Prevailing wage would raise affordable-housing costs by 13%, officials find Higher pay for construction workers would tack $2.8 billion onto mayor's 10-year housing plan, according to IBO

Would a 13% increase in costs kill the mayor's affordable-housing plan?

According to the city's Independent Budget Office, that would be the price tag on a prevailing-wage requirement for city affordable housing—an extra $2.8 billion over the course of the administration's 10-year plan, a new report from the IBO found.

The prevailing-wage pay standard, generally that in collective-bargaining agreements, raises the cost of city affordable-housing projects by 13%, the IBO said. The budget watchdog compared costs at projects that pay prevailing wages with those that do not.

Mayor Bill de Blasio, whose signature policy initiative is to build or preserve 200,000 affordable-housing units over 10 years, has said such a requirement is untenable citywide. Last spring, according to the Daily News, the mayor said he had told organized labor "that this is a pretty sacred mission from my point of view, to really produce affordable housing on a grand scale. I think there is a way to do it that accommodates union labor but not at prevailing wage."

"We will continue to push for prevailing wages in affordable housing projects wherever it's feasible," mayoral spokesman Wiley Norvell said in a statement Monday.

De Blasio's deputy mayor in charge of housing, Alicia Glen, has argued that prevailing wages would cut the number of affordable units produced by almost a third.

If the administration achieves its aim of creating 69,000 affordable units by 2024, a prevailing-wage requirement would add roughly $2.8 billion in financing costs, the IBO said. The extra cost amounts to about $45,000 per unit, it calculated.

The matter is important because unions and real estate interests have until Jan. 15 to agree on construction wages for future rental apartments that receive the controversial 421-a tax break, which must include affordable housing and would account for a significant number of units in de Blasio's housing plan. Without a deal, the tax break would cease. Unions want the tax break to entail paying prevailing wages, while real estate developers are opposed.

Last April, Councilwoman Elizabeth Crowley, D-Queens, proposed a prevailing-wage requirement for any project that receives city funding. Monday, she questioned why the mayor committed to prevailing wages for building staff but not for construction workers. "Why is it okay for building workers, and it's not okay for the construction workers who often have a more dangerous job?" she asked.

Building workers' labor costs are minimal compared with those of construction workers, so prevailing wage for the former does not substantially change the economics of building affordable housing.

Supporters of higher wages for construction workers immediately attacked the IBO study. The union-funded Fiscal Policy Institute called it "flawed," and Building and Construction Trades Council President Gary LaBarbera said it should not form the basis for any policy decisions.

"We firmly believe that since developers are receiving public funds, they have a responsibility to pay good wages with benefits and ensure safe worksites, unlike what the majority of affordable housing contractors do today," LaBarbera said in a statement.

But builders of affordable housing cheered the findings.

“Today’s IBO report validates what we have been saying for years—more prevailing-wage mandates mean less affordable housing for low- and middle-income New Yorkers," said Jolie Milstein, president of New York State Association for Affordable Housing, in a statement. “New York City is facing a housing crisis, and construction union leaders are adding to the problem by pushing for new prevailing-wage mandates that stifle affordable-housing development."

Prevailing wages for construction workers are industry-standard salaries and benefits set by the state and the city comptroller, and are usually based on amounts in union contracts.  They vary by trade, but tend to be higher than median wages, according to the IBO. Projects using federal funding are required to pay state prevailing wages.

"We're confident our approach accounted for the characteristics that could affect the cost differences between prevailing- and non-prevailing-wage projects," an IBO spokesman said in defending its analysis.

Curiously, though LaBarbera echoed criticism that the IBO study's methodology was wrong, a spokesman for the union leader said the report shows that developers' claims of prevailing-wage costs have been overblown. The spokesman noted that the New York State Association for Affordable Housing testified last January that mandating prevailing wages would increase construction costs by 50%.

NYSAFAH's statement, meanwhile, did not address the discrepancy between the housing organization's 50% figure and IBO's 13%.

Affordable-housing organizations have been steadfastly opposed to a prevailing-wage standard. An agreement between LaBarbera's group and the Real Estate Board of New York could settle for a pay scale somewhat below that of prevailing wage, limited to projects above a certain size or within a particular area of the city. The expiring 421-a tax break has no such wage standard, but Gov. Andrew Cuomo surprised insiders by insisted that it be part of the legislation extending the program.

Assessing the Costs the Impact of Prevailing Wage Requirements on Affordable Housing Construction in New York

Source: Crains New York