fire subcontractors as projects come and go. On the other hand, a modular factory requires a tremendous amount of capital investment, which only starts to be recouped with scale. There is a chicken or egg problem here — do you need projects to launch a factory? Or a factory to start acquiring projects? The industry is littered with horror stories and bankruptcies related to modular construction, which scares people off. However, that doesn’t mean it should be ruled out entirely. How long did electric vehicles take to develop a successful business model and capture a substantial market share? That industry had countless false starts, and now it is poised to become the standard over the next decade. Modular and prefab construction is already being deployed very successfully in building facades. Although it’s not perfect, the idea of modular construction inherently has a ton of potential, and the more we can incentivize its use, the more it will exhibit that potential.
To mitigate the high up-front costs associated with modular, multiple projects can be bundled to alleviate the high overhead of off-site fabrication. Large-scale private development projects and major public undertakings have the pull and scale to execute this. We should advocate for governments to develop government subsidy programs and incentives that encourage using advanced construction methodologies — as they have done for renewable energy technologies and electric vehicles. We also don’t need to tear down the establishment overnight completely by building everything in a factory, but we can rather work towards a better solution by implementing at least some aspects of a project modularly. More complex modules require more upfront costs, so let’s start with smaller modules and prefabricated systems to prove the concepts, then scale up to larger modules as we refine our approach. It is also important to realize that construction will never be a one-size-fits-all approach, and we should select technologies based on site conditions, local codes, and logistical challenges. We may never be able to do volumetric modular on a tight street in lower Manhattan, but we can use smaller prefabricated systems. And we can use volumetrics in less dense neighborhoods.
Embracing a bit more risk wouldn’t hurt, either. From a developer, builder, or architect standpoint, this would involve taking on more aspects of project delivery and not relying on disparate methodologies. From a government standpoint, fast-tracking the adoption of codes that allow for new systems and materials would allow things like modular construction and mass timber to be more feasible on projects, encouraging their use and accelerating their adoption. Also, more integrated approaches are traditionally frowned upon, and separate entities are typically contracted for each aspect of a project. There are several reasons for this, but it is mainly attributed to a more apparent assignment of liability and the ability of the entities to provide oversight over each other. There are more checks and balances. However, this leads to decreased efficiency due to slower communication and potential finger-pointing. It also leads to a more linear decision-making process, where a project is designed, bid out, and logistically planned. If any of these interrogations raise an issue, a redesign must occur. And remember, making changes later in a project is always more expensive.
This system of separate design and construction entities is engrained in the industry, but there are already examples of the more integrated systems being deployed, specifically on large-scale government and infrastructure projects where logistics, budget, and planning are critical to the success of a project. Plus, using things like modular design and prefabrication is highly technical and beyond the scope of early project planning. However, their success often depends on early-stage adoption of their strengths and limitations. Governments and developers can issue requests for proposals (RFPs) that incentivize both integrated project teams and modular design. This approach can encourage interdisciplinary problem-solving, which is currently less common in the process.
There are many issues that inflate housing prices, but in New York, the impact is among the most negative, both nationally and globally. As participants in the building industry, we can’t fix every issue, but we can make a tremendous impact by refining and streamlining our process, exploring emerging technological advancements, and encouraging our elected officials to implement policies that allow for responsible growth while incentivizing innovation. Through a combination of these strategies, we can be agents of change and make our cities more accessible to everyone.
