Prevailing wage

Prevailing wage laws set a floor on what construction workers must be paid on covered projects. The rate is determined by trade and locality, typically through a government survey of wages and benefits, and often tracks union scale in areas where unions are common. Federal rules apply to federally funded work; many states and cities have their own versions, and some attach the requirement to projects that receive tax abatements, tax credits, or land from the public.

The requirement affects housing costs through labor, which is a large share of hard costs. Where the prevailing rate is above what a contractor would otherwise pay, and where the paperwork and compliance burden narrows the pool of subcontractors willing to bid, the construction cost of a covered project rises. How much depends on the local gap between prevailing and market rates and on the trades involved, and estimates vary widely, which is why we do not quote a figure.

The policy trade-off is between the wages of construction workers and the cost of the housing they build. Supporters argue that higher wages support a skilled, stable workforce and that public money should not undercut local pay. Critics argue that the added cost reduces the number of homes a subsidy produces. Assume a requirement adds 10% to hard costs of $16,800,000: that is $1,680,000, about $114 per unit per month in required rent under our default financing. Whether that is worth it is a question about values as much as arithmetic. It arises most often with tax credit projects and other subsidized housing, which is where the two goals meet.