Alex Lantsberg, a research analyst for the national nonprofit Smart Cities Prevail, recently penned an op-ed in the Los Angeles Times that makes the case that payment of prevailing wages for residential construction projects in California would actually help boost affordable housing across the state.
According to Lantsberg, U.S. Census Bureau data shows that the profits of the private residential construction industry have grown 50% faster than the cost of labor or materials since 1992. During the same period, the inflation-adjusted wages of California’s blue-collar construction workers have declined 25%. The median annual wage for all construction workers is just $35,000 statewide, and only $30,000 in Los Angeles County.
Medicaid reliance among construction workers is twice the national average for those in similar work categories. In California’s biggest cities, 42% of households supported by blue-collar construction work qualify for housing subsidies.
For immigrant and minority construction workers, the news gets worse. They make up most of the construction workforce and they are earning only 70 cents on the dollar — on average — of their white counterparts with the same skills.
A broader mandate for prevailing wage, says Lantsberg, would make a positive difference in these shameful statistics, and the consensus among researchers and economists is that it would have no significant effect on the cost of construction.
Lantsberg also cites the recent comments of the Republican majority leader of the Indiana House of Representatives who acknowledged that his state “didn’t save a penny” in construction costs by eliminating prevailing wages on publicly funded projects. Similarly, when the city of Carlsbad, CA did away with its prevailing wage rules, Lantsberg says it found that savings were “hard to ascertain.”
In situations where prevailing wages have been introduced — specifically, on school construction projects in Michigan, Kentucky and in British Columbia — before and after comparisons revealed no statistically significant effect on total project costs.
The reason is simple. The government’s Economic Census shows that wages and benefits represent just 15% to 23% of total construction project costs. In other words, builders have room in their budgets to increase wages and benefits, to adopt the prevailing wage. When they do, they attract higher skilled workers, which in turn triggers improvements in productivity and efficiency on the job site, which offsets any increase in spending on wages and benefits.
In fact, Lantsberg suggests a likely reason why California’s housing supply hasn’t been keeping pace with demand is because the industry’s productivity is in decline. It takes 13% more workers today to match California’s construction output of 20 years ago, according to state Department of Commerce data.
It comes down to fundamentals. To boost housing supply enough to stabilize or reduce prices, we need to work smarter. To work smarter, we need to invest in skilled workers. To recruit and retain sufficient quantities of these workers, there has to be an investment in training and paychecks workers can live on and even use to rent or buy the housing they build.