CARE Housing Coalition Issues Statement On New Study Showing Prevailing Wage Mandates Increase Construction Costs by 37%, Adds $84,000 to Cost of New Home

SACRAMENTO, CA – The Coalition for Affordable, Reliable and Equitable Housing issued the following statement after a new study revealed that prevailing wage mandates in private residential housing would result in $84,000 in higher housing costs.

“In a time of unprecedented crisis – as communities of color and all Californians are struggling to regain their footing from the housing crash – we cannot afford any more expensive mandates that will starve people of being able to put a roof over their head. Prevailing wage mandates, perhaps will help some members of a politically powerful special interest, but that is only achieved at the expense of every other Californian currently struggling with higher housing costs. The bottom-line is prevailing wage will lead to higher poverty, higher housing costs and make our state’s housing crisis even worse,” said John Gamboa, Cofounder and President of California Community Builders and Vice Chair of the Two Hundred Project.

The report, Impacts of a Prevailing Wage Requirement for Market Rate Housing in California, was funded by the California Homebuilding Foundation and conducted by Matthew Newman, former Executive Director for the California Institute for County Government and former Policy Analyst for the Legislative Analyst’s Office. The full report can be found here.

In his report, Mr. Newman highlights the devastating impacts of mandated prevailing wage on housing:

• Requiring prevailing wage rates for residential construction would increase hourly labor costs by 89% on average, with some parts of the state experiencing increases of more than 125%.

• This increase could translate to a 37% increase in construction costs, or about $84,000 for a typical new home.

• In addition to increasing construction costs, other effects could include a decrease in the number of new market rate homes built, a reduction in new affordable housing units for the state; both of which would result in fewer construction jobs.

 

“These findings are alarming and should serve as a massive red flag to policymakers considering a prevailing wage mandate on residential construction. When extraordinary costs like these are applied to housing, there are only two outcomes: a further reduction of housing supply and massive cost increases for Californians. Both would exacerbate California’s housing crisis which hits middle class families and small businesses trying to retain their workforce,” said Tom Scott, State Executive Director, NFIB California.

The findings of the CHF report, reinforce those by the California Business Roundtable’s Center for Jobs Study in May 2017 that also found troubling impacts of mandated prevailing wage on housing affordability.  Some of the key findings from the Center for Jobs study, include:

  • Dramatically increases the number of Californians living in poverty by another 481,000
  • Higher housing costs of as much as $79,000 per single family unit
  • An increase of $86,000 per unit in a multifamily development
  • Monthly rent increase of as much as $460 per unit in multifamily developments
  • 372,700 fewer jobs
  • $34.2 billion reduction in total California GDP
  • $16.2 billion in lost revenues to State and Local Governments
  • Results in longer commutes and further drive Californians from major job centers as they seek housing they can afford

 

About California’s Housing Crisis:

California is struggling with a severe supply and demand imbalance that is pushing home affordability further out of reach for most Californians. This housing shortage is having a significant impact on households – pushing many out of the communities where they work and forcing households to spend a disproportionate amount of their monthly income on housing.

Research conducted by the Legislative Analyst’s Office shows the only significant path towards bringing down California’s alarmingly high housing costs is to directly address the current housing shortage and significantly increase supply. To achieve this, the Legislature must implement robust reforms to make it less expensive to build in California by reducing fees that help drive up costs and ease regulations that are routinely used as local impediments to new housing projects.

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