Government Wage Mandate Squeezes Low Income Homebuyers

Member Group : Allegheny Institute

In an attempt to revitalize some of Pittsburgh’s declining neighborhoods, the Urban Redevelopment Authority (URA), in conjunction with neighborhood community organizations are embarking on a project to put homes for low-income buyers on the City’s vacant lots. The problem is that the prices for these new subsidized houses are much higher than prices of existing neighborhood houses and as a result, many of these new homes are unsellable and sit vacant. A major culprit for the higher prices is the government mandate known as "prevailing wage."

Prevailing wage laws in Pennsylvania require that the union wage be paid on any government financed building project over $25,000. Since these homes are being built with money from the URA and have values well over this low-threshold, they are subject to Pennsylvania’s prevailing wage law and must be built with either union labor or by non-union contractors who pay the union wage rate. One community services person notes that without the prevailing wage requirement, they would only have to pay a carpenter $20 per hour instead of $40. And that does not take into account higher benefit levels for union workers nor does it take into account costs created by work rules in a union environment. All told, it is estimated that the cost of each new house is increased by about 33 percent as a result of prevailing wages.

Since the goal is to put low-income earners into single family homes in Pittsburgh neighborhoods, and it’s worth noting this program extends across the state as well, enormous subsidies are required to bring the price within their reach.

At one prospective project, in the Garfield neighborhood, the total construction cost of each new house is estimated to be about $300,000. With heavy taxpayer subsidies of more than 50 percent, the asking price will be about $137,000. This project remains stalled while organizers look for ways to reduce costs and make the homes more affordable for the target demographic of low-income wage earners. One possibility being considered in this neighborhood is to use modular homes, which are built primarily offsite, presumably without prevailing wages, and then assembled onsite. This could mitigate the effects of the prevailing wage mandate and bring the price, as well as the required subsidy, down.

One project, begun in 2005 in Hazelwood, cost $1.47 million to build eight houses for which the URA provided a subsidy of nearly $816,000. Priced well below cost, only two houses have been sold. As the Hazelwood project demonstrates, even with all of the subsidies available, these new homes are still beyond the grasp of most low-income homebuyers—the demographic the URA is trying to reach. In many of the neighborhoods the URA is trying to revitalize through this program, pre-existing, non-subsidized homes are selling for less than $100,000.

With the prevailing wage mandate being responsible for one-third of the cost of the houses in the program, the URA is not having much success using this new housing program as a way to revitalize City neighborhoods. Obviously, without prevailing wage requirements, the cost to build these houses would be much lower, require less of a taxpayer subsidy to make them affordable for low-income homebuyers. Without the prevailing wage mandate, this neighborhood revitalization project would have a much better chance at success.

But will the Mayor, the de facto head of the URA, lobby the Pennsylvania Legislature to eliminate this onerous mandate? If he is serious about revitalizing the City’s neighborhoods, he would make it a high priority. Chances are he won’t and this sop to the unions will continue to be a drain on taxpayers. One should ask in this time of economic recession when almost everyone is facing some degree of hardship, why are government union workers and workers on government funded projects virtually exempt? The answer is "political clout"—clout that is out of all proportion to the numbers of people involved. But that describes Pennsylvania’s most serious problem in a nutshell.
Frank Gamrat, Ph.D., Sr. Research Assoc. Jake Haulk, Ph.D., President
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