Introduction and summary
America’s housing problems are well-known: Housing is too expensive and there is not enough of it. As a result, working families cannot afford to buy or rent homes.1 To increase the supply and reduce the costs of affordable housing, many states and localities are expanding public investments in the construction and rehabilitation of affordable housing. At the same time, some state and local policymakers are tackling a long-standing but lesser-known problem in the sector: bad jobs. All too often, residential construction workers are paid poverty-level wages and are victims of wage theft and other labor violations.2
Due to low pay, residential construction workers are often part of the same population that struggles to access decent housing. A 2025 market study found that a construction worker in Raleigh, North Carolina, would have to work 76 hours per week to afford the mortgage payment of a median-priced home in the area; a construction worker in Salt Lake City would have to work 84 hours; and a worker in San Jose, California, would have to work 175 hours—a mathematical impossibility.3 A study of construction worksites across Texas found that 72 percent of respondents earned below a living wage for a single adult.4 And a 2022 analysis from the UC Berkeley Labor Center found that nearly 40 percent of all families of construction workers were enrolled in a safety net program such as Medicaid or nutrition assistance, and about 1 in 3 construction workers lacked health insurance.5
Moreover, wage stealing is all too common. A 2023 Century Foundation study estimated that up to 19 percent of construction workers were paid off the books or illegally misclassified as independent contractors—with lawbreaking concentrated in the residential sector.6 Misclassification denies workers legally required overtime, minimum wage protections, Social Security contributions, and coverage under workers’ compensation and unemployment insurance. It also reduces federal and state tax revenues as employers avoid payroll taxes. According to analysis from the Economic Policy Institute, illegally misclassified construction workers lose as much as $20,399 in annual income and benefits.7
In contrast, many other construction jobs—including those building roads, bridges, and schools that are funded with government support—provide a pathway to the middle class for workers without college degrees. Federal, state, and local prevailing wage laws—which require that workers on publicly funded construction projects be paid the wages and benefits earned by similarly employed workers in a given geographic area—help support a stable, well-qualified workforce on nonresidential construction projects.8
Prevailing wage laws also help prevent misclassification and wage theft by requiring covered employers to keep records that prove legal compliance and by providing enhanced penalties and enforcement to discourage lawbreaking.9
While policymakers have long attached pay standards to other types of government-subsidized work, extending these protections to public investments in affordable housing construction is more controversial. Researchers and advocates debate the impact that wage requirements have on overall project development costs, with estimates of 5 percent to more than 30 percent, and the extent to which higher wages must be traded off with fewer units developed. In addition, there is insufficient research quantifying the extent to which wage theft and misclassification drive wage cost differentials between projects that are covered by prevailing wage and those that are not. (For a more detailed discussion of the costs associated with raising wages in the affordable housing sector, see the next section.)
Extending wage and benefits standards to more of the construction workforce has clear advantages: Covered workers earn more, are less likely to be cheated out of wages owed to them, are more likely to receive employer-provided health care, can afford to buy a home, and save more for retirement.10
Strengthening wage standards also benefits the public: Studies show that these standards help increase worksite productivity and decrease public costs by lowering workers’ reliance on public assistance. They also increase state and local tax revenues by increasing company compliance with payroll tax contributions and boosting workers’ take-home pay.11 States with prevailing wage standards are also found to have greater supplies of apprentices and higher apprenticeship graduation rates, which help to ease labor shortages.12
Some communities have attached pay standards to affordable housing supports for decades, and increasingly new communities are finding ways to attach minimum or prevailing wage standards to government-supported affordable housing.13 In 2025, St. Louis, Missouri, required prevailing wages to be paid to workers on new multifamily housing projects with 20 or more units that have received tax abatements, benefited from a tax freeze, or received another incentive to encourage development.14[ix] In 2024, Minnesota adopted a prevailing wage law for affordable housing supports that also requires recipients to disclose past wage theft violations.15 And last winter, New York City adopted a minimum wage standard, rather than a prevailing wage standard, for affordable housing projects that incorporates goals for the hiring of local residents.16
This report highlights the efforts of several cities and states to increase access to affordable housing while also requiring recipients of government support to comply with market-based wage and benefit standards and thereby guarantee decent work for residential construction workers. The report should function as a resource for policymakers willing to tackle the twin faces of the affordability crisis: housing and other essential living costs are far too high while wages for working people do not go nearly far enough toward making ends meet.
The cost of decent jobs
Over the past several decades, academics have developed an extensive body of literature that found attaching prevailing wage and benefit standards to major public infrastructure projects helps improve outcomes for workers—for example raising wages and reducing wage theft and misclassification—while having little effect on overall project costs.17
Yet the affordable housing sector merits separate review since it varies from the nonresidential investments in several key ways. First, worker pay and benefits are much lower and wage theft is frequent, which can drive down standards sectorwide. Second, labor compensation accounts for a larger portion of total development costs in residential construction compared with nonresidential work.18 Consequently, developers have less opportunity to offset labor cost increases, which could result in fewer units built or higher costs for homebuyers and renters.
Some studies of the sector suggest that wage standards would raise development costs substantially: A 2005 study reviewing 205 affordable housing projects in California constructed between 1997 and 2002 found that prevailing wage coverage raised overall development costs by 9 percent to 37 percent.19 However, some critics have questioned the plausibility of the 37 percent estimate, noting that the prevailing wage would have to triple workers’ compensation in order to have such a large impact on total development costs.20 A 2017 study reviewing affordable housing projects in four California metropolitan regions, meanwhile, found that wage standards increased project costs by 15 to 16 percent.21
Other recent studies have found lower impacts on overall costs. An article for the Berkeley Planning Journal found that prevailing wage coverage is associated with a 5 to 7 percent cost increase, and other factors—including “business cycle effects, fair market rents, average county construction wages, local government impact fees, and above-average architecture and engineering costs”—were associated with greater cost effects.22 A 2022 study from Michigan State University researchers controlling for project location and completion date found that prevailing wage requirements added a maximum of 6 percent to overall project costs.23
To date, no study has considered the impact of employment law compliance on residential project efficiency or the extent to which improved compliance with existing workplace laws may drive labor cost increases. Worker misclassification can reduce labor costs by as much as 30 percent via unpaid wages and avoidance of contributions to Social Security, workers’ compensation, and unemployment insurance.24
This sort of lawbreaking is particularly prevalent in lower-wage, subcontracted residential construction work such as roofing and drywall installation. One investigation of drywall contractors in Michigan found that 94 percent misclassified at least one employee or paid them in cash.25 This not only lowers workers’ wages but drains public coffers: Construction companies that misclassify their workers or pay them under the table cost taxpayers up to $10 billion per year in unpaid workers’ compensation contributions, unemployment insurance taxes, and other public supports.26
Prevailing wage laws help improve compliance with other workplace laws by requiring participants to maintain weekly certified payroll that includes workers’ identifying information, classifications, hours worked, and pay levels, and by subjecting participants to enhanced enforcement. For example, new research finds that construction workers in states with strong prevailing wage laws are less likely to be misclassified or paid in cash.27
Moreover, studies on prevailing wage adoption in other sectors have found broader societal benefits and cost savings. For example, research finds that poverty rates fall among construction workers covered by prevailing wage standards, reducing their reliance on public assistance programs such as the Supplemental Nutrition Assistance Program and Medicaid.28 Moreover, contractors respond to prevailing wage coverage by increasing investments in training and equipment and hiring more highly skilled workers, thereby decreasing onsite injury rates and increasing per-worker productivity rates by at least 14 percent. Consequently, they also help to reduce labor shortages and support on-time project completion.29
Future research—on how prevailing wage coverage has affected total units developed, the extent to which wage standards improve legal compliance in residential construction, and the portion of development cost increases attributable to higher rates of compliance with baseline employment and tax laws—will support policymakers as they debate how to expand housing affordability and economic opportunity across their communities.
Residential wage standards across the country
Several jurisdictions have adopted wage standards for government-supported affordable and low-income housing developments. This section, while not exhaustive, provides brief explanations of policies adopted in several cities and states, including wage-setting mechanisms, the types of subsidies covered, and complementary job quality policies.
In addition to the laws listed below, the federal government has also long required construction companies working on affordable housing projects that are receiving certain types of federal support, including Community Development Block Grants and the HOME Investment Partnerships Program, to pay prevailing wages and benefits.30 Indeed, as early as 1983, the inspector general of the Department of Housing and Urban Development (HUD) found a “direct correlation between labor law violations and poor quality construction” on HUD projects and concluded that these quality defects contributed to excessive maintenance costs.31
State and local wage standards for publicly supported affordable housing projects
California
California has long required a prevailing wage for residential construction workers on some types of publicly supported housing investments.32 In 2025, the state expanded residential prevailing wage coverage to projects that receive fast-track environmental review. Affordable housing projects more than 85 feet tall or 100 percent affordable are now permitted to access expedited review if they pay the prevailing wage.33 (See case study below for more information.)
California’s prevailing wage standard
For the better part of 25 years, California has attached prevailing wage standards to some types of publicly funded affordable housing. The state significantly expanded its coverage in 2025 as part of a new initiative to ramp up the development of more affordable housing across the state.
California first extended prevailing wage standards to construction workers on many types of publicly supported affordable housing projects in 2001.34 Similar to most prevailing wage laws, wage and benefit rates are broken down by craft, or specialized occupation; region; and training level.35 The California law also accounts for project scale. While a separately calculated residential prevailing wage rate applies to projects that are four or fewer stories tall, higher-density projects are covered by commercial prevailing wage rates. For example, in 2026, a residential electrician on a covered project in Orange County, California, earned up to $36.13 per hour in wages and an additional $11.35 per hour in health, retirement, and other benefits contributions.36 Other crafts earned significantly more.37 California’s wage standard did not cover several types of frequently used incentives, such as state Low-Income Housing Tax Credits.38
In 2025, worker advocates won inclusion of protections to extend prevailing wage coverage much further within a sweeping budget package aimed at expanding affordable housing development across the state. A key initiative of Gov. Gavin Newsom (D), the changes seek to spark housing development by significantly reducing and even eliminating environmental reviews for certain types of apartment developments, local community rezoning initiatives, and several other types of projects. Critics had long complained that the state’s extensive environmental review requirements encouraged litigation, slowed housing completion rates, and raised development costs. Now developers on projects that are above 85 feet tall (about seven or eight stories) or are 100 percent affordable will be eligible for the fast-tracked process only if they pay the prevailing wage.39
Initially, the budget incorporated a minimum wage standard of $28 per hour—instead of the prevailing wage—that would have also covered lower-density projects. Supporters including the California Council of Carpenters argued that the minimum wage would cover a larger portion of new affordable housing development and would help to raise standards among the lowest-paid nonunion, residential construction workers. Yet the State Building and Construction Trades Council of California opposed the move, arguing that the standard was not only much lower than existing pay and benefit rates on prevailing wage-covered projects, but its broad coverage and lower pay rates could erode prevailing wage compensation levels.40
Post-budget passage, California lawmakers continue to debate the minimum wage versus prevailing wage approach. In May 2026, the state Assembly advanced a bill to the Senate that would fast-track new townhome developments as long as owners agreed to pay a $28 per hour minimum wage.41 While the legislation precludes the state from incorporating wages paid on covered projects into its prevailing wage calculations, the construction trades unions raised concerns that the lower standards could reduce federal prevailing wage and benefit rates, and the Senate Housing Committee eventually removed the standard.42 In September 2026, Gov. Newsom signed legislation barring housing developers of large buildings that qualify for fast-tracked state review from bypassing local labor standards.43
While this debate continues in California, other jurisdictions have viewed contracted minimum and prevailing wage standards as complementary policies. For example, former presidents Barack Obama and Joe Biden both signed executive orders establishing contractor minimum wage standards despite long-standing federal prevailing wage standards for construction and service workers.44 Worker advocates believe that the dual structure helps to create a decent floor while also ensuring that the government does not undercut the gains workers make through bargaining.45
Minnesota
Prevailing wage and benefits requirements apply to multifamily projects with more than 10 units funded through Low-Income Housing Tax Credits (LIHTC), state grants of $200,000 or more, or loans of $500,000 or more, as well as publicly owned projects.46 The law requiring this, enacted in 2024, also requires applicants for funds to disclose any wage theft-related violations.47 (See case study below for more information.)
Minnesota’s prevailing wage and wage theft standard
In 2024, Minnesota enacted prevailing wage protections for residential housing projects using Low-Income Housing Tax Credit funds on developments with more than 10 units, state grants of $200,000 or more, or loans of $500,000 or more, as well as publicly owned projects.48
The law also requires developers receiving government subsidies to disclose prior labor violations. If the state finds wage theft violations on a project, project sponsors are required to adopt a wage theft prevention plan that must be approved by Minnesota’s Department of Labor and Industry before receiving any further funding awards. Moreover, the project sponsor will be disqualified from any new funding for three years if the sponsor or its contractor or subcontractors are subsequently found guilty of wage stealing of $50,000 or more.49
Lawmakers advancing the bill cited counteracting wage theft as a primary motivator after a report by North Star Policy Action found that contractors “tied to proven or alleged exploitation of workers on affordable housing projects” had received more than $84 million in LIHTC or TIF funding over the past several years.50
State Rep. Mike Howard (DFL), co-chair of the Housing Finance and Policy Committee, explained his support:
“There is no way, no how that public dollars should ever support the kind of worker exploitation that is detailed in that report. We absolutely can and must build more affordable housing across Minnesota and we absolutely can and must do so in a way that pays living wages and honors and respects the Minnesotans who are building these homes, and that’s what this bill will do.”51
While advocates for the Minnesota law also pointed to research showing that prevailing wage standards have minimal impacts on overall project costs, they believe that other strategies were more helpful in ultimately convincing lawmakers to adopt the reform. These strategies include collecting evidence of rampant wage theft among contractors and uplifting the stories of both workers who struggle to make ends meet due to wage theft and of law-abiding contractors forced to compete against companies that suppress costs via wage stealing.52
Two Minnesota cities, Bloomington and Brooklyn Park, also enacted their own prevailing wage standards covering affordable housing projects.53
New York City
The city’s Construction Justice Act requires workers on city-assisted projects with 150 or more units and that cost at least $3 million to be paid at least $40 per hour in combined wages and benefits. Starting in 2028, rates will increase annually based on inflation. The law also requires contractors on covered projects to adopt plans to ensure that 30 percent of work is conducted by city residents.54 (See case study below for more information.)
New York City’s minimum wage standard
In December 2025, the New York City Council passed a series of affordable housing reforms to dramatically expand access to affordable housing across the city, including reforms to expand access to larger families by requiring a significant portion of new affordable rental units to be two- and three-bedroom units, requiring that at least half of all new city-financed rental units be affordable to very low-income residents, and increasing home ownership opportunities.
As part of the package, the city also enacted a minimum wage standard for housing projects that receive city assistance.55 The Construction Justice Act requires workers on city-assisted projects that create or preserve 150 or more housing units and cost at least $3 million to be paid at least $40 per hour in combined wages and benefits. At least $25 per hour in total compensation must come from wages. Overall rates will be increased annually based on inflation starting on July 1, 2028. The law also requires contractors on covered projects to adopt plans and make a “best faith effort” to ensure that 30 percent of work be conducted by city residents.56
The law includes several features to ensure robust enforcement, such as requiring that covered employers maintain and submit certified payroll records; posting covered employers’ information online, including their local hire plan; penalizing lawbreakers with damages, civil penalties, and even debarment; and allowing aggrieved workers a private right of action. City assistance includes municipal loans and grants as well as the sale of land for less than market value.
The proposal was introduced and debated during Mayor Eric Adams’ tenure and was opposed by the city’s Department of Housing Preservation and Development based on fears that higher labor costs would discourage developers from participating in the program and building new affordable housing.57 Advocates for the bill believe several factors helped overcome this pushback: long-term collaboration between labor, affordable housing advocates, and responsible developers; a willingness to work together to evaluate the overall budgetary impacts; and worker leaders who shared how low wages and poor working conditions in the sector undermined their ability to afford even basic necessities.58
Advocates also pointed to an existing New York state property tax exemption that helped demonstrate to policymakers that a wage standard can be implemented without driving away developers.59 Enacted in 2024, the law provides a 35-year exemption to housing developments of 100 units or more where at least 25 percent of units are at rates affordable to residents earning 80 percent of the area median income and where construction workers on the project were paid at least $40 per hour. The durations of the exemption, affordability requirements, and wage requirements increase for developments with 150 units or more in specific areas of Manhattan, Queens, and Brooklyn.60
Buildings with fewer than 100 units meeting less aggressive affordability goals can also receive an exemption and are not required to comply with a wage requirement.61 Indeed, just over a year after implementation, The City Reporter found that some developers may be intentionally evading the wage and affordability requirements of 100+-unit buildings by constructing 99-unit buildings and sometimes even constructing multiple side-by-side 99-unit buildings.62
Wage standard laws frequently expand in this way, with lawmakers first applying them to a single type of spending and then extending them over time to more types of spending as policymakers gain familiarity and comfort with the concept.
Of course, it is preferable for policymakers to apply standards to all government incentives—from tax incentives and low-cost loans to land write-downs and supportive infrastructure—since a standard that covers one or just a few types of incentive programs may have limited impact. However, shifting pay practices across the industry will take time and advocates who are willing to work with policymakers to first test concepts may be able to leverage more modest policy wins into larger long-term successes.
New York state
New York provides a 35-year property tax exemption to housing developments of 100 or more units if at least 25 percent of units will be affordable to residents earning 80 percent of the area median income and if construction workers on the project are paid at least $40 per hour.63 Developments with 150 units or more in specific areas of Manhattan, Brooklyn, and Queens are eligible for a 40-year property tax exemption if 25 percent of their units will be affordable to residents earning 60 percent of the area median income and if the project pays at least $63 per hour or 60 percent of the prevailing wage. A higher pay standard applies to several neighborhoods in the boroughs of Manhattan, Queens, and Brooklyn.
Philadelphia
The city’s prevailing wage standard covers city-funded and city-related agency-funded housing rehabilitation and construction projects with more than eight housing units.64 The city is increasingly focused on rehabilitation and preservation of existing affordable housing.65 For example, it recently partnered with the Philadelphia Building and Construction Trades Council on a project to preserve 336 units of affordable senior housing. The project, which will pay prevailing wage, is in part funded by a $50 million low-interest loan from the trades council’s pension fund.
St. Louis, Missouri
St. Louis applies state prevailing wage standards to multifamily housing projects with 20 or more units that have received tax abatements, benefited from a tax freeze, or provided another benefit or incentive to encourage development. The law also sets goals on the portion of labor hours that are performed by apprentices (20 percent), minorities (25 percent), women (7 percent), and city residents (23 percent).66 Other jurisdictions in Missouri, such as the Port Authority of Kansas City, also apply prevailing wage standards to publicly assisted multifamily housing developments.67
Seattle
Seattle requires participants in its Rental Housing Program—funded through the city’s housing levy, federal support, and other sources—to pay state residential prevailing wage rates.68 The city’s Office of Housing helps prevent wage theft by requiring borrowers, contractors, and subcontractors to certify their intent to comply with the law and use certified payroll-tracking software, to require workers to sign on and off of worksites, and to conduct random onsite and offsite audits.
Washington state
In 2018, Washington state adopted a prevailing wage standard that applies to projects for affordable housing, homeless and domestic violence shelters, and weatherization and home rehabilitation for low-income families who receive any public assistance.69 The law covers state, county, and municipal work and their political subdivisions, including housing authorities.70
Conclusion
State and local policymakers are increasingly focused on expanding access to affordable housing while also ensuring decent work for those building these homes. More communities should note these efforts and work to address the twin faces of the affordability crisis—rapidly increasing costs and stagnant, inadequate wages.