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Rethinking Boston Housing Development Posted by on

The construction of new, workforce housing in Boston has been a popular subject for political debate and media coverage. But many of the discussions include an assumption presented as fact that's just not accurate. It's a mistake that could cost workers good jobs and Boston good housing. In this week's Boston Business Journal, Mark Erlich sets the record straight.

ViewPoint: Developers have a disconnect on wages
by Mark Erlich
June 17, 2016

Boston is booming, as some 172,000 newcomers moved to the area between 2010 and 2014. And there are no signs of a slowdown.

The demand for housing - particularly workforce and affordable housing - exceeds the supply. According to the city of Boston, 4,700 new residents will have to be housed every year to meet 2030 population projections. As a result, Mayor Martin J. Walsh has called for the construction of 53,000 units over the next 15 years.

It has become an article of faith in some corners of the development community that high union labor costs are the primary barrier to accomplishing the mayor's ambitious goals. As it turns out, this perspective is not supported by data in several studies of housing costs in Boston and New York City.

In both cities, construction labor and materials make up 59 percent of total development costs, while over 40 percent is attributable to land costs (at 18 percent) and soft costs such as financing, architecture and legal fees (22 percent).
Over the last decade, land acquisition in Boston has climbed 4.4 times faster than the rate of inflation. Similarly, financing costs have risen 5.4 times faster. Yet during the same period, labor and materials have increased only three-fifths as fast as inflation. In a striking comparison, land costs are up 42 percent, while construction costs are only 6 percent higher over the last 10 years.

As former BRA economist John Avault's study of the New York City multifamily housing industry notes, "with construction worker wages comprising 17 percent of construction industry billings, and construction costs representing about 60 percent of total development costs, construction worker wages are estimated as 10 percent of total costs."

Given labor's limited portion of total costs, how can eliminating union participation address the real concerns? In fact, during the years covered by these studies, the typical annual construction union increases for wages and benefits have been between 1 percent and 3 percent.

Some developers point to New York City as a model since multiunit residential construction there has become increasingly non-union. It has also become the Wild West of the industry. A Fiscal Policy Institute report estimates that 36 percent of the construction workers in the city's residential sector are employed illegally - either off the books or misclassified as "independent contractors" and, incredibly, that number doubles in the affordable housing industry.

Last November, the New York Times ran an exposé of safety in the city's construction industry. While building activity is up 11 percent, construction accidents have skyrocketed by 52 percent, and the majority of deaths and injuries involve undocumented workers.
The ultimate irony is that developers who seek to build their workforce apartment buildings with low-waged, non-union labor plan to market their units to teachers, nurses, firefighters and other similar occupations - all of which are unionized and can, therefore, support the rents. Yet those developers reject the notion that the men and women who build their projects should earn sufficient wages to live there.

Mark Erlich is the executive secretary-treasurer of the New England Regional Council of Carpenters

Carpenter funds sell most of interest in Radius Bank Posted by on

On June 3, 2016 the New England Carpenters Pension and Annuity Funds and the Northeast (formerly Empire State) Carpenters Pension Funds closed on a transaction reducing their collective ownership of Radius Bank (formerly known as First Trade Union Bank) from more than 99% to less than 5%. The New England Carpenters Pension Fund received $14,320,185.96 and the Guaranteed Annuity Fund received $8,007,144.59 in addition to shares representing a 2.49% interest (valued at approximately $1,158,000) in the Bank’s reorganized holding company. A group of private investors now owns 95% of Radius, and they invested an additional $18 million of new equity capital to be used towards the Bank’s growth.

The decision to reduce the Funds’ ownership position in Radius was prompted by concerns over the application of the "Volcker Rule" in the 2010 Dodd-Frank Act which prohibits banks and their affiliates from making many of the types of investments that are traditionally held by pension funds. An unintended consequence of the Volcker Rule forced the Funds to terminate their controlling interest in the Bank in order to have the ability to make a broad range of prudent investments necessary to meet their obligations to their participants and beneficiaries.

“It is the end of one chapter and the beginning of another in our relationship to the Bank,” said Mark Erlich, chair of the New England Carpenters Benefit Funds. “The proceeds of the sale will be invested in our Funds in accordance with the existing asset allocation.”