The Costs of Developing New Subsidized Housing: The Relative Import of Construction Wage Standards and Nonprofit Development

Abstract

Previous research into the costs of publicly subsidized new housing developments has found that nonprofit developers and program requirements to pay construction workers prevailing wages significantly raise project costs. An extended ordinary least squares (OLS) model is specified that aims to better capture the influence of project-specific variable costs and geographically correlated fixed costs. The model is tested with data from a 2014 State of California-sponsored affordable housing cost study. The OLS models’ estimates indicate that prevailing wages are associated with between 5 to 7% higher project costs. The cost effect associated with a developer’s tax exempt status is half as large as estimated in prior studies and is not consistently a statistically significant driver of costs. The model revisions help to identify other more important sources of cost variation, including large business cycle effects, fair market rents, average county construction wages, local government impact fees, and above-average architecture and engineering costs.

About the Author

Scott Littlehale is Senior Research-Analyst for the Northern California Carpenters Regional Council, where he has worked since 2003. The NCCRC represents about 30,000 building and construction tradespeople in California’s northern 46 counties. Littlehale earned his bachelor’s degree at Stanford University with distinction and honors from the department of political science in 1988. He advanced to doctoral candidacy in political science at the University of North Carolina at Chapel Hill before embarking on a research career with organized labor in 1997. His research interests include the intersection of labor institutions with work and living standards. He currently serves on the technical committee of “The Committee to House the Bay Area,” convened by the Metropolitan Transportation Commission.