The Cost of Extortion

Timothy L. Coyle
Consultant specializing in housing issues

Whatever some say to justify sky-high fees, design requirements and affordable-housing mandates it’s certain they all do one thing: raise housing costs.  It is said that the fees are necessary to mitigate the impact(s) of new housing on the community.  Yes, but so high?  Moreover, new design requirements locals say are written to conform the development to building and neighborhood standards.  Maybe, but so excessively that they stifle new development?   And, since there is no money for affordable housing why not mandate it and get the builder pay for its production?

These requirements emanate from one source – local government – which reliably insists on some or all of the above be met in order to get the new housing approved.  It rarely matters if there is no nexus between the fees and the alleged “impact” or the design requirements keep changing or that new housing never creates a demand for affordable housing – that need is always there though local governments have done little about it.

All of this has served to make California by far the most expensive place in the nation to build new housing.  Frivolous, unjustifiable fees, for example, can add more than $100,000 to the price of a new home, as do affordable housing mandates, like inclusionary zoning, which do little to increase supply.  And, design requirements are simply pernicious acts of local governments, purposely intended to raise the cost of housing and discourage its development.

But, this all happens before organized labor gets involved.  If they had their way, housing costs would go higher.

Fearing price competition of the private market carpenters, laborers, teamsters and other trades frequently muscle what are called project labor agreements (PLAs) through the city council before the development can be approved.  These PLAs in addition to setting new standards for development, stipulate what wages will be paid to building trades.  And, state and federal law backs them up.  They call it “prevailing wage” law.

Normally, privately financed market rate housing has not been subject to prevailing wage requirements but labor is always bucking to change things.  Indeed, a labor-sponsored bill in the state legislature this year would have expanded prevailing wage requirements to cover most of the new market-rate housing produced in California.

Due to the threat, state homebuilders financed a study to analyze the impact of such legislation.  The study showed that hourly labor costs for residential construction statewide would be on average 89 percent higher if builders were required to pay prevailing wage rates for all residential construction projects – an increase of 37 percent in total construction costs or an increase of more than $32 a square foot.

Let’s see.  For a typical new home, this would result in a total construction cost increase of just over $84,000. That takes the state’s median priced home to just north of $633,000, knocking a few more tens of thousands out of affordability.  Is this really worthwhile legislation?  The answer to that question is just a simple “no” and the bill should not proceed.  Just when California needs more housing – particularly for lower and middle income households – this is one special interest to which lawmakers ought to turn the other cheek.

In fact, as a matter of public policy, prevailing wage laws should be repealed.  That’s what President Clinton and Vice President Gore called for back in the 1990’s to help “reinvent government”, making the case that the competitive market ought to apply to organized labor as well as the private trades.  If it was the right thing to do then, it’s more the right thing to do now.

In this climate of unaffordable housing – and crumbling infrastructure – that seems reasonable and fair.

A copy of the study, by Blue Sky Consulting Group, can be obtained by visiting www.mychf.org/uploads/5/1/5/0/51506457/prevailing_wage_20170824.pdf.

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