The Truth About Project Labor Agreements

A new study on the effects of controversial government-mandated project labor agreements on taxpayer-funded affordable housing projects found that the total development costs of projects subject to PLAs were 21% more expensive, on average, than non-PLA projects. The study also found that the PLA projects took 27% longer to complete, on average, compared to similar non-PLA projects.

The results of the Aug. 13, 2024, study, Project Labor Agreements and Affordable Housing Production Costs in Los Angeles: Revisiting the Effects of the Proposition HHH Project Labor Agreement Using Cost Data from Completed Projects, by Jason M. Ward of the RAND Corporation, is troubling news for PLA advocates and labor unions benefiting from anti-competitive and costly government-mandated PLA schemes.

The RAND study adds strong statistical evidence to a large body of research that has found that government-mandated PLAs increase construction costs and undermine the economy and efficiency in government contracting.

In short, lawmakers who put the needs of labor union lobbyists promoting PLA mandate schemes ahead of affordable housing advocates and taxpayers must be held accountable.

According to the study:

The study’s key findings include the following (amounts are in terms of 2021 dollars):

• After accounting for project characteristics, the actual total development costs of projects subject to the HHH PLA were $92,700 (21 percent) higher, on average, than non-PLA, HHH-funded comparison projects that had an average cost of $585,000 per unit.
• For smaller, HHH-funded projects not subject to the PLA, actual total development costs per unit were $8,000 lower than estimated costs on average, while actual total development costs per unit for HHH-funded PLA projects were $25,000 higher than original cost estimates on average.
• One potential mechanism for the higher costs of projects affected by the HHH PLA is longer completion time. Estimates indicate that these projects took 8 months (27 percent) longer to complete on average than similar non-PLA projects that were completed in an average of 2.5 years.

The RAND study uses real-world data and outcomes as a follow-up to a 2021 RAND Corp study on the effect of PLAs on affordable housing projects in Los Angeles. PLA advocates didn’t like the results of the 2021 study, so they sent academics bankrolled by labor unions with the UC Berkeley Labor Center to attack RAND’s research and promote PLAs on affordable housing in a controversial report published May 13, 2024.

It turns out UC Berkeley Labor Center report’s analysis attacking the RAND Corp. research is flawed and RAND’s results undermine misinformation efforts by the PLA lobby.

Here’s more from the 2024 RAND Corp report:

This report presents updated estimates of the causal effects of a PLA attached to Proposition HHH in Los Angeles, a 2016 Los Angeles ballot initiative to provide seed funding for the production of up to 10,000 units of PSH for people experiencing chronic homelessness. The PLA required the use of virtually 100 percent union construction labor on projects seeking funding if they comprised 65 housing units or more. A 2021 RAND report found that this requirement led developers to disproportionately propose smaller housing projects that fell below the PLA threshold. The study also found that larger projects that were affected by the PLA had 15 percent higher construction costs per unit, an increase equal to roughly 9 percent in total development costs (TDC).

The 2021 RAND report used estimated cost data provided by developers seeking project funding as virtually no HHH-funded projects were completed when the original study was conducted. This report updates the findings on the cost effects of the HHH PLA by using actual TDC data for completed projects that have been placed in service. Using these updated data indicates that the HHH PLA increased project costs by 21 percent, more than twice the amount originally estimated in the original RAND report.

This report also addresses the findings from a 2024 report released by the UC Berkeley Labor Center suggesting the findings from the original 2021 RAND report were not supported by a reanalysis using actual cost data. The authors estimated large point estimates, but they lacked statistical significance leading the authors to conclude that the hypothesis that the HHH PLA did not increase project costs could not be rejected. I show that this result was driven by errors in the cost data source used by the researchers and provide a replication of their result and revised findings when the incorrect data points in their analysis are either omitted or corrected. Using either method, the findings become highly statistically significant.

More on the research and report, which was peer reviewed by experts with the UC Berkeley Terner Center for Housing Innovation:

This report presents results from updated research based on previous RAND research assessing how attaching a project labor agreement (PLA) to Proposition HHH, a large-scale public funding initiative meant to spur the production of permanent supportive housing projects in Los Angeles, affected project costs. PLAs are mandatory contracts covering certain construction projects that require the use of a virtually 100 percent union construction workforce in addition to regulating other important job site characteristics including banning both strikes and lockouts.

The goal of this updated study is to generate rigorous empirical evidence on the trade-offs involved in combining policies aimed at producing publicly subsidized affordable housing with PLAs, a phenomenon that increased over the last decade in multiple jurisdictions in California. Consistent with the RAND Corporation’s mission to provide rigorous, objective, nonpartisan research and analysis, all the data and code related to this project is publicly available so that interested researchers may replicate and build on the results presented.

This research was conducted by the Center on Housing and Homelessness (CHH), part of the Community Health and Environmental Policy Program within RAND’s Social and Economic Well-Being (SEW) division. The RAND Center on Housing and Homelessness is focused on providing policymakers and stakeholders with timely research and analysis addressing the dual crises of housing affordability and homelessness. For more information, visit www.rand.org/chh.

Citation: Ward, Jason M., Project Labor Agreements and Affordable Housing Production Costs in Los Angeles: Revisiting the Effects of the Proposition HHH Project Labor Agreement Using Cost Data from Completed Projects. Santa Monica, CA: RAND Corporation, 2024. https://www.rand.org/pubs/research_reports/RRA1362-2.html.

Update: This research may be a key reason why California Democratic Gov. Gavin Newsom vetoed legislation requiring anti-competitive and costly PLAs on taxpayer-funded construction projects procured by the state. In a September 29, 2024 veto message, Newsom admitted mandating PLAs “could result in additional cost pressures” not accounted for in his budget. Learn why prominent Democrat leaders across the country are rejecting government-mandated PLA policies here.