Excuses for High Construction Costs
I have written many posts about international differences in subway construction costs. They’ve gotten a lot of media attention, percolating even to politicians and to a team of academics. Against this positive attention, there have been criticisms. Three come to mind: the numbers are incorrect, costs do not matter, and the comparisons are apples-and-oranges. The first criticism depends entirely on whether one disbelieves figures given in high-quality trade publications, government websites, and mass media. The second criticism I addressed at the beginning of the year, comparing the extent of subway construction in Sweden and the US. Today, after hearing people invoke the third criticism on social media to defend Ed Glaeser’s remark that it’s possible to cut US construction costs by 10% but not 75%, I want to explain why the comparisons I make do in fact involve similar projects. Some of the specific criticisms that I’m comparing apples and oranges are pure excuses, borne out of ignorance of how difficult certain peer subway tunneling projects have been.
First, let us go back to my first post on the subject: I was comparing New York, where I was living at the time, with Tokyo, Seoul, Singapore, London, Paris, Berlin, Amsterdam, Copenhagen, Zurich, Madrid, Milan, Barcelona, and Naples – all well-known global cities. Going even farther back, before I started this blog in 2011, I first saw the difference between New York and Tokyo in 2008 or 2009, and then looked up figures for London, Paris, and Berlin in late 2009. I was focusing on infill projects in the biggest cities in the first world, specifically to preempt claims that New York is inherently more expensive because it’s bigger and richer than (say) Prague. Until I started looking at third-world construction costs, I thought they’d be lower; see for example what I wrote on the subject in 2009 here.
I bring this history up to point out that at first, I was exceptionally careful to pick projects that would pass any exceptionalist criticism portraying New York or the US in general as harder to build in. With a more complete dataset, it’s possible to rebut most of the big criticisms one could make under the apples-and-oranges umbrella.
Labor Costs
Labor costs are of course high in New York, but also in many of the other cities on my list. The best comparable sources I can find for income in the US and Europe cite income from work (or total income net of rent and interest): see here for US data and look under “net earnings,” and here for EU data. Ile-de-France is about as rich as metro New York, and London and Stockholm are only slightly poorer, all after PPP adjustment.
Moreover, within countries, there’s no obvious relationship between income and construction costs. The US is somewhat of an exception – Los Angeles appears to have the cheapest subways, and is also the poorest of the major cities – but elsewhere, this effect is muted or even reversed. The factor-of-2 difference in income between Lombardy and Campania has not led to any construction cost difference between Milan and Naples. In France, a comparative analysis of tramway costs, showing some but not all lines, fails to find significant differences between Paris and many provincial cities, with far lower regional incomes; moreover, this list omits Lyon, the richest provincial city, where the line for which I can find reliable cost data would be squarely in the middle of the national list in cost per km.
Finally, between countries, the correlation between construction cost and wealth seems weak when one excludes the US. My analysis of this is a subjective impression from looking at many case studies; David Schleicher and Tracy Gordon, formally analyzing a dataset with a large overlap with mine, find a positive but weak correlation. PPP-adjusted costs tend to be much more consistent across countries of varying income levels than GDP-adjusted costs; the latter statistic would exhibit a vast gap between the construction costs of much of Europe and those of high-cost poor countries like India and Bangladesh, the former statistic would show them to be not too different.
What is true is that New York specifically seems to have labor regulations that reduce productivity. Little of this is in citable, reputable sources, but comes from quotes given to me from people involved in the industry. One example given by Michael Horodniceanu, president of MTA Capital Construction, is of a certain task involving tunnel-boring machines, which is done by 9 people in Madrid and 24 in New York. However, there’s a chasm between the claim that the US is more expensive because it pays first-world wages and the claim that there are specific labor regulations in the US in general or New York in particular that raise construction costs. The latter claim is if anything optimistic, since it suggests it is possible to improve labor productivity with rule changes and automation.
Land Costs and NIMBYs
People whose only experience with major infrastructure projects outside the US is reading about China think that the US has a NIMBY-prone process, driving up land acquisition costs. Too many proponents of high-speed rail think that it should go in freeway medians to save on such costs; Hyperloop proponents even claim that the proposed system’s fully elevated nature is a plus since it reduces land footprint. The reality is the exact opposite.
In Japan, as Walter Hook explains in a Transportation Research Board paper from 1994, urban landowners enjoy strong property rights protections. This drives up the cost of construction: land acquisition is 75-80% of highway construction cost in Japan, compared with 25% in the US; for rail, both sets of numbers are lower, as it requires narrower rights-of-way than highways. In Japan, acquiring buildings for eminent domain is also quite difficult, unlike in the US. Tokyo is toward the upper end of rail construction costs outside the Anglosphere, and the smaller cities in Japan seem to be at best in the middle, whereas the Shinkansen’s construction cost seems relatively low for how much tunneling is required.
In the last twenty years, land prices have increased in the US cities that build the most subways, including New York, San Francisco, and Los Angeles. However, Second Avenue Subway had few demolitions, for ventilation rather than carving a right-of-way. New York and other North American cities benefit from having wide arterial streets to dig subways under; such streets aren’t always available in Europe and Japan.
Urban Density
Manhattan is dense. Thus one of the excuses for high construction costs is that there’s more development near under-construction subway routes than in other cities. I say excuse and not reason, because this explanation misses three key facts:
1. While New York is very dense, there exist other cities that are about equally dense. Paris has the same residential density as Manhattan, both around 26,000 people per km^2. The wards of Tokyo where infill subways are built are less dense, but not by much: Toshima, Shinjuku, and Shibuya, where the Fukutoshin Line passes, are collectively at 18,500/km^2. Athens proper has about 17,000/km^2, and most of the under-construction Line 4 is in the city proper, not the suburbs. Barcelona has 16,000/km^2. Paris, Athens, and Barcelona do not appear to have much higher construction costs than lower-density Continental cities like the cities of Germany or Scandinavia.
2. Suburban subway extensions in the US are quite expensive as well. The projected cost of BART to San Jose is around $500 million per underground km; Boston’s Green Line Extension, in a trench next to a mainline railroad, is currently around $400 million, so expensive it was mistakenly classified as a subway in a Spanish analysis (PDF p. 34) even before the latest cost overrun; Washington’s Silver Line, predominantly in a suburban freeway median, with little tunneling, is around $180 million per km. It is to be expected that a suburban subway, let alone a suburban light rail line, should be cheaper than city-center infill; what is not to be expected is that an American suburban light rail line should cost more than most infill subways in Europe.
3. Density by itself does not raise construction costs, except through its effects on the built form and on land costs. Land costs, as described in the previous section, are not a major factor in US construction costs. Built form is, but Second Avenue Subway passes under a wide arterial street, limiting not only takings but also the quantity of older infrastructure to cross. Tunnels that cross under entire older subway networks, such as Tokyo’s Fukutoshin and Oedo Lines, Paris Metro Line 14 and the extension of the RER E to the west, Barcelona Lines 9 and 10, and London’s Crossrail and Jubilee Line Extension, naturally have higher construction costs; in some cases, it required careful design to thread these lines between older tunnels, with only a few centimeters’ worth of clearance. The 7 extension has no more difficult construction than those lines, and Second Avenue Subway is if anything easier. Even the future phase 3, crossing many east-west subways in Midtown, mostly involves overcrossings, as those east-west subways are quite deep at Second Avenue to go under the East River.
General Construction Difficulties
People who defend New York’s high construction costs as reasonable or necessary like to point out geological difficulties; I recall seeing a few years ago a reference to an archeological site in Harlem as evidence that New York has unique difficulties. As with the other excuses, these problems are far less unique than New Yorkers think, and in this case, New York is actually much easier than certain other cases.
The point here is that the presence of urban archeology is indeed a massive cost raiser. In cities with significant preindustrial cores, lines passing through old sites have had to be built delicately to avoid destroying artifacts. For examples, consider Marmaray in Istanbul, Rome Metro Line C, and multiple lines in Athens and Mexico City. While Turkish construction costs are generally low, Marmaray was about $400 million per km, and a project manager overseeing construction said, “I can’t think of any challenge this project lacks.” Rome Metro Line C has been plagued with delays and is around twice as expensive per km as recent lines in Milan and Naples. In Paris, Metro 14 ran into medieval mines at its southern extremity during construction, leading to a cave-in at a kindergarten; a suburban extension of Metro 4 required some work on the mines as well.
Such artifacts exist in New York, but generally only at its southern end, which was settled first. The Upper East Side urbanized in the late 19th century. It does not have the layers of fragile artifacts that cities that were already large in the Middle Ages were, let alone cities from Antiquity like Rome and Byzantium.
Against this, there is the real fact that Manhattan’s rock is schist, which is hard to tunnel through since its quality is inconsistent (see e.g. brief explanation in a New York Times article from 2012). The rock itself is not too different from the granite and gneiss of Stockholm, but is at times more brittle, requiring more reinforcement; contrary to what appears to be popular belief, the problem isn’t that schist is hard (gneiss is even harder), but that it is at times brittle. That said, by the standards of medieval Parisian mines and Roman ruins, this does not seem like an unusual imposition. What’s more, phase 2 of Second Avenue Subway appears to be in Inwood marble rather than Manhattan schist, and yet the projected construction costs per km appear to be even higher; the rumors I have seen on social media peg it at $5 billion for about 2.7 km, of which about 1 km preexists.
There is Always an Excuse
The sharp-eyed reader will notice that with the possible exception of Paris Metro 14, the projects I am positively comparing to American subways are only discussed in one or two of the four above items – labor costs, land costs, density, and geology and archeology. It’s always possible to excuse a particular high-cost line by finding some item on which it differs from other lines. There aren’t a lot of subway lines under construction in the world right now, complicating any attempt at a large-N study. David Schleicher and Tracy Gordon have looked at a few possible correlates, including GDP per capita, corruption perception, and whether the country uses English common law, but there aren’t enough datapoints for a robust multivariate analysis, only for univariate analyses one correlate at a time.
Were the cost difference smaller, I might even be inclined to believe these excuses. Perhaps New York really does have a unique combination of high density, high wages, difficult rock, and so on. If Second Avenue Subway cost $500 million per km, and if above-ground rail lines elsewhere in the US cost like above-ground rail lines in the rest of the developed world, I would at most hesitantly suggest that there might be a problem in forums with plenty of experts who could give plausible explanations. But the actual cost of subways in New York is $1.5 billion per km, and proposed future lines go even higher; meanwhile, multiple at-grade and elevated US lines cost 5-10 times as high as European counterparts. That New York specifically has a factor-of-10 difference with cities that share most of its construction difficulties suggests that there really is a large problem of waste.
New Yorkers tend to think that New York is special. This is not true of the denizens of every city, though London and Paris both seem to share New York’s pathology. The result is that many New Yorkers tend to discount such cross-city comparisons; who am I to put New York on the same list as lesser cities like Stockholm and Barcelona? I was affected by this mentality enough to begin my comparisons with the few cities New York could not denigrate so well. But with further investigation of what makes some subway tunnels more difficult than others, we can dispense with this chauvinism and directly discuss commonalities and differences between various cities. That is, those of us who care about good transit can have this discussion; the rest can keep their excuses.
Pedestrian Observations 
Good analysis, though I was, hopelessly optimistically looking for a “easy answer” to the question as to why infrastructure costs seem so high in the Anglophone world. (Some of your examples seem to suggest this is not the case in the UK but I find London CrossRail and HS2 to be humungously expensive; perhaps LCR is understandable given how complex and ambitious it is, and in the end it will prove its worth.) My “easy assumption” has been that it is a direct consequence of neo-liberalism disavowing almost any role in the process for government except as ultimate payer and in many cases this is fudged in the case of toll roads/tunnels and airports etc where the cost is shunted onto future users, sometimes in unrealistic scenarios of usage/fares that send the project broke. Check out how many toll road tunnel projects in Australia have gone bust; but also note that this is not necessarily either unplanned or a bad thing for the ultimate beneficiaries: Transurban (largely owned by Canadian pension funds) is steadily building a monopoly position in toll roads and they have increased this recently by buying–at bargain prices–those bankrupt projects.
Surely a textbook case is the recent Melbourne East-West Link (EWL), a hugely expensive toll-road tunnel that involves billions of federal and state subsidies (as all PPPs do). Some claim its cost would have been $22 billion. The conservative government refused to publish the cost-benefit analysis because it was so poor. Public servants were furiously leaking contrary advice. This same government rushed through the signing of the contracts just a week before the 3 weeks dead period (“caretaker mode” in which governments cannot legally sign binding contracts or pass new laws) leading up to an election in which the polls showed the government was highly likely to be replaced, the polls showed a big majority against the road, and the opposition were promising to cancel the EWL and instead building some big PT projects. The opposition duly won the election and immediately cancelled the contract; the real cost has never been clear as it could be from $500m (the sum the previous government transferred to some bank account immediately prior to the election) up to beyond $1bn (there have been suggestions the contracts include a $500m penalty cancellation fee on top of usual fees!), without a single shovel being lifted, possibly the most expensive road in history ($1bn for 0 km.):
I should have added that with this financialization of the process there is no motivation or incentive to reduce the overall project cost. Indeed all their fees increase in proportion to the cost.
The other correlate with the Anglophone/Rest of world disjunction is that all the politicians and many of the public-service sector too, in the Anglophone world are increasingly lawyers and financial types, anyone but an expert in engineering or urban planning etc. Indeed there seems to be an inverse law about even having an interest in such things. By comparison, those countries that build the best infrastructure either have relevant professional types in the top administrative positions and sometimes even in top political positions. Like the top Grand Ecoles in France whose graduates populate both public service and politics. The leader of Germany has a PhD in physical chemistry. In the USA they are wall-to-wall lawyers until you go back to Reagan (a B actor!) and his predecessor was a genuine scientifically trained person (Carter) who put solar-cells on the roof of the Whitehouse which were then immediately removed by Reagan. In the UK they mostly have a PPE from Oxford! (Exception was Gordon Brown but he was never an elected PM. Actually Blair was another exception, he was a lawyer! But from Oxford so that’s ok then.) In Australia our previous PM was an Oxford PPE (a Rhodes scholar, same as Bill Clinton who probably did a PPE there too)! While our current PM, also a Rhodes scholar, is a corporate lawyer and former CEO of Goldman Sachs Australasia!
As the old saying goes, the fish rots from the head down.
I don’t think it’s about financialization. The trick here is to look at examples that have English common law but no expectation that politicians have a law degree. In this case, it’s Israel, where to the contrary, few national leaders are lawyers. Netanyahu has a degree in architecture and was in the middle of writing a pol sci Ph.D. thesis when he moved back to Israel after his older brother, a career soldier who their father had groomed for politics, died. Olmert was a lawyer, but Sharon, Barak, and Rabin were all generals, whereas Peres was a political operative his entire adult life. In Singapore, Lee Kuan Yew was a lawyer and Goh Chok Tong has an economics degree, but Lee Hsien Loong has a degree in math and computer science and another degree in public administration. Both of these countries have high construction costs; Singapore probably has the highest construction costs outside the US, judging by how expensive it is there to build a subway line under a wide road next to a forest.
(Incidentally, re Canada, it’s worth noting that while Chretien has a law degree, he grew up incredibly poor, and while Harper has an economics degree, he worked his way up from the mail room of an oil company and only got his degree mid-career. It’s not like the US and UK, where every national leader is a toff or at worst middle-class. France is similar to the US and UK in this: the last three presidents all grew up wealthy, and the previous two grew up middle-class. Nothing like Sweden and its welder prime minister.)
I don’t disagree with a thing you wrote but I think it kind of proves the point. All except for the Anglophone examples show the moderating effect of the culture which is to serve the nation and the whole nation. Even the French cases are not comparable: both Sarkozy and Hollande’s fathers were first-generation self-made men and not in a society where you flaunted wealth (other than living in Neuilly-sur-Seine etc). Even though France has a top elite school system, it still works on a almost-viciously meritocratic manner whereas do we really believe David Cameron would have got into Oxford without his family connections? He wouldn’t have got into a Grand Ecole.
And the Anglo version (the only one, it may have been Austrian in origin but it only took hold in the Anglophone world) of neo-liberalism has a vicious dog-eat-dog ethos that those Oxford types with cold blue blood in their veins could embrace without second thoughts. When I lived there the first time (in early 80s) there were already warnings about financialization (from Maggie’s Big Bang etc) and it had won the day by the time of my second period (mid-90s) such that Tony Blair just continued it. But we see the result today and it is getting worse. (If there is a Hard Brexit I believe they will discover how sterile it is.) It was a further evolution of the early industrial tycoons who quickly shed their origins in industry to live off their investments and have titles and grand country mansions. Earning money by making stuff was declassé. The French (or Japanese or Germans or to an extent, Singapore) have never fallen into that ridiculous rabbit hole. No accident that all the world’s tax havens are Anglophone (Cayman Island, Bermuda, Channel islands, or remnant of empire, Singapore with LKY an alumnus of the LSE) with the two biggest being The City of London and NYC’s Wall Street.
I happened to see the movie Margin Call again the other night, and no accident that they chose the imperious, effortlessly cold cynical bastard head of the company to be played by Brit (playing a Brit in NYC) Jeremy Irons. Perfect casting. (Wasn’t Gordon Gecko’s ultimate boss also a Brit?)
Incidentally, though it may seem nit-picking given the undoubted success of Singapore, there are still quite a lot of people who worry about its sustainability. One gets the impression that half of Singapore (well the young half) would emigrate to Australia (or elsewhere but they are picky) if they could. And as I am sure you know it is in the bottom three of the OECD’s inequality index (along with the USA and Hong Kong, amongst the rich countries).
But to return to your point about the French leaders, in some ways I agree. That is, I think both Sarko and the hapless Hollande (a trained economist) have imbibed too much of the international neo-lib playbook. They have come to believe those who never stop complaining that France will fail unless it embraces all the usual neo-lib measures. France has problems (doh, who doesn’t?) but it seems a very odd point in history to turn to vicious neo-conservative economics just as it is about to collapse (if Trump wins on Tuesday it may well collapse spectacularly). More than most countries (except the Nordics + Netherlands) I still believe most of France including its “elite” (overwhelmingly meritocratic, not inherited) believe in Liberté, égalité, fraternité. The Asian version is more hierarchical and coldly state-corporatist (which makes it very successful, medium-term; curiously the best version is the more attractive hybrid that one sees/saw in Hong Kong.).
And to return to the primary subject here, note how excellent the infrastructure in these various examples—except the Anglophone world (perhaps Canada is the exception? perhaps due to its Francophone heritage?) I believe this is a direct result of trying to run an economy on a purely financialised basis.
France has marginally better intergenerational mobility than the US and UK. It’s at one end of the developed world alongside those two countries and Italy. Canada, Australia, and the Nordic countries (except to some extent Sweden) are at the other end. Other countries are in-between. The data rarely agrees with prejudices such as “France is in opposition to the Anglosphere” or “the US is more dynamic than Europe.” The reality of France is that people from Seine-Saint-Denis or random rural departments aren’t going to end up in the grandes ecoles; a system that rigidly stratifies people based on tests they took at age 18 is rarely going to lead to a lot of social mobility. Evidently, in Sweden you can be a welder and still rise to the top via union politics, which you can’t in France.
I don’t want to speculate on the reason for this discrepancy too much. I want to say that the rigidly stratified system of Oxbridge vs. rest, Ivies (and Stanford, etc.) vs. state schools, or grandes ecoles vs. universities, contributes to social rigidity. The rest of Europe doesn’t have this, and neither does Canada; the good universities in Canada or Germany or Sweden aren’t exclusive. But then Italy isn’t like France, either… Italy has huge interregional inequalities instead, but so do Germany and the UK, whereas the US and France are somewhat less bad. (The income gap between Paris and Nord-Pas-de-Calais is enormous, but it’s still somewhat smaller than the Lombardy-Campania, Oberbayern-Saxony, and London-West Midlands gaps.)
Re tax havens, you’re neglecting Monaco, or for that matter Switzerland, where corrupt Russian and Chinese oligarchs park their money with no questions asked. The US is not actually a tax haven – it has strict reporting rules, restrictions on foreign investment, and at the high end some restrictions on capital expatriation; Rupert Murdoch had to naturalize to be allowed to own a television channel. The US has homegrown oligarchs like the Kochs and doesn’t need Russian oligarchs’ money.
Alon Levy wrote:
I partly agree. That why I wrote that I find the admission to the Grand Ecoles is too rigidly academic and unforgiving. But, while overall the stats no doubt support your claim, it is not an absolute barrier. it is also a bit selective to talk about Seine-St-Denis because it is the highest immigrant community and of North African and African immigrants (33% Muslim) so there are self-imposed cultural barriers too. (Little accident that the first US black president was raised by his sole-parent white mother in middle-class and intellectual background.) Not least consider that the current PM of France (Manuel Valls) and the current Mayor of Paris (Anne Hidalgo) are both Spanish-born to parents exiled in the Franco era. Hardly high-born though doubtless strong-willed and not uneducated. Neither of them are ENAistes which is to say that it hasn’t stopped them rising to the top of French politics. Then there are some true exceptions in the current crop of politicians:
Najat Vallaud-Belkacem, minister in the Valls government:
Fleur Pellerin (born Kim Jong-Suk in S. Korea), also a Valls minister:
OK, she was brought up middle-class in Versailles! But my point is that the common assumption about race in France is clearly not a hard and fast one.
Rachid Dati, minister in Sarkozy government (a prototype Sarkozette) and a mayor of Paris-7.
Even Ségolène Royal who was born on a military base in French West Africa. One of 8 children from a childhood in northern France she didn’t have the kind of advantages you might imagine:
I think there are reasons why these are all women, but another time…
I don’t think it is exactly fair to compare the Nordics who, until quite recently, were very monocultural. Australia is the most successful multicultural country and has pursued a very multicultural policy. But on the other hand I think we had an easier job compared to France with almost no African or North African immigrants (but quite a few from the middle east). I am not pessimistic on these issues in France.
Alon Levy wrote:
Monaco is a low-tax country but I believe that mostly applies to residents. I don’t know how much it is used for corporate tax shelters. AFAIK it is not mentioned in articles on corporate tax evasion or by the Tax Justice Network. But I admit I don’t know that much about it, except that French citizena are barred from enjoying any of those benefits (as part of the agreement France reached with Monaco to allow it to continue to exist.)
Even Switzerland is being forced to become more transparent. The US on the other hand:
Nixon put the solar water heaters on the white house, not Carter, but Reagan did take them down.
Every source I could find in minute or two of Googling says Carter, in 1979.
Ian Mitchell wrote:
I think you have your facts wrong. Here is the official government info site on the subject:
And a report in Scientific American (this has a picture of the panels on the WH roof):
Re the White House solar panels, I was wrong on two issues.
First, I really thought they were early PV whereas they were solar water heaters. This makes their removal even more dumb because solar water heating hasn’t changed much over the decades and is one of the cheapest most energy-saving things a house can do, even in northern latitudes. (In Australia it is beyond question and for a while it was mandatory for all new building until conservatives removed the requirement under pressure from their fossil fuel, property developer and big electricity supplier buddies.) When Reagan said that such alternative energy programs hadn’t saved a single pint of oil he was revealing profound ignorance. (And of course any of his actual space-based Star Wars fantasies would have been dependent on solar-PV.) However if they were PV they would have been pretty primitive and woefully inefficient at that time.
Second, I had thought Reagan had ordered them to be ripped out once he assumed office as a symbolic bit of John Wayne V8 fossil-burning all-American grunt, but that is apocryphal because it wasn’t done until 1986, deep into his second term, and was something of an afterthought to repairs to the roof.
Solar thermal only made sense in places where fuel prices were high. Today it’s cheaper to install PV and run a conventional electric water heater with the PV. If incentives are available it might be cheaper to install PV and a heat pump water heater.
Adirondack wrote:
I seriously doubt that is true (I know for sure it isn’t true in Australia but we do get vastly more year-round insolation.) PV is still inefficient and using its output to heat water is beyond inefficient, no matter how efficient PV becomes. Direct sun heating is very efficient (for about one quarter to one third of a household’s electricity consumption) and the installation is cheap and lasts the lifetime of the house without upkeep. Houses should have (and in Australia, millions do) both PV and solar-HW roof installations. Not only do they save hugely on central (dirty coal) power but also on the very expensive transmission systems (battery storage will be the final piece in such a distributed energy system). One of these days there will be efficient solar-airconditioning that will do the same on an even bigger scale (already are installations–mostly German–but only big ones as pilots).
Solar thermal systems don’t last the lifetime of the house. Unless you are tearing down the house frequently. Here in the States, in nice round hopelessly out of date numbers, PV and a water heater are about half the cost of a thermal system. It might not be as efficient but it’s cheaper to install and saves as much fuel. Cheaper to maintain too, no complex plumbing. Conventional versus heat pump has all sorts of secondary considerations.
Australia is dry. CSIRO has developed evaporative systems, that are very similar to ones used in the American Southwest, that cool a house. Or just run a heat pump on the cheap PV. Or both. Heat pumps can heat the house too.
I don’t agree though I will acknowledge several factors that influence their effectiveness. Initial capital cost, even after subsidies, is about twice a regular electric or gas system. It also is cheapest to install when building a new house which is why mandating it in new builds makes sense. However, without building codes etc property developers and builders just consider it a higher cost they have to pass on or makes their product (house) less competitive etc. False, short-term economics. But of course it pays for itself over time. That is where the comparisons become tricky. You may be speaking from a US North-East or maybe northern European perspective. But I would say in a western states and Mediterranean environs it undoubtedly works –though sometimes other external factors play a role; such as reducing reliance on imported fuels or on building costly central generation. These latter is what propelled Israel into mandating it and becoming the country with the highest penetration. It works well in China, Japan (and eventually most of Asia) and Australia (even in Tasmania which is a surprise). China has the world’s highest number of installations at 30+ m (naturally they manage to cost one tenth of ours!). A problem in the temperate zones is that sunrise is too late and feeble to provide for domestic hot water use in the mornings, thus undercutting the economics. On that point I would also say that average American water use, including hot water, is way over the top so is also a major factor. Effectively subsidizing carbon pollution with too-cheap oil and gas won’t help either.
This is where the state can play a good role when the market doesn’t work. Israel is a case and no doubt China too, and likewise at some point for India with its million small villages not on the grid. Australia has been typically short-sighted (probably similar to the US) by having stop-start policies (usually in concert with Labor/Conservative governments) because while electricity has been historically very “cheap” (coal, so only cheap when not including all the long-term costs) but now it is expensive (or at least caught up with much of the world). Retrofitting our housing stock with solar-HW is more expensive and difficult than it ever needed to be.
When PV was expensive it made sense to put pricey thermal systems in where fuel prices were high. PV systems are a lot cheaper today.
Michael, you’re arguing with a chatbot. Save your effort.
Ah, you reminded me of my response, even if it is to a chatbot in this post-truth world!
The thing is that I doubt that even the bigger subsidies for roof-top solar-PV make sense vis-a-vis solar-hotwater. One understands that these subsidies are to counter externalities which is largely carbon-pollution from most other energy sources, however this is not the case for solar hotwater versus PV which are both carbon-negative. Also the subsidies only appear to make PV seem cheaper, for example by using ten year payback periods (solar HW installations are still working at 25 years in Australia and elsewhere) or false equivalence (for example you’d need two to four times the surface area of PV compared to that for HW). At the end of the day the physics will win the argument: solar-thermal (ie. for hot water) is on average 50% to 70% efficient (and can be 90%) while PV remains under 20% and will struggle to exceed 30% in the future. And further, that efficiency is only of the PV, not of using its electricity to heat water which reduces it further (and this gets worse with less insolation and higher latitudes, later sunrises; it also is the case that using PV to run heat-pumps in such latitudes is even less efficient.).
So, no matter the subsidies, it will never make sense to substitute the much higher efficiency method for the lower one. This is especially the case when the electricity from PV can be put to many other uses in a house for which there is no alternative. The only reason it happens is that there is an aversion to somewhat higher installation costs (though this is not true if you really want to heat all domestic water from the sun; a PV installation has to be about 4 times as big and requires inverters etc.,). Incidentally it makes even less sense–at this point in time–to subsidise electricity storage via very expensive battery systems. Hot-water is a very efficient energy storage system (and in Australia accounts for 28% of energy use) but only if heated via solar-thermal.
As I said in my earlier post, it makes sense to have both PV and thermal on one’s roof. Government subsidies should be more balanced in this regard. However another option is under development: combined systems, called PVT, which has the additional benefit of protecting PV from overheating damage/shortened lifespans (in hot climates like Australia or in fact where billions of the world’s population lives). Here is one example:
The Japanese are also working on PVT.
The problem is that such systems will have a higher capital cost than either system alone, despite the much faster payback period and superior performance (PV efficiency drops with rising substrate temperature, not to mention lifespan deterioration). It’s the same problem with electric cars: Joe Public wants them at the same price as a ICE model even though they will spend no more than $100 a year on the former versus maybe $5,000 pa or more on the latter, for fuel.
(OK, Alon, relax, I am all done on this subject which has been a bit off-topic.)
Actual people with a checkbook in their hands don’t give two shits if the thermal system is more efficient. They care that the PV system gives them as much hot water for less money.
For completion of the Anglophone polity:
John Key, the PM of New Zealand, is a former merchant banker with Merrill Lynch in NYC ,where he was also appointed a member of the Foreign Exchange Committee of the Federal Reserve Bank of New York.
On Canadian pollies:
Stephen Harper … (Wiki): He took up post-secondary studies again at the University of Calgary, where he completed a bachelor’s degree in economics in 1985. He later returned there to earn a master’s degree in economics, completed in 1991.[19] Harper has kept strong links to the University of Calgary. Harper is the first prime minister since Joe Clark without a law degree.
But, the new wildly popular leader, Justin Trudeau: (Wiki) “After graduating, he worked as a teacher in Vancouver, British Columbia. He completed one year of an engineering program at Montreal’s l’École Polytechnique before deciding to quit the program in 2003. In 2005 he began a master’s degree in environmental geography at Montreal’s McGill University and quit this program after one year.”
So it’s obvious, innit? Lots of Americans are saying they will move to Canada if Trump is elected. But really, forget both your candidates, which is a choice between a property speculator/reality tv star and a corporate lawyer, you guys should install Justin in the Whitehouse!
Look at all those respectable programs Justin dropped out of! Much better than Wharton at U Penn or Yale. While you’re at it you should mention his qualifications as camp counselor and as drama teacher. World class CV.
Please take Prime Minister Zoolander off of our hands. Maybe then we will finally get Marc Garneau as Prime Minister.
Given that George Bush and Donald Trump have degrees from two of those schools you mention, let us put aside the notion that their degrees are any guarantees of quality.
I listed those schools because those are the academic qualifications of Donald Trump and Hillary Clinton, respectively. More academic diversity, especially technical backgrounds, would be enviable in politicians but the two current candidates graduated from respectable institutions that are nothing to scoff about.
Just pointing out that it’s bizarre to give Justin Trudeau as an example of someone with enviable credentials for a position as world leader. Drama teachers with Bachelor’s degrees in Fine Arts normally aren’t considered overqualified for the position of Prime minister.
I bring up Trudeau as an example of someone who was born for this position, rather than as someone who worked for it. More examples include David Cameron (a baronet), George W. Bush (son of a president), and Donald Trump (inherited all his wealth). Many other leaders grew up wealthy or close to politics, including Sarkozy, Martin, and Bush Sr., and most of the rest still grew up comfortably middle-class, including Hollande, Chirac, May, Blair, Brown, Obama, and the Clintons. Chretien is specifically an example of a leader who grew up poor, and Harper of one who grew up middle-class but worked his way up from the bottom rather than getting a law degree and being on the insider track from graduation.
Trump inherited all his wealth?? His father died in the year 2000
His father gave him a lot of money starting in the 1970s.
Further update to the professional flavour of world leaders: it seems whoever wins next May’s French presidential elections it will be another lawyer! Both Francois Fillon, who won Sunday’s first round Republicain primary (defeating Sarkozy) and Marine Le Pen of the Front National are lawyers.
Lawyers, property spivs and economists. Save us (and the world)! I think we could benefit from a moratorium on these professions in public life, for, say 20 years or so …
“the Shinkansen’s construction cost seems relatively low for how much tunneling is required”
Sounds like economies of scale for a super-long line
I was thinking of the Shin-Aomori extension, which is just 80 km. In contrast, California HSR isn’t especially cheap, HS2 is lolzy, and the less said about NEC Future the better.
Historically, in the US at least, certain infrastructure was built by private industry, having obtained a franchise of some sort from the government – bridges and railroads (including the original parts of the NYC subway) for example. A good number of them went bankrupt, the Panama Canal, for example, and many railroad companies. Thus, a significant part of the initial investments were lost by the original investors and much of the work product acquired by subsequent corporations picking up the pieces and making a (re)start. As long as the infrastructure idea is cool enough, apparently some people will buy the snake oil (Hyperloop anyone?).
While a government can license or franchise out the right to build something like this, it needs willing investors to pull it off, and if the business goes bust, it can resell the rights if there are still interested parties out there. Once the infrastructure has become institutionalized within some level of the government, it doesn’t work as well. While the Second Avenue Subway might somehow have been a money making proposition for the BMT, if it still existed, the existing situation where the MTA is running a subsidized operation with the rest of the subway makes that unlikely to work out. They are trying that sort of things with toll roads or express lanes and some are getting built, but the jury is still out and apparently the crooks in Australia are finding ways to make it work for them, One does have to wonder if the Donald would find a way for the government to start up big projects and somehow stick other people (like the erstwhile corrupt contractors) with the tab instead of the other way around, as seems to be traditional in the US.
Hillary, on the other hand, seems to be a detail sort of person in the Carter vein, who could be concerned about cleaning up these funny money problems, but it would probably take Elliot Ness or one of the Roosevelts to have any chance of reining in the malfeasance in infrastructure construction. Short of some massive purge, which would probably be a bloodbath, one may have to suck it up and pay the piper and hope that the wasted money circulates happily around the economy and multiplies itself into a more beneficial payback than it started out.
johndmuller wrote:
I would agree except for the part of your statement that I have bolded. The thing is that the financialisation of our economies has short-circuited that mechanism. Not only do the undeserving recipients of the money manage to avoid paying taxes on much, if any of it, they certainly don’t recirculate it in the economy. They put into other financialization products, often offshore, or other things like property that are the only things that can deliver the scale of return they have come to expect.
I’m not privy to exactly what is in contracts for infrastructure projects like say the 2nd Ave. Subway, but I imagine that one could break down the costs into materials, direct labor and overhead. The materials money is clearly going into the economic machine, although potentially into some other country’s (one hopes that it returns in that other country’s purchases of more economically active products than movies, tv shows or Wall St. goodies). The direct labor is a big item which is passing through the hands of reasonably well off and reasonably local construction workers, who can be reasonably expected to keep the money circulating, the only catch being if there is some kind of massive fraud going on with ghost workers or other blatant graft and I’d like to think that while low productivity may be an issue, major labor hanky panky is not so major.
The overhead item is certainly a place where financial (and other) funny business can occur, so if that is what you are basing your case on, we have no real problem. When I worked in the government, contracts were always potential targets of cheap shots by critics, so conspicuous items like the overhead rate were not likely to be out of line; only through gradual creep over time can they get out of hand. Unfortunately, that has probably occurred in these contracts, the only question is how much of a factor is this and where is that money actually going.
You are only correct in that once workers and work actually begins then some of the money flows into the local economy. But as Alon has noted, the cost of labour and the physical work (ie. concrete, steel, tunnel boring machines etc) are not significantly different to other countries like Germany, France, Switzerland etc. We’re talking about whatever it is that accounts for the sometimes many-fold difference in total cost. Alon remains sceptical to my suggestion but I am pretty sure a lot of it is due to the financialisation of everything in the Anglophone world. As I wrote in my first post (and the first post on this article):
On that road-tunnel (EWL) project that was cancelled, upwards of $1.2 billion was swallowed without a single shovel being deployed, or single non-financial worker employed (well ok, there would have been surveying). And without any transparency about where the money went. An awful lot of these nebulous fees wouldn’t exist if the government took overall charge of the project, or if at least there were supervised by senior public servants who had power and incentive to save money. And those kind of fees just keep on rolling in as a project continues. But our governments have been deracinated of any expertise in such matters, and everything is outsourced in contracts. Including any oversight or financial accounting, outsourced to effectively the fox guarding the henhouse.
I don’t think what you’re describing here is quite the same as financialization. For example, Singapore has a strong state that enforces its regulations very tightly. The issue is that it relies on outside consultants a lot (which is not the same as financialization – those are engineering consultants), and is weird about transparency (some things in Singapore are very transparent, but others, like where state pensions are invested, aren’t); ultimately, it shares the English legal system, which may be driving up legal costs. Or it might lead to a political culture of less in-house expertise, but that by itself is not the same as an oversize role of finance. Is Australia, with its $800m/km tunnels, really more financialized than Toronto specifically, where subway tunnels are $400-500m/km?
By the way, one more piece of evidence that outside consultants drive up costs: Japanese-designed projects all over Asia tend to cost like in Japan in exchange rate terms, leading to high costs in PPP terms. The Jakarta subway is $266m/km for a 59% underground system (follow links from here). The Dhaka metro is entirely elevated and is $400 million per km, compounding outside consultants and financing with an English legal tradition. No biggie, Bangladesh is rich, it should be able to afford this, right? 😉
Likely costs are higher for a number of reasons, but “gold plating” is likely an issue, overdesign. I also think lack of experience at transit agencies and state DOTs and the consultants they hire also plays a part.
We have two serious private intercity rail projects planned or underway in the US, All Aboard Florida and Texas Central Railway, it will be interesting how their costs and decision process concerning planning and design work out compare to the public sector or Amtrak. Unlike publicly funded rail projects they have a strong incentive to minimize costs and maximize efficiency in order to be profitable. It might not be possible in the end, but if they don’t try to get every amount of value for every dollar they spend on construction, they will never make any money.
Also there is red tape, every action seems to require a EIS, approval from numerous agencies, it has been reported that a large part of the cost of the new Penn Station tubes under the Hudson is due to paperwork, and the more things are delayed, the more expensive the project gets.
Here in Upstate NY the state DOT (NYSDOT) has run into trouble with the new Schenectady Rail Station, in the year 2000 it was proposed to cost $15m, in the depth of the Great Recession (2009-2010) when the final design was completed and approved in its cost was $15m, but when the construction bids were finally put out early this year (Spring 2016) after years of the state having to lined up every last dollar of state and federal funding… one sole bid came back from a contractor for $25 million!
Since then the state has gone back to the architects for cost cutting redesign, and that eats up more of the original $15m, I forget how much the redesign cost was, but if memory serves it was about $1million. A few weeks ago Sen. Schumer held a news conference at the station promising to find more money, a large part of the funds gone from the 2009 ARRA “Stimulus” and that money needs to be spent by summer 2017, as originally stipulated in the ARRA. An extension will likely be needed since we seem to be far off from shovels in the ground. By the original timeline set last year construction was suppose to be well underway.
“I also think lack of experience at transit agencies and state DOTs and the consultants they hire also plays a part.”
I made the comment before in one of the posts on this topic that balkanization of knowledge (USDOT doesn’t directly manage any of the projects) and generally insufficient learning-by-doing (given the low frequency that any one agency manages one of these projects – not to mention the number of experienced contractors able to bid for them) were my prime suspects for the cost differential.
If that is the case, then it would follow that US road construction costs (interstate and otherwise) would not be out of line with other comparable countries, and possibly even better. While funding isn’t perfectly steady for roads (the ARA obviously provided a nice boost), it is much more steady than for transit, and almost certain there are lots of different projects of different scales under way at all times around the country.
So, does anyone know how US road construction costs compare?
(Another potential comparison is the Water Tunnel 3, which has high NYC costs, but otherwise should be more in line with international costs for similar projects due to its long-term nature and (possibly? probably?) more in-house expertise at NYC DEP.)
US road tunnel construction costs are also horrendous: look at the Big Dig and the Alaskan Way Viaduct, and compare with recent or under construction road tunnels in Madrid, Paris, and Stockholm.
The other problem with the “we build so rarely we don’t have the expertise for it” explanation is that there are small countries that build subways rarely, too. Stockholm built a subway in the postwar decades, then stopped in 1994, and is now building tunnels again; somehow, it still has the expertise. Vancouver, which built a subway tunnel for the first time in 2004 for the Canada Line, unless you count the 600-meter tunnel for Columbia Station, got the project done at costs that are barely above average by non-Anglophone European standards. Denmark opened its first subway in 2002; the project was done at a reasonable cost as well. Finland, which built the Helsinki subway between 1982 and 1998, is now working on a westward extension, which with cost escalation and delays is as of 2014 budgeted at €1 billion for 13.7 km underground (link).
Have you ever seen a construction cost break-down for the Canada Line?
No, I’m just looking at the overall cost and the percent of the line that’s underground.
It’s just intuitively so hard to believe that 9/10 of the cost of subway construction in NYC is waste. It would be great if that were true, because then the solution is easy. Get rid of the waste. I’m sure it’s actually more complicated, if only because the waste is likely due to so many causes. But this reminds me of the Republican plan for getting rid of the national deficit or paying down the debt by eradicating Medicaid fraud. If only it were that easy.
At the same time, you’ve laid out a compelling case that the usual excuses are not the reason. So if it’s waste, how would you suggest we move forward?
If Cuomo appointed you public transit czar in the downstate area, with full powers of investigation and subpoena, what would you do? Where do you suspect this fraud is, and how would you identify and get rid of it?
I think there’s a big difference between domestic federal programs, most of which are transfers, and state and local programs, which involve more direct spending (or outsourcing of same to private contractors), and have more room for waste.
If Cuomo appointed me as czar… I’m not even sure I’d use subpoena power very much, unless the contractors were being opaque about cost breakdown. I don’t think there’s much outright fraud here, just bad procurement rules that encourage incompetence and overcharging. (And it’s completely legal for Skanska to overcharge you if there’s no other bidder!) The main things I’d target are,
1. Procurement rules. No more lowest-bid with overexacting specs to maintain technical uniformity. Contractors who qualify (by having good track record) submit a proposal, which is evaluated based on a mixture of cost and technical merit.
2. In-house supervision. Contractors should be monitored by a dedicated in-house team and not by consultants (and nobody should get to both design and build something).
3. Best practices engagement. US transit agencies range from not doing it at all and only doing it within the US, or occasionally in Canada. There should be permanent contacts at each MTA agency (NYCT, LIRR + Metro-North, Capital Construction) dialoguing with people in Tokyo, Paris, Stockholm, Madrid, and so on. New York is a diverse city with a lot of multilingual first- and second-generation immigrant talent, and in the countries with the more obscure languages, like Sweden, everyone speaks English. This means figuring out things like how many people are required for each task in construction in cities with low construction costs, beyond Horodniceanu’s single factoid.
4. The Sandhogs’ Union. If it’s possible to train them in the New Austrian Tunneling Method and improve their productivity to the point that three people aren’t required to do the job of one, then great. If not, finding new workers isn’t a problem; it’s skilled work, but a strike isn’t as crippling as in operations, and evidently, cities that build tunnels for the first time ever manage to do so at reasonable cost.
5. In places with wide roads and no undercrossings, cut-and-cover. It’s disruptive, but the disruption is short, whereas the mix of cut-and-cover for stations and boring that is more common today leads to longer disruption at station sites and drives up costs. This is potentially relevant to SAS phases 2 and 3, and certainly relevant to Utica, Nostrand, and Northern.
The anecdotes I have re points 1 and 4 suggest cost savings by factors of 2 and 3 are possible, respectively. This probably stacks to a factor-of-6 saving – the few depth-of-recession contracts that cost half as much as budgeted still used the same union labor.
It may not be illegal for Skanska to overcharge you if they’re the only bidder, but it’d sure as shootin be illegal if they were conspiring with their competitors to limit bidding. I can’t be the only one who thinks the nature of the market is conducive to antitrust violations.
Tunnel workers make a lot of money. For a highly skilled dangerous job. Figure out a way to cut back on the white collar leeches and you’ll save a lot more money.
It’s not their wages that bother me, it’s the overstaffing. They had to be forced to accept TBMs, because they were used to dynamiting. They’d lose fingers, but dynamiting is more labor-intensive.
They get dead.
https://en.wikipedia.org/wiki/New_York_City_Water_Tunnel_No._3
They use TBMs too
If NYC tunnel construction is anything like NYC building construction, there are plenty of elevator operators and crane oilers paid to stand around all day and maybe push a button because of an agreement that came out of a jurisdiction fight sometime back in the 1890s.
This points to an NYC-specific problem. (Not even present upstate.) And I think you’re right. It’s a general problem in construction *in NYC*.
Thing about unions:
Worth noting that US construction costs (for regular buildings) are average, if not cheap, by world standards.
Yep. I don’t think it’s a general problem of unions; I think it’s specific to the New York sandhogs, driving up the subway-to-el cost ratio (after all, the AirTrains weren’t thaaaaaat expensive).
it’s all the evil union members fault even though their wages and benefits where a small fraction of the projects cost.
It’s not actually the sandhogs who do the tunnel drilling; apparently their part of the job is the closest to on-budget. It’s the *ohter* construction contractors… haven’t figured out why. Notice the huge delays on station finishes, escalators, etc.
It’s not about cost overruns, but about absolute costs. The sandhogs’ part involves several times more workers than is necessary, because they’re unfamiliar with NATM and refuse to learn.
They spent 600 million dollars on ARC. No tunnel worker had been anywhere near it. Very few blue collar workers at all. It’s not all the fault of evil featherbedding union workers.
Certainly not all! I think the sandhogs’ union is one of several factors behind high New York costs. Could partly explain New York vs. rest of US (but New York also has strict lowest-bid rules, which California and such don’t), but not US vs. rest of world.
yet you keep harping on it.
A few random thoughts here
-Basic supply and demand should be thought out here – there are several dozen large infrastructure and hundreds of medium sized ones going on in the country at any one time. There are maybe 3, 4 large firms that regularly submit bids for these. You do the math.
-On the “technical specs” issue raised, I think it’s even broader than that- there is a risk-averse approach to government procurement generally in the US that causes firms to spend 10s of thousands of $ on individual bids, retain massive surety bonds, Surely that both has a direct affect on the bid costs and an indirect affect by forcing out companies that aren’t as competitive (or companies getting bought out…).
-I think the eminent domain issue shouldn’t be poo-poo’d. I do not know enough about Japan’s laws, but here A) eminent domain procedure tends to overvalue property taken and B) our non-urban core areas have fairly high land values because of sprawl.
-On the apples to apples issue, how do we know that US projects aren’t wrapping in lots of other side projects? Given the relative austerity of infrastructure funding, it is often tempting for the scope to creep in the guise of “mitigation”.
-Last, cities that were destroyed in WWII tend to have much more logical utility routing given post-war rebuilding. That might be worth looking at the difference between- the utility relocation is a huge $ part of even small projects.
Just addressing a few of your points:
– While non-urban land values in the US are higher due to sprawl, built-up land values are lower for the same reason. In other words, the US builds subways and light rail in neighborhoods that tend to be less dense than their counterparts in cities with denser urbanization like France, Japan, and South Korea.
– The US is not the only country where projects get bloated with side projects. A large fraction of the cost of the Nice tramway was streetscaping. But this is more a problem of light rail than of subways, where the mitigations tend to be much smaller.
– In Europe, cities that were destroyed in WW2 don’t really have lower construction costs than cities that were not. On the contrary, most of the countries I specifically praise for cheap construction, including Spain, Sweden, and Switzerland, were neutral in the war. France, too, survived the war with intact cities (Paris was an open city in the German invasion). German cities were heavily bombarded and rebuilt, but Germany is also tied with the Netherlands for Continental Europe’s highest construction costs.
I’m pretty sure at least 50% of the expenditures on NYC Subway construction projects is waste.
There’s culture of chiseling in NYC. Witness all the landlords who scammed money out of the MTA by blaming the MTA for their buildings falling down — even though the buildings were already structurally unsound. Witness the Department of Buildings letting them *get away with it*.
Even as near as upstate, we’re doing better than that. The new Niagara Falls station had to deal with obstreperous Customs and Border Patrol, difficult negotiations with Amtrak, rebuilding of a bridge while trains crossed it daily, a historic property, and (honest to god) *radioactive waste* on the site, and I think the price is reasonable enough. When bids came in too high at Schenectady, they redesigned it. Rochester is coming in roughly on budget with a rather nice design. There just doesn’t seem to be as much tolerance for bullshit chiseling.
>>>>>2. In-house supervision. Contractors should be monitored by a dedicated in-house team and not by consultants (and nobody should get to both design and build something).
So who is designing it? Does Skanska design the bid, and a competitor builds it? The problems I see with this are:
(1) Competitors are incentivized to make baroque and expensive designs, and the builders will pay this forward on the next project they design, so that everyone gets a nice expensive project to build. I assume it costs the same amount of $ to design an expensive project as a cheap one.
(2) If one firm designs it, and a second firm has to build to that specification, isn’t this the same as making bidders bid to a design with overexacting technical standards?
>>>>>5. In places with wide roads and no undercrossings, cut-and-cover. It’s disruptive, but the disruption is short, whereas the mix of cut-and-cover for stations and boring that is more common today leads to longer disruption at station sites and drives up costs. This is potentially relevant to SAS phases 2 and 3, and certainly relevant to Utica, Nostrand, and Northern.
I can guess your opinion on this from your post, but I assume you don’t think much of the argument that cut and cover on Second Avenue is unfeasible because of all the pipes, wiring, and assorted infrastructure lying below street level?
Ad 2:
1. Now, that is an antitrust violation…
2. Not quite, because the builders can make changes. The point of this separation in Madrid is that underground construction always has surprises, and an independent builder is more likely to modify designs as needed than a builder who’s invested in the original design. The contracts are all itemized, so there are agreed-upon cost items for changes, without Tutor Perini-style change orders.
Ad 5, cut-and-cover subways include utility relocations – even the original wave of construction from 1900 to 1940 involved extensive relocation of pipelines. By the 1920s, city apartments had electricity and piped hot and cold water. I think the SAS construction in the 1970s was cut-and-cover as well; that’s why they’re not planning to reuse the tunnels in Chinatown for Phase 4, when that begins construction in 2146.
You should look at the flexible design and construction process London Underground has done for the proposed upgrade of Bank Station. The interchange has seen as 60% increase in passenger numbers and with strong growth expected they wanted to build new station entrances , better interchanges, which included new escalator shafts and a new platform tunnels so the old one could be used as a new pedestrian concourse.
They set up a competitive design and construction bid, where each company could propose how they would build it and also suggest and changes they could think to save money or improve the design. The winner proposed closing a small street to use a tunnelling access point, which reduced construction times and proposed a change to add a travelator tunnel and improved interchange.
BTW, David Cameron was one Vernon Bognador most ablest pupils at Oxford University (to use his own words), so to imply that Cameron was some high born son of landed gentry who got special favours is just your own prejudice (Besides his father was just a rich stockbroker and his mother the daughter of a Baron (does not even count as member of the peerage) It’s his wife that is from the Posher family.
.About 25% of members of Parliament were educated at Oxbridge and in 2014 59% of the Cabinet were.
It’s beside the point, it has nothing to do with the cost of big civil projects.
MR M CURRIE 2016/11/06 – 17:28
Hah, you convinced me …. not!
Your last sentence in particular was a bit of a killer! Well, your penultimate one (a mere Baron!) was pretty good too. (BTW, it’s Bogdanor. I guess you didn’t go to Balliol; Boris would never have got that wrong.)
Of my four PhD students I supervised at University of Oxford, none were posh though none were low-SES either. All were bright. But possibly not bright enough, because they were the suckers (like myself) starting careers in science whereas we all know the truly clever ones, who will end up running the country and maybe the universe, don’t do science* or anything so mundane (indeed they’d possibly be surprised ‘their’ Oxford even teaches such things!). There is plenty of meritocracy in Oxford these days (my students being examples) and the real problems lie in an absence of equal access earlier down the education ladder, but there is still plenty of the kind of thing that produced (until a short time ago) the PM (Cameron), the Treasurer (Chancellor, Osborne) and Mayor of London (now Minister of Foreign Affairs; Boris Johnson), all of whom shared schooling at Eton (the palace’s royal school, literally built up against the walls of Windsor Palace) and Oxford where all three also were members of the exclusive Bullingdon Dining Club (notorious for smashing up posh restaurants in drunken riot, after which rich daddies are called upon to write cheques to the owners to make it all go away without convictions or blemished records; we won’t even mention Dave’s porcine incident.).
The thing about “Dave” is that he will go down in infamy (in best Benny Hill style: “infamy, infamy, they’ve all got it in for me”) for his utterly incompetent and irresponsible management of the EU issue.
You won’t get me to resile from my deep conviction that the class system, as exemplified by this, remains alive and well and totally toxic to the UK’s future well-being.
*Of course there is the paradox/exception of the sainted Maggie, formerly of Somerville College, Oxford, and a chemistry graduate. But after a short stint in the flavour-testing department of Unilever, Walls Icecream division, she got out quick-smart and married an industrialist with money to pursue her real calling: politics so as to ruin the UK once and for all! (She was a little Englander and hated the EU with a passion that only the upper-classes or those who aspire to their values, do. Cameron unintentionally brought about her dream.)
I actually respect Boris more than I respect Cameron. Boris *knows* that he’s an upper class twit.
Has anyone compared the overhead that different cities’ contractors pay over their employees’ wages? That includes taxes, employer contributions to different government programs, and contractual obligations specific to individual projects.
Second, Individual projects can be constrained in ways that increase their total cost. In New York State, I am aware of one particularly egregious example. A project cost 50% more than what was likely needed, solely because of constraints placed on it at the time its funding was allocated.
Which project? I’m curious.
“The Chinese Pizza Explanation for High Transit Costs in the USA”
If I go to any town in New Jersey, even real hard-luck towns where not much is going on, I can always get a reasonably-nice slice of pizza for a couple of bucks. When I worked in China in 2002, I couldn’t find pizza anywhere. When I eventually found pizza, I paid like $10 for a slice, and despite the extraordinary price, it was still absolutely terrible, like a parody of good pizza.
Why is this? Can Chinese guys not make pizza? Of course they can. No. It is because, in 2002, there was no expertise or broad market for making pizza in China. Therefore anybody who wanted to make pizza had to accomplish quite-difficult things, like finding cheese, which was also almost unattainable in China at the time, which drove up the cost.
Building transit in the USA in 2016 is like making pizza in China in 2002. It is a niche product that requires artisanship that doesn’t exist. It can be done, but only at high cost, and with very variable outcomes. When you realize this, you appreciate that yelling at the Chinese pizza guy to lower his price will not get you more or better pizza. Quite the opposite: lots of people have to pay a high price initially, and eventually more guys learn to make pizza, the quality improves, and the price will come down.
the same skills to build railroads are the same skills used to build …. railroads…. we have an extensive high capacity freight system. The same skill that are used to build highways.
Most of those railroads were built a hundred years ago though, and the experience is hardly applicable. In those days, all sorts of malarkey was used to acquire rights-of-way, there was no environmental review, rival crews engaged in open brawls to be able to lay track etc etc. As for highways, US highway construction is also very expensive, although for some reason it seems to get more of a pass than transit projects. Second, only some subset of highway construction expertise is transferable to transit construction.
No, actually, a lot of construction types are directly transferable between transit and roads. To wit:
1. Outside urban areas, elevated construction is the same either way: pylons, concrete base. Doesn’t really matter if it gets train tracks or asphalt on top. Width matters, but that’s easy to scale up and down.
2. Tunneling technology is similar. The presentations I’ve been reading about large-diameter TBMs tend to use both highway and rail tunnels as examples.
As for highways getting more of a pass than rail, in Boston the reason the politicians are reticent to support the North-South Rail Link is precisely that they identify it as too similar to the Big Dig. In reality it’s a much easier project because the hard parts were already done in the Big Dig – during tunneling, they reserved space under the highway tunnels for rail tunnels, in which there’s dirt and nothing more difficult to dig through; thus, construction costs should be low, except for the portals. But in popular imagination, it’s still Big Dig 2.0.
You mention presentations about large-diameter TBMs, which for transit I take to being akin to being large enough to drop the requirement to excavate station shells. Would you share these, if possible?
Click to access UCA%20Seattle%2009%20rev%201.pdf
As far as large-diameter TBMs go, aren’t the problems with SR 99’s replacement in Seattle because of the use of large-diameter TBMs?
Yes, large-diameter TBMs are expensive to use and prone to cost escalation; Barcelona L9/10 went over budget by a factor of 3 (and is still below-average per km by European standards, though not by Spanish ones). The reason to use them is that sometimes it’s better to eat the cost of large-diameter TBMs than to eat the cost of station caverns, which can be higher on deep lines that have to go under entire older systems.
Re large-diameter TBMs here is a suggestion about a proposed tunnel under Sydney Harbour:
Henry, the Seattle Big Dig project uses *the largest diameter TBM ever* — most large-diameter TBMs are smaller than that.
Also, most of its problems were actually caused by other things. Incorrect mapping of previous boreholes meant they hit metal which wrecked the machine. The geology is actually particularly nasty, being compressed glacial till underneath fill. It was a bad place to dig a deep bore tunnel. Manhattan has easy geology by comparison.
They go out and fix things. Or upgrade things. Shift whole corridors.
https://en.wikipedia.org/wiki/Heartland_Corridor
aith a nice list of links to similar projects
Clearly there are rail projects going on, I’m just saying that the scale is vastly smaller than in e.g. Europe, or Japan. Even that Heartland project is small. And it is also, for the most part, in the middle of nowhere, i.e. where stuff is easier and cheaper to do. The big $ comes when you have to do stuff close to people.
It’s too bad Norfolk isn’t Manhattan. There are people there.
You say it’s a niche product, but in countries that are building subways for the first time, the costs aren’t outrageous. Look at Copenhagen, or at Helsinki. Even Tel Aviv’s costs, which are outrageous by European standard, are much lower than American costs.
The other issue is that even though the US is spending tens of billions of dollars on subway and commuter rail tunnels and on light rail, the costs don’t seem to be decreasing – on the contrary. Somehow, New York’s experience with SAS, the 7 extension, WTC PATH, Fulton Street, and East Side Access is not making Gateway any cheaper. The experience with the JFK and Newark AirTrains, both of which only cost 50-100% more than els should rather than 600% more, is not making the proposed airport PATH extension any cheaper (on the contrary, that extension is maybe 3 times too expensive).
New York spent a lot of money from the 1960s to the 1980s building subways: Chrystie Street Connection, 63rd Street Line and tie-ins, the underwater parts of East Side Access, Archer Avenue Line. It also kept building water tunnels. The result: intransigent labor that’s wedded to the labor practices of three generations ago. Similarly, Boston expanded the T both underground (Red Line to Alewife) and in trenches (Southwest Corridor), and San Francisco and Washington built entire subway systems from scratch. With the experience of having built tens of km of subway in difficult conditions, Washington is building a mostly above-ground suburban extension for $180 million per km, and its plans for separate Blue and Yellow Lines run into $600-800 million per km; the Bay Area is planning to spend $500 million per km on the suburban BART to San Jose tunnel. The Stockholm Metro is barely half the length of BART or Washington Metro, and yet in Stockholm, new subways with difficult underwater portions cost less than above-ground Washington Metro extensions.
If anything, it’s the American cities with less experience building subways – Los Angeles and Seattle – that are currently building tunnels for $300 million per km rather than $800-1,700 million per km. This strongly suggests that far from gaining more positive experience, US cities that spend more on subways gain difficult unions and bad regulations.
How many evil union members got paid from the 600 million that was pissed away getting ARC to the point where union members go out and dig some more holes to get more information for the final plans?
The examples of Copenhagen or Helsinki support my original argument rather than refuting it. Pizza is relatively inexpensive in Scandinavia, just like in the rest of Europe, because it is easy to get hold of cheese, pizza ovens and guys familiar with flinging dough. Contractors can use the same German tunnel-boring machines and Polish crews to build stuff in different countries, and know that the EU legal framework will protect them.
The USA is an entirely different story. A different legal structure, multiple competing regulatory authorities and a lousy track record with transit (e.g. ARC cancelation/Baltimore red line cancelation/Purple Line haircut). The indigenous industry can do something, but it isn’t cheap or all that great because the rate of transit investment is just too low. In this sense, the USA is like China. In China, they have guys who will work for fēn, no labor unions and a total disgregard for environmental or property rights. Yet the cost of transit construction is still surprisingly high. Why? Because the indigenous transit construction industry lacks the competence or competitive pressure to do it cheaply.
My sense is that there are two ways we could reduce transit costs in the USA:
1. Vastly enhanced trade deal with the EU, to allow free flow of goods and labor, and provide protections against BP/VW-style confiscatory court cases – this would allow European contractors to more easily deploy their expertise in the US.
2. Spend several trillions more on transit in the USA to stimulate greater competition and expertise in the transit construction industry.
There _might_ be some value in intra-USA comparisons but I seriously doubt that these international comparisons are of great value, even when the projects really are comparable. There are structural reasons why things cost different amounts in different countries.
1. The Chinese pizza analogy is about demand and not supply. In the early 2000s, the market for pizza in China was tourists from developed countries, so prices were high. Now that the market includes more downscale tourists and locals, prices are lower. The analogy is that in the US, there’s no real political pressure for cost control. If the feds and New York and New Jersey are willing to pay $24 billion for 5 km of tunnel, that’s what the consultants will come up with.
2. The cost of transit construction in China is trending up, not down. Last decade, subways got built for $150-160 million per km. Today, the costs in the richer cities are closer to $250 million per km. (Both numbers are adjusted for PPP; the inflation adjustments are a few years apart, but dollar inflation is low enough that numbers are comparable.) Somehow, all this construction has not created more indigenous expertise that would reduce costs. In South Korea, construction costs have not increased, but have been stable for decades: look here and put the numbers through an inflation calculator. How come the lack of experience in the 1990s did not prevent Korea from building sub-$100m/km subways? By the 1990s it was well past the phase when it shot protesters, but it still had built less subway route-km than the US had since the 1960s. (It has since overtaken the US, but in the 1990s it still didn’t have as much experience.)
3. Transit construction workers are local, EU freedom of movement or not (and when Copenhagen was building the subway, Poland wasn’t even in the EU). The TBMs are imported, but Second Avenue Subway used a German-made TBM, too, with the same international consultants and contractors that are used this side of the Atlantic. Dragados and Skanska and PB and AECOM are involved in projects all over; somehow, costs are higher in the US. The quality of the labor force varies widely, but it’s not that Americans are genetically stupid; it’s that the sandhogs in the US don’t know and don’t want to know how to use modern techniques. This is why cities with strong sandhog traditions like New York have to make do with the productivity of the 1930s and wages of the 2010s, while Los Angeles can just hire based on modern staffing needs and build subways for $300 million per km.
4. You talk a lot about inconsistent funding, both here and on Twitter, but why would it matter? Building nearly 200 km of rapid transit, as in DC, should teach the local labor force how to do it right, regardless of whether there was a risk of cancellation. You don’t forget skills that you learn just because you might have lost your job in the past. Risk of cancellation might encourage excessive bids out of caution (although at least in New Jersey, I think it’s the state that ate the losses, not the contractors), but then, why are the bids so high in New York City, where the political environment is the most certain? Nobody was going to cancel SAS, and yet, Skanska was the only bidder on some contracts. Going forward, the city and state have shown willingness to build SAS Phase 1, the 7 extension, and ESA, the last one despite large cost overruns, and anti-spending Republicans have no power statewide; there should be zero uncertainty in case there’s funding for SAS Phase 2. And yet, the MTA refuses to name a budget officially, and unofficially people talk about $5 billion.
5. The EU has large internal cost differences. Spain consistently builds more cheaply than everyone else, and to a lesser extent Scandinavia, Italy, and Greece are also pretty cheap; the UK and to some extent Germany and the Netherlands are more expensive. Is this because Germany doesn’t have indigenous expertise? No, it’s because Germany builds compromised projects, same as the US. The legal structures also vary far more between European countries than between US states: even within the civil law world, the French, German, and Scandinavian legal traditions are different, with legal codes that don’t resemble one another. Add in the UK and you get yet another legal tradition, one that despite common EU regulations produces costs closer to those of the US and Australia than to those of France and Germany. This is something that European rail activists are aware of, and in Germany they do push for adopting practices from lower-cost European countries, it’s just falling on deaf ears, just as in the US. Americans look for excuses not to listen to foreigners, Northern Europeans look for excuses not to listen to Southern Europeans.
6. The US has spent a very large sum of money on transit. It’s gotten little out of it, but if you’re trying to convince me that there’s a correlation between high construction costs per km and low subway km built per capita, that’s not really in dispute. The bigger question is whether the US is spending less money, and it isn’t: the big MTA capital projects since the early 2000s have totaled around $22 billion, of which nearly half is ESA; Paris is spending more but not much more, and more than 100% of the difference is future Grand Paris Express and RER E extension (around $37 billion combined) and not past Metro projects (of which the longest, M14, was about $2 billion). Tokyo’s recent subway projects have been a bit less; London’s have been a bit more, and will grow even more if Crossrail 2 begins construction, but somehow all this spending isn’t preventing London from having Europe’s highest construction costs. In contrast, outside Spain, the low-construction cost cities haven’t been spending huge amounts of money consistently.
How much sandhog labor and benefits are in the ten billion for East Side Access? Or the Second Avenue Subway.
How much did it cost to respond to the Archbishop when he claimed it would cause the cathedral to collapse? Or the apartment owners who were shocked that there would pedestrians on the sidewalk in front of their building?
trying to be quick:
1. If somebody could build Gateway (or any of the other projects you like to cite) for half the price, NY and NJ would snap up the offer. The problem isn’t that NY & NJ are complacent and will pay any price, it’s that there is nobody around who can do it for a cheap price.
2. Not an expert on the Chinese economy, so can’t comment on why prices are escalating there, although there are a number of plausible explanations: higher wages, greater pushback against land grabs etc. As for Korea, I assume they are more willing to use Japanese contractors, who are expert. To be fair, I have particular concern about how reliable the statistics are with China and Korea.
3. Stop blaming the Sandhogs. Please. Europe has a strong labor tradition and transit construction costs are low. Labor unions are banned in China and costs are unexpectedly high. Presence of strong labor unions is probably a second or third-order factor.
4. I agree that the funding environment for transit in the US is always uncertain and it’s a terrible place to do business if you’re a contractor.
5. Spain is mostly empty. It’s easy to build rail through a desert. Of course Germany & Netherlands are different. It’s in large part a function of how many people are around. And the UK is different again, because of the botched rail privatization. With any project, there is a matrix of factors that contribute to cost. That’s why it’s so hard to make superficial comparisons of costs.
6. Relative to its size, the US has spent hardly anything on transit. The car is king.
1. Of course they’re willing to pay any price. Has any single political heavyweight said “Gateway is worth X but no more” where X < 24 billion? When has anyone in the US ever said that of any public transit project? Maybe the Green Line Extension in Boston qualifies – maybe. Moreover, Gateway has a list of unnecessary elements, led by Penn Station South, that contribute to the cost despite having zero to negative transportation value, and are not thrown away because of agency turf battles. The consultants are designing a gold-plated project because that's what the politicians want.
2. The problem with the "higher wages" explanation is that there isn't enough of a difference between first- and third-world construction costs. Nor can wages really cancel out with experience – if they did, why would China, the single country with the most recent experience, not be so cheap? As for Korea, if it used Japanese contractors, JRTR would be talking about it in its articles about Seoul; it isn’t, and on the contrary is negatively comparing Seoul’s rail network with Tokyo’s. (Nor would anyone familiar with Korean protectionism think it would use foreign contractors.) The places that do use Japanese consultants, like Indonesia and Vietnam, have high construction costs, because those consultants build based on Japanese experience and not third-world experience.
3. Most of Europe has a strong tradition of labor unions participating in efforts to improve productivity. (France is an exception, but France relentlessly pursues automation, e.g. of subways, explicitly to prevent strikes.) There are highly-paid sandhogs here, who are familiar with the modern techniques of construction, whereas in the US, they’re not. This is not me making things up; I’m channeling second-hand sources about it, saying that there is no chance of using NATM with the quality of the sandhogs in New York, and that the US is technologically backward when it comes to tunneling.
5. Why would Spain having low density cheapen rail construction in Barcelona, one of the densest cities in the first world? For that matter, the US has even lower population density than Spain, and yet it’s so expensive. Conversely, if high population density increases urban rail construction costs, then why is Italy cheap, and why is Belgium about average? When you come up with excuses that you contrast with “superficial comparisons,” at least try to come up with excuses that pass a smell test. “Botched privatization” does not pass this smell test, because TfL is publicly-owned and yet its costs are Europe’s highest; in contrast, several European cities privatized transit operations, e.g. Stockholm, and do not have such high costs.
6. “Relative to its size” doesn’t really matter. You gain experience from transit projects, not transit projects per capita. Small countries know this and try very hard to learn from bigger countries’ experience (which isn’t the same as “EU is EU”; the US too could dialog with French and Spanish agencies if it wanted to). They piggyback on regulations instead of trying to reinvent the wheel. Sweden has a unique rail network situation for Europe, with US-style heavy freight, so for rail signaling, it developed a variant of ERTMS for some of its low-density heavy freight lines, dialoging with US freight railroads. In contrast, despite the PTC mandate, the US rail industry never even thought to adopt the already-under-installation ERTMS system, even in places where the rail network is similar to that of most of Europe, such as the Northeast. This isn’t “EU is EU”; it’s more “Europe is willing to learn from other Europe, the US isn’t willing to learn from Europe.”
There’s a whole lot to unpack there and we’re deep in the weeds. I think I’m just going to make one more comment.
RE: Sandhogs. I think you have this burning idea that there is loads of waste in US transit construction, most obviously evidenced by the high wages, and low efficiency of the Sandhogs (I’m taking this as a given. I’m not sure it is particularly true.) I think you need to step back, take a more meta view and ask ‘why are the Sandhogs inefficient?’ ‘why are transit projects poorly designed?’ I don’t think it explains everything, but I think you are grossly under-estimating the importance of agglomeration/guildsmanship effects. Building complex transit is not a commodity, it requires great skill, and that skill is unequally distributed around the world. Phrased another way, it is classic “Hanlon’s Razor”. Where you perceive ‘excuses’ (conspiracy), I see only incompetence. The whole thing can be explained by basic incompetence. But you can’t cure incompetence by shouting at people.
Your idea of what agglomeration is comes from thinking the EU is a harmonious society or something, in which Denmark uses Polish sandhogs. It comes from thinking if only the US spends a few more trillion dollars on $1b/km subways costs will totally go down, despite evidence to the contrary. You talk about incompetence, but then insist that the cure is to spend more money on the incompetent. If evidence doesn’t accord with your theory, you dismiss it as cooked books because Everybody Knows Korea is Corrupt or something.
It’s also really ironic that you tell me to take a meta view and ask why there’s poor design. I write a lot about agency turf battles, poor industry practices, and indifference to anything that was invented outside the US. The ESA and ARC caverns were direct results of New York’s total ignorance of and indifference to how things work in transit cities that are serious about their commuter rail. This isn’t something the US can learn by just splurging on more caverns. On the contrary: the best global practices can be learned by having a small in-house team that’s tasked with knowing what these practices are (as it is, agencies like the MBTA don’t even try to keep track of best US practices in operations) and can make recommendations. In contrast, spending more on caverns first forces a train operating pattern that uses the caverns, and second tends to promote engineers and politicians who build caverns rather than ones who build through-running networks.
On a completely different note, not only is pizza cheap in Stockholm, but also it’s a bit cheaper than in France, even though food is generally very expensive in Sweden. The only restaurant that will make you reliably good food at dinner for under 100 kronor are brick oven pizza places. The brick oven pizza restaurants aren’t run by immigrants from poorer countries than the Indian and Chinese restaurants, they just serve a wider mass market; people expect them to be cheap, so they are, whereas people expect Indian food to be fancy, so it’s priced as such.
I will point out that Boston was simply and plainly getting scammed by contractors on the Green Line extension. Having cancelled the contracts and told the contractors that they were scamming the government — in public, in the newspaper — I expect Boston will get better results from the rebidding.
Does New York City ever do this? Call out Skanska in the newspapers and blacklist them from bidding?
Heck, for an example in NYS, when the Schenectady station bids were over budget, the contractor was rejected and the contract was resegmented. This is pretty standard practice but the MTA only started doing it a few years ago.
Even Hawaii, with zero management experience building train projects (and not much building highways either), and an extremely captive market for the local construction firms, has rejected bids, restructured bidding, and gotten liquidated damages out of poor-performing contractors on the HART project. Does the MTA ever manage to hold contractors to account?
On the other hand, the HART construction costs are lolzy.
I can’t think of any comparable projects on isolated islands in the middle of the ocean. You really would expect everything to cost a lot more (and it does). *Everything* has to be imported…
But they aren’t letting themselves get ripped off on *top* of that. NYC is letting themselves get ripped off.
I think this is the highest-priority issue in NYC. If the ripoffs were stopped and a culture of honesty was developed, people might find solutions to the other cost problems. As it is, everyone in the business in NYC is chiseling and nobody is interested in fixing the cost problems.
The Okinawa Monorail cost about $85M/km and is not that much less isolated; Honolulu will cost nearly three times that.
Well the presumptive 45th President has talked about a big infrastructure program (which was in fact HRC’s official policy too) but somehow I don’t think this is going to be Metro systems or HSR (unless Hyperloop grabs his imagination). So, even without the extra cost of building infrastructure in the USA, one wonders about the financing. More debt seems inevitable but perhaps this is still a glass half-full? Though his own party may be less enthusiastic?
This is the dude who promised to build a wall and make Mexico pay, right? Any connection between what he says and what he does is incidental.
In reply to Alon Levy 2016/11/09 – 06:12
Agreed. But infrastructure may be one of the few spending measures that the Congress might agree to. And they will go bananas about the bonfire of red tape. You might soon have a natural experiment to test some of these ideas.
Here is what today’s Construction Dive editorial wrote:
The chances that Trump will know which regulations to slash (Buy America especially!) and which not to (prevailing wage laws, quotas for hiring minority contractors) are pretty low.
Which rock have you been under tor the past year and half. He rants about how imports are destroying jobs for Real Americans ™ fairly frequently. It would go over really really well with his base to find out we are importing …. anything…
We think we know that the Donald knows how to come out ahead of government paperwork (e.g. income tax, labor laws, bankruptcy, guest workers, real estate, . . .), so all he has to do is connect his usual lawyers to his vast new army of lawyers (Justice Dept, etc) and viola, everything is legal.
He also appears to enjoy seeing his name on things, so all someone has to do is propose something like the TRUMP Transit Tunnel to Staten Island (which he won with something like 60%) and it would be as good as done – even before the (UnTrump branded) Gateway Tunnel.
There has been little or no ‘Jawboning’ aimed at union workers or contractors from politicians since ‘Saint Ronnie’ canned the air traffic controllers. One imagines the Donald to be very good at that sort of thing, so if he bothers trying to save money on labor or contracting, he should do better than the rest of the political class has done recently.
Fascinating read. I’ve done some research on the topic as well and would be interested in anyone’s response.
Fascinating paper. The most interesting result is that *single payer health insurance* like they have in the UK would massively cut construction costs. Paying for health insurance for workers is super expensive.
Except that the UK has Europe’s highest construction costs. And Switzerland, with the most privatized of Europe’s health care systems, has pretty low costs.
Switzerland’s system isn’t remotely privatized in the sense in which any normal person uses “privatization” in the rest of the world. The system literally works like this: if one of the “private” companies makes more profit than allowed by the government, it’s transferred to the companies which make less profit than allowed by the government.
They’re not operated as businesses. It’s essentially communist; those in China would recognize it.
There’s a lot of it about, ie. misunderstanding of health systems. For example in France the majority of healthcare delivery is actually by the private sector. Costs are contained by there being essentially the state as single-payer; actually even that is not strictly true; the state sets the maximum charge w.r.t. to reimbursements for all medical procedures. Doctors and hospitals can charge more, and some people may take private insurance to cover it (many people take insurance to cover the “gap” between what is charged and what the state system reimburses).
Another IMO misconception w.r.t. Switzerland is that it has low taxes. It has quite low federal taxes with cantonal taxes being higher, and together total to about 34%. So not all that low but ostensibly lower than most European neighbours. However there is compulsory health insurance that costs about 11.3% of GDP (high but similar to France & Germany) so I would say that should be added to the 34% because it really is the same as the French, German et al. taxes that are levied within income tax regime. Thus Switzerland total tax is really ≈45% and hardly especially low.
I have two plausible explanations for why US construction costs are higher than they should be.
1. Construction Inflation. A quick google search shows that construction industry inflation is something between roughly 3-5%, above the standard inflation rate of 1-2%. While anecdotal, I’ve seen higher inflation projections used; my hometown school district is using a 9%(!) yearly inflation estimate for future school construction. Of course, schools aren’t subways, but the main inputs are somewhat the same – large amounts of materials and labor that is predominately male and generally has trade-school knowledge instead of college knowledge. This leads to my second point, which is:
2. Lack of relevant workforce training programs. As a story, suppose you’re a high school senior with a 3.2 GPA who is okay at one sport, has dabbled in a few other clubs, and likes to fix and ride dirt bikes on the weekends – you’re decent, but not spectacular. Obviously, the Ivies aren’t in the cards, and even tougher majors at a state school like engineering or philosophy are just going to put you through hell for four years just to graduate in the lower half of your class, if you do at all. As an ‘average’ student, trade and construction programs may be a solid fit – many jobs are stilled enough that you need to be able to study diagrams, rulebooks, blueprints and the like, and also require you to communicate reasonably well with other employees and customers; they aren’t ‘entry level’, but you also don’t need to be the next Einstein to work these jobs.
The problem is that there aren’t that the paths into skilled construction and trades jobs are rather limited and undesirable. While trade unions will pay you to be in apprentice programs, my understanding is that it’s actually rather hard to get in to these programs if your family doesn’t have a history of union membership. Apprenticeship programs tend to bind the employee to a specific union that they may disagree with, limiting their ability to change jobs in the future.
The other option is community college, which have a better track record of providing trades programs, but tend to be rather limited. Looking at a cursory level, the biggest advantage of going to community college in many places is the ability to make one more competitive for a union trade program, which puts you just slightly ahead of where you started. My personal opinion is that both community college and apprenticeship programs are at a disadvantage to four-year colleges as they lack the ‘extras’ like extra-curriculars, romantic prospects, etc, and require the student to make a rather abrupt transition from dependency from their parents and the school system to independence that many tend to find daunting. My policy preference would be to expand community college apprenticeship programs and create ‘Industrial Arts’ departments at state four-year colleges that would be able to compete with union apprenticeships and provide an easier way for students to explore the construction and trade industry (or switch out if they discover that it isn’t what they expected). More skilled trade workers lower labor costs compared to today by increasing the supply of qualified workers while also providing knowledge agglomeration benefits for the industry as a whole.
The other labor supply option is to expand retraining programs to Rust Belt and Appalachian states that previously relied on manufacturing and resource extraction for middle-class jobs. Suppose West Virginia coal mining pays $30,000/year, New York subway mining pays $100,000/year today and $60,000/year with more labor competition. If West Virginian coal miners could be retrained to be New York subway miners, the miner benefits as his wages will be higher in New York than in West Virginia, West Virginia benefits as the miner would likely send money back to their family, reducing poverty, substance abuse, and dependency on the welfare system, and New York benefits from the higher supply of qualified workers, pushing labor costs down which in turn pushes down construction costs.
Granted, the above explanations only really explain high absolute costs, not high relative costs.
This fell into my inbox.
And one proposal to contain costs:
This article leaves no doubt–construction costs are way too high in the US and all the obvious culprits like labor costs, tunneling complexity, and typical developed country regulations and acquisition processes are not to blame. So what is to blame? And what is left to blame?
I planned public construction projects in the US for a number of years and my experience and the process of elimination tells me the problem is a fragmented regulatory and political system with multiple levels of review (not a bad thing per se) and often competing or mutually exclusive requirements (often a terrible thing for schedule and efficient planning and construction). The problem isn’t too many regulations or requirements per se but the lack of a coherent set of regs at the federal level and across the federal, state, and local level. Think of the extra administrative headache not to mention cost to meet the archaic Davis-Bacon labor wages, which is a vestige of the 1930s Great Depression, or waiting 6 months for another state or federal agency or quaisi-agency to issue/deny a permit. And with so many choke points including ligitation potentially from all three levels of government, a private individual, or an organized group the whole infrastructure planning and acquisition process feels strapped together in an ad hoc fashion. The solution has to be a more centralized approach to infrastructure planning, regulation, and construction, which probably requires a more centralized and thus more coherent and accountable political approach like our more efficient peers across the oceans. It would mean concentrating more authority for infrastructure in one level of government (local, state or federal–take your pick) or limiting the number of agencies involved and thus giving those agencies left more authority and accountability. This is, of course, my personal opinion.
Jacob Hensel wrote:
More eloquently put and with much more credibility but that is essentially what I said (somewhere on this thread I think). It is what unites the Anglophone world: the deracination of public institutions and agencies to properly plan, monitor, control costs, trouble-shoot etc. Everything is outsourced from the initial feasibility studies (that usually set the pattern re “viable options” and via grotesque cost estimates) to planning and monitoring progress or compliance. Any problems then they give a fat contract to the likes of KPMG to do a report which is directly equivalent to paying the fox to report on why the egg yield has taken a sudden downturn in the henhouse. Nations like France (and I presume Germany etc) and the big Asian countries (Japan, China) have senior public servants (and even politicians) such as permanent heads of relevant ministries who have been trained in the relevant specialities in the Grand Ecoles, ie. as engineers, public administration, economics, etc. Instead, in the Anglophone nations all top public service positions have become political appointees on contract and subject to the whimsy and political partisan whims of politicians and others (lobbyists, think-tanks, media barons etc). This was one of Thatchers toxic changes to political culture and it has happened more recently in Australia (in the 90s under John Howard). But none more so than the US which is currently going thru the astounding replacement of the top 4,000 people in the executive arm of government, ie. the people who actually run the federal government. Worse, none of these people know if they will be in place (providing they don’t upset any of the above) for more than 4 years, so you know, long-term planning … not so much of a priority.
……………………
Alon, I heard your interview this morning on ABC-RN (Australian Broadcasting Commission-Radio National), or half-heard it as it was early morning and I was still half-asleep before I realized it was you. The interview will be online as a podcast
Oh, that interview was recorded months ago; for some reason I thought it would have been aired in October.
Perhaps it was aired in October. As I say I was only half awake. This may have been one of those end-of-year review things.
OK, here it is. It was in October:
http://www.abc.net.au/radionational/programs/breakfast/are-elon-musk-visionary-plans-the-future-or-hot-air/7904094
Are Elon Musk’s big picture plans the future, or just an elaborate marketing scheme?
Download audio
Wednesday 5 October 2016 8:06AM (view full episode)
https://cdn.ampproject.org/c/s/amp.businessinsider.com/second-avenue-subway-cost-nyc-infrastructure-2016-12
Another great article on the NY infrastructure saga with clear examples of how different transit agencies aren’t cooperating and political pressure from a relatively small number of constituents lead to repeated bad design decisions and compromises that explain much of the SAS cost overrun. Again, the solution seems to be concentrating more authority in fewer agencies/politicians who have constituents in a larger geographic area a la greater Newark/New York.
Another possible contributor to uniquely high US construction costs is the Davis-Bacon Act, which requires employees on federal projects to be paid higher-than market wages. The following study shows that this directly adds 22% to the wage costs of federal construction projects.
Click to access DavisBaconPrevWage080207Final.pdf
My suspicion is that this law has an even bigger effect in terms of limiting the number of bidders for government projects. If the wages you pay are 22% higher than market rate, you won’t be competitive for private-sector projects. And if you pay market rate, it’s not practical to suddenly raise your employees’ wages in order to bid for a government project. So my suspicion is this segregates the marketplace into a handful of government-project contractors and a larger number of private-project contractors. And the former group is small enough that it’s essentially a monopoly.
At first pass, the 22% figure looks inflated. The average across each job category is 13%; as far as I understand, they got to 22% by weighting average wages per the BLS and average prevailing wages differently across metro areas. If there’s more federally-funded construction in richer regions, then this inflates the apparent gap between prevailing and market wage.
Alon, do you have an average fraction of the costs of such big transport projects that are accounted for by wages of the people actually building the thing? Ballpark. Is it 50% or 10% …
The study says 50%, which doesn’t seem obviously wrong to me.
SAS phase 1 was $4.5B over 10 years, so if half of that was construction wages that’s $225M a year. How many workers was that spread over on average? The work site photos tended to make it look like there were dozens or maybe low hundreds of workers involved at most points during construction, not thousands.
50% in on-site construction wages seems very very high for a civil engineering project. Much of that $ is equipment, concrete, and professional services. 50% might be reasonable as a percent of hard costs for building housing but not a civil engineering project.
Question is where is the waste? Is it in the middle management? Is it in the financial instruments? The materials? Excessive number of workers? All or some of the above? What else?
1. Excessive number of workers.
2. Suppliers – reportedly there’s some mob involvement in New York construction supplies; it’s also legitimately harder to get supplies into Manhattan since they have to be trucked from Jersey.
3. Consultants, rather than in-house designers.
4. Change orders – why do it once when you can do it twice? More money for the contractors this way.
5. Overbuilding – full-length mezzanines, stations built by mining caverns rather than cutting and covering, unnecessary scope like Penn South.