London’s much lower labour costs are the only reason why London's construction sector is not the world's most expensive according to the new research. New York’s construction workers are earning an average of £53 per hour – nearly 70% more than the £32 earned by builders in London.
Construction costs in London are the second highest in the world and are rising at 5% a year. The capital is now close to eclipsing New York as the world’s most expensive place to build, despite labour costs in the US city being almost 70% higher than those of London .
In London, a “ready supply” of construction workers from other EU countries has helped to limit wage increases, says Turner & Townsend.
London’s construction costs now average averaging nearly £2,300 per square metre. At £2,283 per m2, London’s average construction cost is second only to New York’s – which at £2,372 per m2 is the world’s highest. Both cities have seen construction costs rise by 5% in the past 12 months, with the report predicting that both will see cost inflation continue at the same rate over the next year. Both cities are experiencing similar property booms, with £70bn forecast to be spent on construction in New York during the next three years, compared to £62bn in London.
The findings are from a study of construction costs in 35 global markets conducted by the programme manager Turner & Townsend. The city also has the UK’s highest rate of cost inflation at 5% and is starting to overheat, with prices in northern England predicted to rise by 3% next year.
There is a risk of further price escalation in London as demand levels outstrip capacity in key trades.
Demand in the residential and commercial sub-markets in particular is keeping a strained supply chain at full stretch, according to the research.
The International construction market survey 2015 analyses input costs – such as labour and materials – and charts the average construction cost per square metre for both commercial and residential projects in the 35 markets. It measures average input costs and calculates the average cost per m2 of building a range of construction projects, including high-rise apartments, city centre offices, hospitals, schools, warehouses and shopping malls.
New York labour is heavily unionised on large projects, with trade unions currently enjoying a resurgence of strength given the volume of work. Despite its high cost, New York’s labour force is highly productive - weekend working is commonplace and contractors have a more efficient approach to logistics, says Turner & Townsend.
Turner & Townsend UK managing director Jon White said: “Construction costs are influenced by a matrix of different factors, from the level of competition for tenders to the availability of building materials and skilled contractors. Input costs are key, with labour accounting for around 40% of the total cost in London.
“The comparison between London and New York is a tale of two booms. Both cities have powerful financial sectors and are seeing steady price inflation amid intense development in both commercial and residential property.
“But despite its enormous labour cost advantage, London’s overall construction costs are barely any lower than New York’s. The UK construction industry has made great strides in expanding its capacity to meet booming demand, but there continue to be skills shortages in several UK regions. The sector as a whole has more work to do to improve efficiency and productivity.
“For investors and developers with global expansion plans, having accurate construction cost data from international markets is key to identifying where the opportunities lie. Our research shows that demand is outstripping supply in the UK and tender pricing is likely to remain volatile as a result.”