The California Chamber of Commerce is opposing a job killer bill that will further exacerbate the already-problematic housing affordability crisis in California.
If enacted, the bill, AB 199 (Chu; D-San Jose), will drastically raise the cost of housing, thereby making projects financially infeasible or exorbitantly expensive.
This bill eliminates the long-standing residential exemption from prevailing wage rates, thereby making private, market-rate residential development a public work project for which a prevailing wage would be paid.
AB 199 is scheduled to be considered March 15 by the Assembly Labor and Employment Committee.
Housing Cost Increases
Countless newspaper articles and recent reports have highlighted the dire condition of housing in California. Such articles explain that the cost of imposing prevailing wages on private residential projects may increase labor costs by approximately 30% or more and the cost of housing by an estimated 37% or more.
A Los Angeles ballot initiative mandating payment of prevailing wages in a fashion similar to AB 199 is estimated to increase a project’s total cost by 45.8% due to the increase in labor costs.
One estimate predicts that “prevailing wage would add roughly $90,000 to the cost of building a 2,000 square-foot house in San Diego County.” In San Joaquin County, the bill is estimated to increase the cost of a 1,500 square-foot home by $75,000. The increase in costs will price many Californians out of the housing market.
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.
Thus, as The Sacramento Bee points out, California is essentially exporting its poor to other states and attracting wealthier people into the state.
The state is facing a crisis in housing affordability and supply. The two are inextricably linked, as the Legislative Analyst’s Office points out in a February 9, 2016 study, “Perspectives on Helping Low-Income Californians Afford Housing.”
It is estimated that California has a housing deficit of approximately 1 million units across all income levels.
The California Department of Housing and Community Development estimates that the state must build at least 180,000 units per year to keep pace with demand, not accounting for the backlog of 2 million units that has accrued over the last several decades.
The industry is producing approximately half of that and homeownership rates are at abysmal levels—the lowest level since the 1940s—currently ranking 49th nationally.
Bills like AB 199 that impose significant costs on housing construction make a full recovery much more difficult, only exacerbate the housing crisis rather than help ameliorate it, and threaten to stifle construction having a deleterious effect on the state economy in whole.