California immigration laws impact the housing market in many ways, most prominently as they add to or detract from the population of homeowners and renters in the state. These laws have another less studied effect on the housing market: the cost of new home construction.
A recent Zillow article analyzed the impact of a Georgia law that restricted foreign immigrants from working in the state. When Georgia enacted stricter penalties for undocumented immigrants using counterfeit worker identification, the cost of new homes increased substantially.
Prior to the law, the premium for new homes averaged 34% over the typical home resale. After the law was enacted, the new home premium jumped to 52%, an average increase of $26,000 per new home, according to Zillow.
From landscaping to pouring concrete, framing and installing finishes, the average construction job employs dozens of people, 15% of which are undocumented immigrants nationally, according to Pew Research Center. Put in different terms, 43% of recent immigrants from Mexico are employed in the construction industry, according to a UCLA report.
Hidden costs cancel out cheap immigrant labor in California
California is one of six states designated as a “sanctuary state” for undocumented immigrants. The state’s 2014 Trust Act prohibits officials from holding undocumented immigrants or transferring them to deportation centers unless the immigrant is charged with a serious offense. Many California cities and counties have even stricter laws that obstruct enforcement of federal immigration laws. California also allows undocumented immigrants the ability to obtain a driver’s license.
One might think California’s current immigration laws allow homebuyers to profit from the labor provided by undocumented immigrants with lower new home premiums. Contractors and builders pay their undocumented labor force cents on the dollar. But it’s not like builders are profiting hugely from this cheap labor. In fact, the average builder’s net profit margin is 6.4%, according to the National Association of Home Builders (NAHB).
With more undocumented immigrants in California than any other state, cheap labor ought to be in abundance here, making the cost of building even lower and the profits even higher.
But in California, new homes cost 40%-50% more than similar home resales, depending on the location — similar to Georgia, with its strict laws against undocumented workers. But with all the cheap labor California builders take advantage of, why isn’t our new home premium smaller? Why aren’t the savings being passed on to homebuyers?
It’s expensive to build in California — and not just because of the high cost of land, which boosts prices for new and resale homes alike.
The problem for new homes is the California Environmental Equality Act (CEQA).
CEQA requires local agencies to follow numerous protocols to evaluate a project’s environmental impact before granting a permit. It seems straightforward enough, but in practice CEQA can delay and cancel development projects, making it more costly, and risky, for builders to build. Further, not-in-my-backyard (NIMBY) advocates often abuse CEQA to halt projects not to their liking.
In 2016, Governor Brown proposed a CEQA workaround to promote new home construction growth. The proposal failed due to backlash from several fronts, including environmental groups and labor unions.
Thus, new construction remains expensive for builders, and homebuyers.
A solution lies in legislative reform, which will balance the concerns of environmentalists, builders, homeowners and laborers. (That won’t be hard, will it?)