The Davis–Bacon Act of 1931 (Act) is a Federal law that establishes paying the local prevailing wage on public works projects for laborers and mechanics.  It protects local workers from outside contractors who may underbid the local wage level when competing for public projects. The Act, in combination with State law, requires that all workers on public works projects (which includes most housing projects receiving public funds) must be paid the prevailing wage determined by the California Department of Industrial Relations, according to the project type and location. Prevailing wage rates are usually based on those specified in collective bargaining agreements.  

Prevailing wage requirements are thought to add approximately 20 percent to the cost of a project. The State Labor Code § 1720(c)(5) provides for some exceptions to the prevailing wage requirement for some affordable housing projects, even if there is a public subsidy.  These exceptions include: 

• Sweat-equity projects 
• Certain not-for-profit emergency or transitional housing for homeless persons 
• Homebuyer assistance programs (mortgage, down payment, or rehab assistance for single-family homes) 
• Below-market interest rate loans if at least 40 percent of units are restricted to 80 percent median income for at least 20 years 

While there is no statutory exception for new low-income housing tax credit (LIHTC) projects, there is case law stating that low-income housing tax credits to a developer does not constitute public funds. The State Department of Industrial Relations has applied this to Federal tax credits as well.  Legislation passed in 2017 added new prevailing wage requirements for certain projects.  

• SB 35 requires jurisdictions that fail to meet RHNA requirements cannot require a conditional use permit or other discretionary review permit for affordable housing projects. It also provides for a streamlined ministerial review process if developers agree to pay prevailing wages on the entire project.
• SB 540 created the opportunity for cities to create “workforce housing opportunity zones,” and developers are exempt from environmental review in those zones if they certify to paying prevailing wages. 
• AB 73 allows jurisdictions to form “housing sustainability districts” ‒ by-right affordable housing districts ‒ to access State funding when a jurisdiction adopts an ordinance requiring developers to pay prevailing wages on all projects in a district.

Prevailing Wage Determinations. The California Department of Industrial Relations is responsible for making prevailing wage determinations.  There are two types of determinations ‒ general and special.  General determinations are issued by the Department director twice a year on February 22 and August 22.   When the director determines that the general prevailing rate of per diem wages for a particular craft, classification, or type of worker is uniform throughout an area, the director issues a determination enumerated county by county, but covering the entire area. When a particular craft, classification or type of worker is not covered by a general determination, a public agency or private entity using public funds may request a special prevailing wage determination.

A review of the California Department of Industrial Relations website regarding prevailing wages for Residential found that there are differences in the prevailing wage rates from one area to another.

Example of Prevailing Wages by Area – Trade: Residential Carpentry

Source:  California Department of Industrial Relations, August 22, 2021.  

Given the variation in prevailing wages, some of the northern valley counties may be experiencing losses of skilled labor to other Bay Area counties with higher prevailing wages, especially when those higher wages are within commute range.    Likewise, there is the possibility that Kern County workers are commuting northwards to other Valley counties as well.   It is also possible that some construction workers have alternative housing options (e.g., living with a relative or renting a room) enabling them to take higher paying jobs in other areas.

Prevailing wages appear here to stay.  In a recent paper produced by the Institute for Construction Economic Impact entitled: “Should Prevailing Wages Prevail? Reexamining the Effect of Prevailing Wage Laws on Affordable Housing Construction Costs” (link below) the authors found no causal effect of prevailing wages on affordable housing construction costs. The paper also noted that recent research on residential construction indicates it provides poor wages, benefits, and working conditions and that prevailing wage laws are tools that provide better working conditions.  Finally, the paper concludes that there is no straightforward trade-off between better labor standards and project costs which may further encourage use of prevailing wages. Studies of this nature as well as the extensive lobbying efforts by building trades (link below) regarding affordable housing legislation appear to have “locked-in” prevailing wages for the foreseeable future suggesting that increased subsidies will continue to be necessary to construct affordable housing. 

Build a better workforce.  Given the realities of the workforce marketplace, interventions may be required to develop and expand the building trade workforce.   The Valley may wish to consider efforts to encourage, support, or otherwise develop a strategic workforce development program that could involve State, regional and local partners such as economic development agencies, workforce development boards, building apprenticeship programs, colleges, and trade schools.

Relevant State Law 

California Prevailing Wage Laws 

Stakeholder Interviews

Stakeholders offered the following observations:

Cost/income ratio. Building costs are just as high in the Valley as in the Bay Area, which keeps rents high in Valley developments. For-profit developers can’t build low-income housing with current cost to build; and it is difficult enough for housing authorities and non-profits. Several interviewees cited prevailing wage requirements that are tied to Bay Area indices – unions don’t have a strong presence in the SJV and there can be a shortage of union workers.   Note:  See discussion above as prevailing wages do vary by region but regional differences could be impacting workforce availability.

Address Prevailing Wage Requirement. Addressing the costs of prevailing wages is critical.  Some stakeholders suggest removing the requirement, while others suggest subsidizing them. In any event, the prevailing wage costs need to be reduced. There needs to be a significant increase in public funds available for constructing affordable housing.  (Note:  See discussion above as prevailing wages are likely to remain in place.)

Land value. While construction material costs are equivalent to the Bay Area, land values are lower as vacant land is more plentiful. Some interviewees noted that price points are increasing rapidly for vacant land in the Valley.

Increasing construction material and land costs. In addition to increasing construction material costs, an inflow of buyers from the Bay Area and other locations has resulted in significant increases in home and land prices.

Resources 

California Department of Industrial Relations, Current residential prevailing wage determinations. 

California Department of Industrial Relations, Prevailing Wage FAQ and Index 2021-2 general prevailing wage journeyman determinations. 

Institute for Construction Economic Research, Should Prevailing Wages Prevail? Reexamining the Effect of Prevailing Wage Laws on Affordable Housing Construction Costs

American Planning Association, Building trades push for union workforce in affordable housing bills (July 27, 2021). 

Terner Center for Housing Innovation, UC Berkeley, The Complexity of Financing Low-Income Housing Tax Credit Housing (April 2021). 

California Central Valley Economic Development Corporation, Workforce & Education. 

Workforce Development Board of Madera County, Regional Collaboration.