Prevailing Wage Means Doom & Delays
New York State, as a whole, is experiencing a crippling housing crisis that is leaving families with nowhere to turn. This crisis is even more extreme in New York City, which is experiencing a vacancy rate of just 1.4%, the lowest it has been in almost 60 years, according to the city's Department of Housing Preservation and Development. This is why ABC and our members unequivocally support measures to build affordable housing.
This revelation from the city should end the debate on what the primary factor driving the housing crisis in New York is. The vacancy rate makes it clear that the lack of housing is the problem. Even if people have the money to afford a home in the city, one is not available for them.
The Governor is right when she says that the only way out is to build more units. It is time elected officials turn to the experts in the construction industry to build the state out of this housing hole, literally. With that said, the Governor and the legislature cannot fall into a trap and fall to the pressures to mandate prevailing wages on these projects. Doing so will be disastrous for families in desperate need of housing.
That is because attaching prevailing wages to these projects will increase costs to a level that will result in fewer housing units being built. We have seen it happen recently in California. The RAND Corporation, a nonprofit, nonpartisan research group committed to the public interest, released a report in 2021 identifying the negative impact of attaching Prevailing wages and Project Labor Agreements (PLAs) to affordable housing projects.
Their study focused on Proposition HHH, a plan passed by the California legislature to build 10,000 new affordable housing units in the state. California invested $1.2 billion through its HHH program to create 10,000 new affordable housing units. RAND found that these projects funded by HHH have nearly identical land costs and generally comparable material costs as non-HHH-funded projects. However, the construction costs of HHH-funded projects are, on average, $81,000 (31%) higher per unit than the non–HH–funded projects.
The report ultimately concluded that PLAs and prevailing wage mandates caused a 14.5% increase in construction costs overall, which caused nearly 1,000 additional units to go unbuilt. If California lost about 1,000 units on a $1.2 billion investment. In that case, New York will lose approximately 20,800 units on the $25 billion New York has allocated to affordable housing. More than 20,000 affordable housing units are going unbuilt because politics in Albany is unacceptable.
The Empire Center also published a study analyzing the impact of prevailing wages in New York titled "Prevailing Waste." The report concluded that prevailing wages cause construction costs to increase by 13 to 25%, depending on the region and trade.
The housing authority is already spending every dollar it has to build housing, which has not been enough; up to a 25% increase in costs would ensure these affordable housing projects are doomed from the start. The state needs to be doing things to incentivize the development of new units, not deter them.
Instead of prevailing wage mandates that stifle development, leaders in Albany must bring back 421-A and other necessary incentives to mitigate the costs of construction and get homes built. The affordable housing crisis in New York City is severe. The only solution is to build more units. When there is an increased supply of housing, it benefits everyone. It is time leaders in Albany get out of the way and allow the construction industry, union, and nonunion, to build our way out of this crisis.