Building A Better Model For Construction Wages

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Many of the people building decent, low-cost housing in New York City are not earning decent wages. But according to a new study, the city cannot afford to pay those workers any better unless it dramatically scales back its affordable housing plans.

The city’s Department of Housing Preservation and Development (HPD) is in the middle of a $7.5 billion initiative to preserve or build 165,000 units of affordable housing. As has been true historically, most affordable housing today is built by nonunion laborers who earn significantly lower wages than union tradespeople.

Unions and some analysts have called for subjecting affordable housing to “prevailing wage” rules, which link workers’ pay to local collective bargaining agreements. They say the lack of wage rules in affordable housing invites a race to the bottom in which contractors pay low wages and offer few or no benefits, permit unsafe working conditions and produce shoddy buildings—all on the public’s dime.

But a report issued last month by the Citizens Housing and Planning Council, a nonprofit research and advocacy organization headed by former HPD commissioner Jerilyn Perine, finds that imposing so-called “prevailing wages” on affordable housing projects would boost construction costs significantly, forcing major changes to the mayor’s program – which the administration has already acknowledged is going to take longer than desired to accomplish its goals.

Cost concerns

Affordable housing is usually paid for by a combination of city or state subsidies, federal funding via Low Income Tax Credits, and sale or rental revenue capped at 30 percent of tenants’ income.

Estimates of the cost impact of prevailing wages are all over the map. Several previous reports have found that prevailing wage laws do not increase overall costs because union labor is more productive. On the other hand, estimates by researchers who have found a cost increase range from an 11 percent increase in one study of projects in California, to a 48 percent jump detected in hypothetical projections about New York City construction.

According to a white paper issued in December by the New York State Association for Affordable Housing (NYSAFAH), a trade group for affordable housing developers, the developer of a 151-unit affordable housing project in Brooklyn recently “sought construction bids at both fair market and prevailing wage rates.” The result: “Construction costs under fair market wages were approximately $30 million. The prevailing wage bids ranged up to $43 million, a 42 percent increase. The project would require $13 million of additional public subsidy to cover this increased cost.”

CHPC’s own calculation is that, even if better-paid labor is more productive, a prevailing wage rule would increase affordable housing costs by 25 percent. That cost would have to be covered. “You’re either going to reduce the number of units you produce, or your going to make those units available to people with higher incomes, or you need more subsidies, which in this environment, we don’t think is going to happen,” says Harold Shultz, CHPC’s senior fellow. “You don’t get it for free.”

Making things more complicated is the fact that many government subsidy programs for building affordable housing are linked to the incomes of the people who will live there. If higher costs force higher rents, and higher rents require higher-income tenants, the developer could lose eligibility for funding through Low Income Housing Tax Credits or other programs.

CHPC reports that the median construction nonunion wage is about $13.50 an hour and the median union wage is $19.57 an hour. But opponents of prevailing wages say the higher price tag encompasses more than wage increases. A June report from the conservative Manhattan Institute, which recommended that the city preserve the use of nonunion labor in the construction of affordable housing, said: “Prevailing-wage rules add further costs by requiring developers to prove that they are in compliance with the law.”

Martin Dunn, a developer of affordable housing in Brooklyn, concurs. “A lot of the smaller contractors can’t deal with the paperwork and the compliance stuff,” he says. That’s one reason why, Dunn adds, “We’ve looked at doing union jobs and haven’t been able to make the numbers work.”

CHPC also contends that non-prevailing wage work is no more dangerous or shoddy than prevailing wage construction. Its report cites data indicating that construction deaths in New York City aren’t more likely on non-prevailing wage sites than at jobs paying prevailing wage—although, citing flaws in the data, CHPC limits its review to deaths and does not examine the more common phenomenon of construction injuries.

The report also argues that construction quality is unlikely to improve under prevailing wages because all construction in the city falls under the building code (assuming, of course, that the code is enforced at all worksites). Banks lending money and private investors also have an interest to keep an eye on affordable housing worksites.

How low is low?

HPD declined to comment for this article, but opponents of prevailing wages say that the concern over underpaid workers is overblown. CHPC cites payroll records from two job sites that showed some workers making $10 an hour, a few making more than $50 an hour, and most earning somewhere in between.

Even while finding that “there is definite concern that wages are low for a good number of unskilled nonunion construction workers, even below the living wage mandated for workers on city contracts in less dangerous types of employment,” the report adds: “The reality is that for many low-skilled workers in New York City’s poorer communities, these jobs are better paying than many other entry-level jobs that they could get.”

CHPC argues these workers would lose their jobs under prevailing wages “especially if they are black or Latino—or undocumented.” That’s because most prevailing wage jobs end up being taken by union workers, and, CHPC claims, blacks and Latinos are underrepresented in construction unions.

“There’s tremendous pressure on us for the workforces to reflect the demographics of the neighborhoods we’re working in,” says Dunn. “If you walk through our construction sites, 95 percent of the people are African-American or Latino. The neighborhoods are African-American and Latino. The elected officials, community boards and residents expect the workforce to reflect their neighborhoods and the unions do not.”

Most strikingly, CHPC argues that while wages at affordable housing job sites are low, they aren’t that bad. “While they’re not getting wages that are considered minimum living wage, the wages are not terrible,” especially if the worker is in a two-income family, says Shultz. “They’re not exactly going into a sweatshop. While we found there were laborers working at $10 an hour, there are also plumbers and carpenters working at $40 an hour.”

This claim is echoed by developers. “The report makes clear that the vast majority of workers on affordable housing projects are in fact paid a living wage,” says Bernard Carr, executive director of NYSAFAH. “The very small percentage of workers who are paid $10 are generally in entry level positions.”

But those are claims that organized labor and its allies reject.

Elly Spicer, a field representative for the New York and Vicinity Carpenters Labor Management Corporation— a nonprofit partnership between the Carpenters Union and union contractors that works on issues important to both labor and management—says that more than 50 percent of Carpenters and Laborers in the city are non-white. James Parrott, deputy director and chief economist at the Fiscal Policy Institute, says the unions of the future will be even less white. “More than two-thirds of apprentices in the Carpenters Union today in New York City are men and women of color,” he says. “To say that prevailing wage laws hurt minorities is bizarre.”

And Spicer says that once prevailing wages kick in, workers currently toiling for low wages on affordable housing sites are more likely to be enrolled in the union than kicked to the curb: “They would not be thrown out of work. They would get a pay raise. They would get health benefits.”

For Spicer, the worries about cost increases under prevailing wages accept a dangerous premise. “You’re starting with costs being based upon illegal practices,” like people working off the books, with no benefits at low wages. On many affordable housing worksites, she says, “It’s cash payments. If someone gets hurt, they take themselves to the hospital.” Simply complying with existing law, Spicer argues, would raise the cost of constructing affordable housing.

A 2007 report by the Fiscal Policy Institute found that “an estimated 50,000 New York City construction workers—nearly one in four—are either misclassified as independent contractors or employed by construction contractors completely off the books.” A separate report estimated that 17,000 affordable housing builders were working off the books.

And those off-the-books workers trigger costs elsewhere in the system for the taxes, Social Security and Medicare contributions, workers compensation and unemployment insurance that are not paid on behalf of those under-the-table workers. FPI estimated the cost at $557 million a year. CHPC and other prevailing wage opponents, Spicer says, “totally ignore the cost-shifting argument.”

Tough times and tradeoffs

This debate comes at a sensitive time for the mayor’s affordable housing initiative. According to NYSAFAH, affordable housing developers are finding it harder to get private investors to buy federal tax credits that underwrite construction at the same time that banks are less willing to lend, utility costs are extremely volatile, land and construction prices are still near historical highs and more tenants are losing their jobs and therefore able to pay less rent.

Bloomberg – who is looking for a new HPD commissioner – announced in December that cost constraints would force the city to stretch the original, 10-year housing plan out for an additional year. The Independent Budget Office has raised questions about whether HPD had sufficient funding to complete even half of the remaining units of new construction that it planned. In fiscal year 2008, the city preserved more affordable units than expected but, when it came to new construction, fell 22 percent shy of its target.

To Spicer, concerns about affordable housing production goals ignore the role that low-paid, sometimes off-the-books construction workers play in making the housing plan work. “Their mantra is ‘units, units, units.’ There’s a bigger issue here—it’s ‘What are you building, how are you building it and what are the other factors that are part of its cost restraints that put it in the realm of illegal practices?'” she contends.

The City Council and New York state legislature are both considering imposing prevailing wages on affordable housing projects. Twenty-two council members have signed on to a proposed law requiring prevailing wages at “any city-sponsored housing development.” In Albany, reauthorization of the state’s industrial development agencies has been held up since early 2008 by a debate over whether projects funded by those authorities should pay prevailing wages.

The effort to apply prevailing wage laws to affordable housing has been underway for years but has yet to claim legislative victory. That could change this year. With private-market construction projects drying up, the importance to labor unions of government-funded work grows. CHPC believes an affordable housing prevailing wage could gain passage in the city or state this year.

Unions have recently allowed members to work on projects that include some non-prevailing wage workers, and some labor officials have also considered developing a lower wage schedule to apply to union work on affordable housing projects. An argument for prevailing wages, says Parrott, is that they’re about more than simply higher pay for workers. “One of the best things about the prevailing wage system is that it builds in and finances an extensive training system that equips people for careers and a decent living standard,” he says. “Non-prevailing wage work is the antithesis of all that.”

Both sides of the debate seem to acknowledge that, to some degree, there is a tradeoff between building more housing and treating workers better—or, in the unions’ view, more justly. Shultz could speak for either side when he warns: “You have to pick your goals carefully.”

– Jarrett Murphy