Prevailing Wage Bill Would Increase Cost of Housing

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Opinion: Kansen Chu prevailing wage bill would increase cost of housing

By Dave Cogdill |

PUBLISHED: March 6, 2017 at 6:00 am | UPDATED: March 6, 2017 at 11:16 am

California is experiencing a housing supply and affordability crisis with social and economic consequences for communities across the state. Hard working families are feeling the pain as they are forced to go to extraordinary lengths to keep a roof over their head.

That is why it is so hard to understand why Assemblyman Kansen Chu (D-San Jose) would believe that now is the time to inflate the cost of housing by as much as 37 percent. This is precisely what Assembly Bill 199 would do.

AB 199 mandates the payment of prevailing wages on new privately constructed residential housing. This will translate into crippling construction costs that will drive rental and housing prices even higher.

Prevailing wage mandates from the California Legislature have long been a goal of powerful construction unions and were one of the poison pill demands that killed Gov. Jerry Brown’s 2016 affordable housing proposal.

The author of the AB199 represents communities in Santa Clara County, which already has some of the highest housing costs in the  country. Recently, a report by Zillow found that a buyer seeking to purchase a new median priced home in the San Jose region would need to plunk down $192,320 to make the 20 percent down payment.

While the effect of prevailing wage rates will vary by region, Los Angeles passed a ballot initiative in November that included a mandate to pay prevailing wage. Beacon Economics estimates this will increase a project’s total cost by 45.8 percent by increasing labor costs.

Beacon compared current market rate wages against prevailing wage rates in the Los Angeles area and found prevailing wage increases the labor costs of a project by an average of 95.3 percent, with many occupations’ mean hourly rate doubling.

The Business Council of San Joaquin County sent a letter to Chu stating that should AB 199 pass, the cost of a 1,500 square foot home would increase by $75,000. A recent study done for the National Association of Home Builders found that for every $1,000 increase in a California home, 15,000 buyers are priced out of the market.

For these reasons, AB 199 would make projects financially infeasible or exorbitantly expensive.

In California, housing costs are being driven by a severe shortage of housing. According to state reports, California is only adding 80,000 new housing units annually – 100,000 units short what is needed to meet demand and lower costs. Its average single family home costs $440,000 – two and a half times the national average. Rents are also 50 percent higher than the rest of the country, with monthly rents for a two-bedroom apartment in Los Angeles and San Francisco ranging from $2,600 to $4,550.

The effects felt throughout the state include increased homelessness, long commute times and multiple families crowding into single units. Families have to spend a disproportionate portion of their incomes on housing: One third of California households spend more than half their income on housing, forcing impossible choices between food, medicine and making their rent or mortgage.

In the last several years, policy makers have approved a $15 minimum wage, increased funding for individuals on social programs and other efforts to help Californians cope with the high cost of living. Should AB 199 pass, those recent efforts would be undermined by higher housing costs.

Lawmakers should oppose prevailing wage and AB 199 – an enormously bad idea designed to help one powerful special interest to the detriment of other Californians. They must support policies that add more housing while lowering, not raising, the costs.

Dave Cogdill, a former state senator, is president and CEO of the California Building Industry Association. He wrote this for The Mercury News.

Source: www.mercurynews.com/2017/03/06/opinion-kansen-chu-prevailing-wage-bill-would-increase-cost-of-housing/