How Insurance Costs Make NYC Construction So Expensive

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

So Tracy, everyone is very into affordability these days, and the cost of living and all that stuff. But I think there's all kinds of things you can do and whatever. But it seems like one fundamental thing, which is probably true, is whatever we're talking about, whether it's building infrastructure for public transportation, whether it's building offices, whether it's building houses, there's various costs involved, but one is just the cost of construction. And if the cost of construction is very high, it's hard to imagine affordability improving much on anything. Does that seem fair?

Tracy Alloway (0:57)

Yes, absolutely. I can't really debate that point. But it does seem like construction is this one area where so many different things come into play. So you have the cost of basic materials, which have gone up, especially since the pandemic. You have the cost of labor, which has also gone up since the pandemic. You have the cost of insurance, which has also gone up since the pandemic. You have regulations, which we've done many, many episodes about the added cost from the permitting process for various things. It just seems like it's this bucket where you can throw all these different factors in and then get this, reinforces itself and just makes it even more expensive.

Joe Weisenthal (1:35)

Yeah, totally. Then you hit it with the insurance, but also just cost of financing, because as interest rates go high, that compounds.

Tracy Alloway (1:41)

Yeah, I forgot financing. That too.

Joe Weisenthal (1:43)

That too.

Tracy Alloway (1:43)

It's a big bucket.

Joe Weisenthal (1:44)

It's a big bucket. We know that construction is an area across the economy, not just in New York City, where we talked about it with residential housing. There hasn't been a lot of productivity growth, right? Yeah.

Tracy Alloway (1:55)

There's been no productivity growth, according to at least one paper I read. I think it was a Richmond Fed paper. I will have to go back and check. But it's a really unusual industry in the sense that you haven't actually seen. We don't have robots building houses yet.

Joe Weisenthal (2:07)

We don't have robots building houses yet. So I think we need to learn more. Sometimes you see these viral statistics, they're like, oh, the MTA spent $60 million on building an elevator, or it costs $3 million to build.

Tracy Alloway (2:21)

No, $7 million installing those plastic fins on the subway turnstiles. I'm not even sure that qualifies as construction, but $7 million.

Joe Weisenthal (2:28)

Millions to build a bathroom, which is not fun if you have little kids. All kinds of things. Anyway, we should do more about why it costs a lot to build and maybe whether there's something that can be done about it.

Tracy Alloway (2:39)

Absolutely. Let's do it.

Joe Weisenthal (2:40)

Well, I'm very excited to say we really do have two perfect guests today. We're going to be talking about the high cost of construction, more infrastructure and stuff like that in New York City. We're going to be speaking with Elizabeth Crowley. She's the president and CEO of the Building Trades Employers' Association, also known as BTEA, as well as Michael Capasso. He is the president and CEO of CAC Industries Inc. So Elizabeth and Michael, thank you so much for coming on Odd Lots.

Michael Capasso (3:05)

Thank you for having us.

Elizabeth Crowley (3:06)

Yeah. Thank you, Joe and Tracy. We are grateful for the opportunity to talk today. I represent over 1200 contractors in the BTEA, who are building our skyscrapers, our subways, building commercial buildings, hospitals, schools, about $65 billion worth of work annually.

Joe Weisenthal (3:27)

Tell us about CAC Industries. What's your background, Michael?

Michael Capasso (3:30)

CAC is a public works, heavy highway contractor based in New York City and Queens. We work for the public agencies, Port Authority of New York, Department of Design and Construction, Department of Environmental Protection, MTA, Battery Park City.

Tracy Alloway (3:46)

Did you see the Highline as well?

Michael Capasso (3:48)

Yes.

Tracy Alloway (3:48)

That's amazing.

Michael Capasso (3:49)

How did you know that?

Tracy Alloway (3:51)

I do some research before I come on this podcast. I know a lot of people don't think so, but a little bit. Let me ask the first question. Let's just get it out of the way, but your organization represents unionized workers, and I think your company is also unionized workers. A lot of people are going to hear a high cost of construction in NYC and immediately go to the union factor. What is your response to that?