Some of you may recall my post on the high bids in the MTA Capital Plan here. I recommended waiting until the housing bubble deflates, and lower prices were available, before accepting any bids. The price of wood and copper has already fallen. Today Bloomberg (the company, not the Mayor) reported “Cemex SA, the world's third-largest cement producer, may report profit fell for the first time in three quarters as a slump in U.S. housing hurt sales.” Cement must be produced locally, but the inputs to cement will be falling in price. If construction continues to boom in New York, and falls elsewhere, new producers may also be tempted to enter the New York market. Notes Bloomberg “The slump in the U.S. housing market, which accounted for 23 percent of Cemex's revenue last year, hasn't kept the company from seeking to expand there.” Lots of cement will be used in the Croton Water Filtering Plant. So why, from what I read in the newspaper, is the federal government pressuring the city to hurry up and award a contract to the only remaining bidder at a price way above the estimates before the price goes down?
If governments had any sense, they would bank windfall revenues in booms and spend on infrastrucure in busts, when the construction industry needs the worst. Instead they do the opposite — borrow heavily to ramp up construction in booms, paying top dollar for shoddy work, and cut back in busts. The City and MTA should stop building and start banking. Sooner or later a bust is sure to come.