While Gov. Jerry Brown has resisted expansive proposals to address Californians’ basic need for affordable homes, he’s now pushing to fast-track housing projects by curtailing local zoning and environmental regulations if a developer aims as few as 5 percent of units to lower-income households.
Labor advocates suggest that developers who would benefit ought to pay their workers “prevailing wages” – a minimum that reflects local market standards. Some claim this plan can work only if contractors are free to undercut local wage standards.
But is the best way to build our way out of California’s housing affordability crisis to stand by while residential builders drive down wages of people who actually do the building?
California’s blue-collar construction workers’ inflation-adjusted wages have fallen 20 percent since 1990. Despite a 45 percent increase in demand between 2012 and 2015 for carpenters, carpenter wages fell, according to federal statistics. Today, nearly four out of every 10 California tradespeople qualify as low-wage workers and three out of 10 receive Medi-Cal. “Fair market rent” for a one-bedroom apartment in Los Angeles County consumes more than 40 percent of the monthly income of a worker who hangs drywall in new downtown L.A. apartments.
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The sharply declining pay of construction jobs ripples throughout California’s economy. Two out of every 10 new jobs created during the current recovery have been construction jobs, which help set wages paid to other blue-collar workers.
In a 2014 study, we examined prevailing wages in California’s construction industry. Our findings mirrored the overwhelming research consensus that prevailing wages do not increase overall project costs, but do result in stronger local economies, more local hiring and less reliance on taxpayer-funded public assistance by construction workers.
Additionally, this research shows that increased spending on prevailing wages for more highly skilled workers is largely offset by higher worksite productivity and less spending on such things as fuels and materials. Since blue-collar construction labor comprises less than 20 percent of total development costs, it is mathematically impossible for prevailing wages to have the damaging effect on project budgets that opponents often claim.
But there are clear benefits to workers and taxpayers.
We estimate that if California’s multifamily residential construction resembled the rest of the industry on wage standards, worker income would increase by more than $1 billion, state and local government coffers would grow by $55 million a year and public assistance payments would decrease by at least $30 million per year.
In the continued absence of prevailing wages, the biggest winners from the governor’s legislation would be housing developers and the owners of out-of-town contracting companies while taxpayers would have to pick up the tab for increased spending on public assistance, plus hundreds of millions of dollars in low-income housing subsidies each year.
So long as our government provides landowners and developers with a streamlined path to profitable development, it is equally entitled to ensure that taxpayers and working families benefit as well.
Kevin Duncan is professor of economics at Colorado State University-Pueblo and can be contacted at firstname.lastname@example.org. Alex Lantsberg is a research analyst with Smart Cities Prevail in San Francisco and can be contacted at email@example.com.