Prevailing Wages

More than 200,000 units of affordable housing have been rehabilitated or newly constructed in the last 20 years with subsidies from New York City through its Department of Housing Preservation and Development and Housing Development Corporation. Prevailing wages were required only where federal funds, like the Community Development Block Grant Program or most HOME funds, directly subsidized the construction.  Affordable housing projects financed from other sources, notably City Capital Budget, Low Income Housing Tax Credits, tax exempt and taxable private activity bonds, and certain federally funded HOME projects, do not trigger prevailing wage requirements.

Today, there is a debate as to whether prevailing wages should be required for all city and state subsidized housing construction. Currently both the New York City Council and the New York State Legislature are considering bills that would mandate prevailing wages on housing construction subsidized by public funds.

Proponents of prevailing wage claim a variety of benefits would result including higher pay for the workforce, better trained workers and as a result safer construction jobs with fewer serious accidents and fatalities, and a higher quality of construction. Those in opposition to the imposition of prevailing wage requirement cite the flexibility to set wages based on the marketplace and the nature of the work, the ability to keep control over work rules on the site, ensure safety and quality, and to keep costs low to build housing affordable to working families.

Proving any of these claims has been remarkably murky, clouded by inadequate data, imprecise definitions and some arbitrary assumptions.

CHPC undertook to publish a detailed report to provide an objective analysis to better inform policy makers and legislators. Prevailing Wisdom, CHPC’s final report, includes analysis of existing studies, as well as analysis of applicable data sets, and incorporation of information from a small sample of affordable housing projects in NYC.

Summary of results

Briefly, our review indicates that:

• Imposing prevailing wages for affordable housing construction could increase the cost of labor, increasing total development costs by about 25%, resulting in the need for higher government subsidies or, in their absence the construction of fewer affordable units. In a typical apartment, rents might increase by about $400 per month, thereby increasing the amount of annual income a household would need to afford the rent by $16,000. Conversely, to keep the rent affordable to the same household, government subsidies would have to double or production of units would be cut in half.

• There is no evidence that imposing prevailing wages would improve construction quality.

• Construction fatality data in New York City does not indicate that imposing prevailing wages on affordable housing construction would result in fewer construction-related fatalities.

• The higher wages that would result from imposing prevailing wages on affordable housing would be less likely to benefit black and Latino construction workers, and may well cost many of them their jobs. These workers are already disproportionately under-represented in the construction industry and in the unionized construction trades, and they are disproportionately found in the lower wage sectors of the construction trades.

• Most non-prevailing wages as reported in government data, while lower than union wages, are not unreasonable. Even the lowest wages are, for the most part, not unreasonable for entry-level construction workers. To the extent that there are inadequate wages and working conditions, these result more from the undocumented status of workers, who might find themselves without a construction job if prevailing wage laws were instituted. Regardless of wage level, some workers are not receiving fringe benefits.

Read Prevailing Wisdom.

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Play Inside the Rent Now!

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Rents in New York City are among the highest in the country, and many of its residents question why the new developments they see going up around them cannot include more affordable units at lower rents. Suspicion is often cast upon developers, who are commonly assumed to make inordinate profits off the backs of renters. And while for-profit developers certainly seek a healthy return on their investment, many other factors also contribute to explaining what makes rents in New York City high.

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Revisit: Prevailing Wage Report

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As time goes on, we continue to see the increased importance of considering how prevailing wage could affect affordable housing. In 2008, CHPC released a report called Prevailing Wisdom:The Potential Impact of Prevailing Wages. It includes analysis of existing studies, applicable data sets, and incorporation of information from a small sample of affordable housing projects in NYC.

Our main conclusion is that a requirement to pay prevailing wages reduces the amount and affordability of subsidized housing, while doing little to improve the real problems faced by workers in the construction industry in general.

The report makes the following recommendations:

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Panel Debates Prevailing Wage for Affordable Housing

Senior Fellow Harold Shultz appeared today on a panel about affordable housing sponsored by the Greater New York Construction User Council. Along with Doug Apple of HPD, Elly Spicer of the carpenters union, Gary Labarbera of the Building and Construction Trade Council, and chaired by CHPC board member Richard Singer, the panel discussed various aspects of affordable housing construction in New York City. Senior Fellow Harold Shultz, citing findings in CHPC’s Prevailing Wisdom, challenged assertions by the union panel members that there was no additional cost to projects that paid union scale prevailing wages.…

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