New study minimizes impact of prevailing wage on affordable housing construction

Jan. 25, 2018 -- A study that is about to be published by the Berkeley Planning Journal says that when it comes to building subsidized affordable housing, the prevailing wage is responsible for only a minimal increase in the overall cost of such projects.

Senior Research-Analyst Researcher Scott Littlehale of the Northern California Carpenters Regional Council put the prevailing wage cost increase on affordable housing projects financed by tax credits and other public subsidies at 5 to 7 percent.

Littlehale’s study added improved statistical models to build on past research to reach his conclusions. His work counters prior prevailing wage studies that offered outlandish, prevailing-wage cost increases of up to 37 percent or more on affordable housing projects.

According to Littlehale, the prevailing wage premium pales as an affordable housing cost driver compared to other factors. Chief among them: inclusion of parking structures, 12 percent; and design and engineering fees and complexity, 13 to 14 percent.

Littlehale’s paper said that agencies can get the most out of affordable housing investments by building more units during downturns in the business cycle. Building bigger projects can reduce costs according to economies of scale, and reducing local impact fees also helps keep final price tags in line.

Besides the prevailing wage, Littlehale’s study gave new perspective to the question of the relative costs of using non-profit vs. for-profit developers. Previous estimates put the increase related to non-profits at up to 10 percent. Littlehale’s research found that non-profits are only 5 percent more expensive than for-profit builders who are presumed to be more experienced and better capitalized.

Previous research has long documented how the prevailing wage reduces cost on public construction projects by creating greater efficiencies. Projects get done on time and on budget, thanks to the hiring of higher-skilled and better-trained workers that come out of joint labor/management apprenticeship programs. The more complex the project, the greater the need for the best construction workers in the business.

They know that once prevailing wage projects are finished, they’re done – the result of premium workmanship. Also, they reduce social costs; when workers are paid a livable wage, they are less likely to apply for food stamps or housing vouchers of their own.

You can read a pre-publication draft of the Littlehale study here: https://www.dropbox.com/s/orsdpoha4j2q4b5/2017_Littlehale%20revisiting_CA_Affordable%20Housing%20Costs_BPJ_forthcoming.pdf?dl=0

Also:

Last year’s affordable housing labor cost analysis by Alex Lantsberg: https://www.smartcitiesprevail.org/wp-content/uploads/sites/24/2017/03/SCP_HousingReport.0314.pdf

An Economic Policy Institute analysis of previous studies on the impact of the prevailing wage on affordable housing and other projects:

http://www.epi.org/publication/bp215/

University of Utah economics professor Peter Philips’ landmark study on the prevailing wage in Kentucky:

http://www.faircontracting.org/wp-content/uploads/2012/11/Low-Road-Detour.pdf

Myths and facts about the prevailing wage, according to SmartCitiesPrevail.org 

https://www.smartcitiesprevail.org/myths-and-facts/

 

                                                     --Andy Furillo

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