NEWPORT BEACH, CA—Those who build entry-level market-rate housing would be devastated by AB199, which would subject all residential projects built on private property to prevailing wage standards, Landmark Capital Advisors managing director Adam Deermount tells Deermount has been watching this bill closely, so we spoke with him about what it would do and its implications for the affordable-housing sector. How did AB199 come about?

Deermount: Back in the summer of 2016, Governor Brown was pushing a housing proposal that would have allowed any residential project that complied with local zoning and set aside as little as 5% of its units as affordable to be built “as of right.” This measure would have taken more control away from municipalities and NIMBYs and put it in state hands. Construction labor unions demanded a significant modification to the proposal: apply prevailing wage standards to any project built under Governor Brown’s proposal. The prevailing wage standards under this plan would have made the construction of housing economically impossible. Governor Brown refused to give in to union’s demands. As a result, the proposal died.  In late January 2017, Kansen Chu, an assemblyman from San Jose whose largest donors are unions, submitted bill AB199. The bill is an attempt to apply an even broader prevailing wage standard than the unions demanded in their response to Governor Brown’s measure. What are the implications of this bill?

Deermount: AB199 would subject all residential projects built on private property to prevailing wage standards. Currently, only residential projects built under an agreement with state agencies, RDAs or public-housing authorities are subject to prevailing wage. This measure would make construction of housing much more expensive at a time when California can ill-afford it, in some cases increasing construction costs by 45% to 50%. How do those in the business of affordable housing feel about this bill?

Deermount: It depends. Some affordable-housing developments already have to be built under prevailing wage, but many do not. It all depends on the type of funding being utilized as to whether or not prevailing wage is required. The bill clearly won’t make a difference for affordable projects that already require prevailing wage. However, many projects that do not currently require prevailing-wage standards will no longer be viable under their current structures.

The segment of the market that will be hardest hit is entry-level market-rate housing. AB199 would be devastating since home prices would need to rise well above current FHA levels to keep new projects viable. Market-rate builders who focus on affordable product are generally opposed to this because it would put many of them out of business. What else should our readers know about the bill?

Deermount: California is already dealing with an affordable-housing crisis, and a bill like AB199 would only make that crisis worse. Our elected leaders need to focus on legislation that would help to create more well-paying jobs rather than job-killing bills like AB199 that enrich a relatively small number of people at the expense of the housing affordability of the entire state.