Construction Costs Up: Time is Money in New Housing
In a report for the RAND Corporation, Jason M Ward looks at construction costs for permanent supportive housing funded by Los Angeles Measure HHH, a 2016 ballot initiative that required the use of Project Labor Agreements (PLAs) for projects with 65 or more units.
Key Takeaways:
- Project labor agreements that mandate union construction labor raise the cost of developing permanent supportive housing by 21%, or $92,700 per unit.
- Projects with PLAs took an average of 8 months longer to complete than non-PLA projects.
- Policymakers should consider ways to offset these costs by cutting fees, reforming inclusionary zoning requirements, or offering tax abatements.
Updating a 2021 study that relied on estimated costs, this report uses actual total development costs (TDCs) from completed projects, finding that PLAs increased costs by 21%, significantly higher than the earlier 9% estimate. This cost increase translates to an additional $92,700 per unit compared to HHH-funded projects without a PLA, which had an average cost of $585,000 per unit.
Further, PLA projects took an average of 8 months longer to complete than non-PLA projects, which contributes to higher financing and other related costs.
The study is particularly relevant to state-level housing policy because many recent housing production bills, most notably SB 423 (2023), require the use of union labor. Given the need to lower all-in construction costs, legislators should consider public policy tools to offset PLA’s, like cutting impact fees, removing inclusionary zoning requirements, or offering tax abatements for union-built projects to ensure that housing construction remains financially viable.