Report: Prevailing wages could add $2.8B to cost of NYC affordable housing plan

Dive Brief:

Mayor Bill de Blasio’s plan to create 80,000 new units of affordable housing in New York City might have just hit a $2.8 billion snag, according to Crain’s New York Business. The city’s independent budget office (IBO) said that if developers are forced to pay workers at the prevailing-wage level, it would add 13% to the plan's budget over 10 years. That increase amounts to an additional $45,000 for each of the 69,000 affordable units de Blasio said he wants to add by 2024.
The unions and developers have until Jan. 15 to agree on construction wages for future rental apartments receiving the 421-a tax break. The tax break mandates affordable housing, and the majority of de Blasio’s planned units would fall under this rule. If they don't strike a deal, the projects won't receive the tax break.
In opposition to developers, unions want the tax break to include prevailing wages, or industry standard salaries and benefits set by the state and the city. Prevailing wages tend to be higher than median wages and are required on federally funded projects.

Dive Insight:

The battle over whether to pay prevailing wages on affordable housing projects has been ongoing in New York City. Spurred by the mayor’s position that requiring prevailing wages would reduce the number of housing units able to be built on large, affordable housing projects, the New York City Comptroller and public housing advocates announced a $150 million investment in a $1 billion AFL-CIO Housing Investment Trust (HIT) plan in October.

De Blasio critic and Building and Construction Trades Council president Gary LaBarbera is a vocal supporter of their plan. At the time, Comptroller Scott Stringer said that union wages and below-market housing were not incompatible.

LaBarbera said that the IBO methodology was wrong, although the IBO did disregard the New York State Association for Affordable Housing estimate that prevailing wages would raise construction costs by 50%, according to Crain's. Nevertheless, LaBarbera said that the IBO report should not be the basis for any long-term decisions about affordable housing.

"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.

Understandably, most developers and builders of affordable housing were pleased with the IBO report.

"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," Jolie Milstein, president of the New York State Association for Affordable Housing, said 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."