SACRAMENTO, CA — The California Chamber of Commerce has added a prevailing wage bill to its job killer list, bringing the number of bills on the list to five. The latest bill, AB 199 (Chu; D-San Jose), will be considered by the Assembly Labor and Employment Committee on March 15.
If enacted, AB 199 would eliminate the long-standing residential exemption from prevailing wage rates and thereby make private, market-rate residential development a public work project for which a prevailing wage would be paid. Enactment of this bill will further exacerbate the already- problematic housing affordability crisis in California by drastically raising the cost of housing and thereby making projects financially infeasible or exorbitantly expensive.
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 like 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 currently facing a crisis not only concerning the affordability of housing but, as the Legislative Analyst’s Office notes in a February 9, 2016 study entitled “Perspectives on Helping Low-Income Californians Afford Housing,” the supply of housing, the two of which are inextricably linked.
It is estimated that California has a housing deficit of approximately 1 million units across all income levels. California’s 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 1940’s—currently 49th nationally.
CalChamber’s analysis of AB 199 found that this bill and others like it which impose significant costs on the construction of housing make a full recovery much more difficult, only exacerbate the housing crisis rather than help ameliorate it, and threaten to stifle construction, thereby having a deleterious effect on the state economy in whole.
In January, CalChamber identified four job killer bills. It will continue to identify other job killers as bills are amended or further analysis reveals detrimental impacts of other legislative proposals.
The California Chamber of Commerce (CalChamber) is the largest broad-based business advocate to government in California. Membership represents one-quarter of the private sector jobs in California and includes firms of all sizes and companies from every industry within the state. Leveraging our front-line knowledge of laws and regulations, we provide products and services to help businesses comply with both federal and state law. CalChamber, a not-for-profit organization with roots dating to 1890, promotes international trade and investment in order to stimulate California’s economy and create jobs. Please visit our website at www.calchamber.com
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