A brand new study by Smart Cities Prevail shows that linking prevailing wage standards with proposed reforms to streamline new housing development would close the affordability gap, save state and local governments tens of millions of dollars annually, and disproportionately benefit communities of color.
Overall, the study notes that it takes 13% more workers today to match the residential housing output that California enjoyed just twenty years ago. This steep decline in productivity has been matched by a 25% decline in inflation-adjusted blue-collar construction wages (the median wage is just $35,000 per year) and housing prices that have soared as high as 54% in the Bay Area.
“A productivity renaissance will be necessary to produce housing units in the numbers that will noticeably shave what Californians pay for housing,” said study author Alex Lantsberg. “Studies have repeatedly shown that the best way to realize that goal is by incorporating prevailing wage standards.”
Prevailing wage is a minimum wage for blue-collar construction work that reflects local market rates for different skilled crafts. Long associated with stronger economic outcomes and more local hiring, most research shows that prevailing wages have no significant impact on total project costs because they promote higher skilled craftsmanship. This triggers increases in productivity and efficiency as high as 15%, reduced reliance on taxpayer funded public assistance programs, and prevents workforce shortages by helping to fund the apprenticeship programs that are used to meet California’s construction workforce training needs.
Using industry standard economic impact analysis, the study notes that if California’s multi-family residential construction industry resembled the rest of the construction industry on wage standards, it would:
- Increase incomes of blue-collar workers by more than $1 billion.
- Boost state and local tax revenues by at least $55 million.
- Save taxpayers at least $30 million on public assistance expenditures.
“Fully 40% of California’s blue-collar construction workers now qualify for taxpayer subsidized housing and these workers are mostly people of color,” Lantsberg added. “It’s clear that failing to incorporate prevailing wages into reforms that streamline housing development will only exacerbate the affordability gap for the workers who build these units—particularly in high cost coastal communities.”
With the Affordable Care Act facing an uncertain future, Lantsberg’s analysis shows that 38% of full-time, blue-collar construction workers currently have no health care coverage and their Medicaid reliance is twice the national average for non-supervisory production workers.
According to Economic Census data, California’s 2014 Affordable Housing Cost Study and other federal data sources, construction wages and benefits comprise just 15% of total residential housing costs—substantially less than contractor earnings and developer fees (18%), and less than half the cost share of equipment, materials, fuels and purchased services (34%).
Importantly, Lantsberg notes that neither labor costs nor materials have driven the increase in California’s housing prices. Since 1992 the construction industry’s gross operating surplus, or profits, have increased 50% more than either materials or construction labor.
“The suggestion that labor costs hinder the construction of more housing supply is simply not supported by the facts or the financial realities of the industry. With housing prices and profits soaring, the industry is well positioned to invest in productivity and affordability for its own workforce. We can make good progress towards both objectives by incorporating prevailing wage standards into a housing development streamlining package.”
Alex Lantsberg, MCP, AICP is a Research Analyst with Smart Cities Prevail, a leading construction industry research and education organization. Alex holds a Masters of City Planning from the University of California, Berkeley and was admitted to the American Institute of City Planning in 2013. Lantsberg has co-authored numerous economic impact studies, including research analyzing the economic impact of prevailing wage laws in California and across the country, the public costs of wage and benefit restructuring and the economic impact of minimum wage.