The nonprofit think tank the RAND Corporation released a report Monday that found that a Los Angeles permanent supportive housing initiative’s requirement that larger developments have a primarily union workforce is driving up costs and lowering the number of units produced.

The report, “The Effects of Project Labor Agreements on the Production of Affordable Housing,” found that some developers of Proposition HHH projects are avoiding union workers by building developments with less than 65 units.

Voters in November 2016 passed Proposition HHH to use $1.2 billion to build 10,000 units for homeless Angelenos, more than tripling Los Angeles’ annual production of supportive housing. The labor agreement — which was approved by officials in 2018 — requires that developments with more than 65 units are built with a primarily union workforce.

So far, the initiative has 7,305 units in the works, but the RAND Corporation’s report says an additional 800 units could have been funded without the project labor agreement.

“Developer responses and higher construction costs related to the project labor agreement appear to be important contributors to Proposition HHH falling short of its announced housing goals,” said the author’s report, Jason M. Ward, an associate economist at RAND.

“Moving forward, considering the effects of these sort of labor requirements on the primary goals of public housing policy and making sure they are clearly communicated to the public would improve transparency and help ensure that realistic goals are set for such programs,” Ward said.

The report found that a disproportionate number of developments with less than 65 units are being built through Proposition HHH. Forty-five percent of the projects analyzed by RAND have between 50 and 64 units, but projects of that size only make up about 10% of non-HHH housing projects. A total of 22 of the 98 projects analyzed by RAND have between 60 and 64 units, and only one project has between 65 and 69 units, RAND reported.

“Developer concerns about the labor agreement adding uncertainty over costs and timelines may have been an important factor,” Ward said. “Deeply subsidized affordable housing projects already face considerable uncertainty related to community opposition, assembling the necessary funding, and uncertain timelines for regulatory approvals.”

Also contributing to Proposition HHH falling short of its goal, according to the report, is that 27% of the initiative’s developments — those that have more than 65 units and must be built with a union workforce cost — about $43,000 more per unit, or about 14.5% more in construction costs. Each Proposition HHH unit costs on average $560,000, which is 40% more than estimated during the ballot initiative’s campaign.

The full RAND report is available at The Lowy Family Group contributed funding to the report through their donations to the RAND Center for Housing and Homelessness in Los Angeles.

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