Over the last couple of months, a number of building associations, developers and construction businesses have expressed concern over a piece of legislation introduced by California state assemblyman Kasen Chu, Assembly Bill 199. Under current California law, all construction workers assisting on public works projects or projects that have a government contract must be paid the “prevailing wage”—that is, the wage paid to union employees.
According to Chu and his supporters, AB 199 would expand existing law to cover any construction workers that work on private homes and multi-family complexes that receive any sort of government support.
However, AB 199 mandates the payment of the prevailing wage to residential projects that involve any “political subdivision.” While existing law makes clear distinctions between publicly-supported projects that require the prevailing wage, and private projects that don’t, AB 199 blurs the line between the two.
Tim Paone, an attorney specializing in land use law, explained that existing law requires prevailing wages for any project that involves one of three types of government agency: a state agency, public housing authority, or redevelopment agency. Under AB-199, any project that involves public funds would trigger the prevailing wage requirement.
This has many developers worried that practically all construction work in California will be impacted by the bill.
In late March, Michael Stretch, the president of the Roseville-based North State Building Industry Association, spoke forcefully in opposition to AB 199 at a meeting of the Roseville Area Chamber of Commerce’s economic and government affairs committee meeting. There, Stretch claimed that while Chu had indicated that his bill would only raise construction costs by 8%, that in fact the bill would raise development costs by 46%.
Mike Prandini of the Building Industry Association, a California trade association headquartered in Sacramento stated that AB 199 “would make it difficult” to build a single-family home in the Central Valley for under $350,000. Meanwhile, the Business Council of San Joaquin County mailed a letter to Assemblyman Chu that stated that under AB 199, the construction cost of a 1,500 square foot home—the sort of home that is an ideal starter home for young middle class families—would increase by $75,000.
These increased costs would likely affect many state and national homebuilders. Here at Socotra Capital, we’ve heard of a number of national homebuilders that are becoming hesitant about bidding for jobs in California.
It also seems reasonable to assume that cost increases on this scale would close the door on many would-be homebuyers. And research appears to back this up. The Mercury News article linked above cites a study by the National Association of Home Builders that indicated that for every $1,000 increase in the cost of a home in California, 15,000 buyers are priced out.
It appears that Chu is starting to respond to criticism of AB 199.
Since introducing the bill in January, Chu has repeatedly responded to critics by claiming that the bill wouldn’t impact private construction projects. However, with endless accusations that the bill is either sloppily written or intentionally designed to fill union coffers, Chu may be beginning to backtrack a bit.
On April 6th, some minor amendments were added to the bill, largely in the introductory section. However, professional analyses of whether these amendments have any real consequence are not yet available.
In the meantime, opponents of the bill don’t seem to be slowing their attacks, and likely won’t be for the foreseeable future.