The Effect of Prevailing Wage Legislation on Affordable Housing Construction

Author: Sarah R. Dunn

Dissertation School: University of California, Berkeley

Abstract:

This research project will address the effects of new state-level construction wage regulation on the production of affordable housing units. The California state legislature recently passed SB 975, which expands application of state prevailing wage law to a variety of development projects previously not covered, including affordable housing. While a number of studies have examined the impacts of prevailing wage legislation on project costs (particularly the impact of Davis-Bacon on government costs), research on the impacts of these wage requirements on residential construction costs, particularly in regards to affordable housing, is presently lacking. Much of the prevailing wage research has shown that these wages are typically set higher than the average market labor rate, which would indicate an increase in construction cost, keeping all else constant. This research will first estimate the magnitude of the expected change in cost, and then project the impacts of such a change on affordable housing production.

The analysis will take one of two primary forms: a cost-estimation methodology using a priori assumptions about cost composition, wage differentials, and factor substitution; or a survey or set of case-study analyses of existing projects to determine the prevailing wage/non-prevailing wage differential already in existence. The first methodology would use construction cost-estimation software in combination with state prevailing wage determinations, occupational wage surveys conducted by the state, and interviews with developers to determine sample project specifications. The second general approach would examine projects subject to prevailing wage requirements. A statewide survey of private and nonprofit housing developers, and/or access to state or federal project cost data, would provide a set of project cost data to which econometric methods could be applied so as to estimate the impact of prevailing wages on total cost.

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