Research Questions What was the causal effect of the Proposition HHH PLA on associated construction costs and housing production? Did developers avoid the HHH PLA by proposing and building smaller projects; if so, why? Are PLAs an effective way to foster the employment of local and disadvantaged workers?
Proposition HHH is a $1.2 billion bond earmarked for the development of up to 10,000 units of affordable and permanent supportive housing aimed at addressing chronic homelessness in Los Angeles. As of May 2021, with virtually all funding committed, approximately 7,300 units of housing were in the pipeline. Failure to meet the ambitious original target has been attributed in part to higher-than-expected construction costs.
One potential reason for increased costs is a project labor agreement (PLA) added by the city council after the initiative was passed. A PLA specifies rules concerning hiring, worker ratios by union status and experience, strikes and work stoppages, grievance and arbitration procedures, and targeted hiring provisions for local and disadvantaged workers. Critics say PLAs directly increase costs by disincentivizing bidding on projects and reducing contractor flexibility. Advocates argue that they lower costs through timely completion of projects and increase competitiveness by leveling the playing field for union contractors.
The author presents evidence that the HHH PLA increased construction costs on larger, affected projects by approximately 15 percent. Additionally, developers responded to the PLA by disproportionately proposing smaller projects that would not fall under the agreement. A simulation exercise considering these effects together estimated that approximately 800 more units of housing would have been produced in the absence of the agreement. This evidence may inform future debates about combining large-scale housing policy with restrictive labor regulations.
Key Findings Developers responded to the HHH PLA, which affects projects with 65 or more housing units, by disproportionately proposing projects below this threshold There were 22 projects proposed with 60–64 units of housing and only 1 project proposed with 65–69 units of housing. More than 45 percent of the sample of HHH projects have 50–64 units, compared with less than 10 percent of a sample of comparable non-HHH projects. The HHH PLA is associated with higher costs and fewer overall housing units The PLA added approximately $43,000 per housing unit to projects covered by the agreement — a 14.5 percent increase in construction costs. Simulations of Proposition HHH without the PLA indicate that more than 800 additional housing units could have been produced with the same level of funding. It is unclear why developers of HHH-funded housing responded so strongly to the PLA Concerns about the PLA adding uncertainty to costs and timelines might be an important factor. The PLA was one source of uncertainty that was avoidable through the choice of smaller project size. It is unclear whether the targeted hiring provisions in the HHH PLA are an effective way to foster the hiring of local and disadvantaged workers The limited literature on targeted hiring provisions in PLAs suggests that failing to achieve these typically voluntary goals is relatively common. "First source" hiring programs common in Los Angeles and elsewhere may achieve these goals without affecting the primary housing output goal of such policies as HHH.
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Labor Regulations Attached to Proposition HHH Lowered Los Angeles Housing Production Through Increased Costs, Developer Avoidance Aug 2, 2021
Table of Contents Chapter One
Introduction
Chapter Two
Existing Research on Project Labor Agreements
Chapter Three
Setting, Research Design, and Data Used in This Report
Chapter Four
Association Between the PLA and Project Size
Chapter Five
Effect of the PLA on Construction Costs
Chapter Six
Synthesizing Cost and Output Effects
Chapter Seven
Discussion and Policy Considerations
Appendix A
Descriptive Statistics and Discussion of Cost Data
Appendix B
Regression Model Details and Sensitivity Analyses
Appendix C
Additional Figures and Tables
Research conducted by RAND Social and Economic Well-Being
The research described in this report was funded by the Lowy family and conducted by the Center for Housing and Homelessness in Los Angeles (CHHLA), part of theCommunity Health and Environmental Policy Program within RAND Social and Economic Well-Being.
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