Dunn & Done: Good Intentions But Bad Outcomes in Assembly Bill 1701
Housing affordability is arguably the most pressing issue California families face today. Unnecessarily increasing costs make that opportunity even more elusive.
According to the nonpartisan Legislative Analysts’ Office, the poorest 25 percent of the state’s income earners report spending an astounding 67 percent on housing costs. LAO made it explicit in two reports that the only way to lower household housing costs is by more than doubling the current annual rate of building. Doing so would lower home prices, allow more Californians to live closer to their jobs, reduce commute times, and allow more households to achieve fiscal stability.
Lawmakers are currently considering dozens of bills in the Legislature supposedly aimed at easing the massive state housing crisis — some more helpful than others. But considering the depth and breadth of this crisis, it is astounding that some legislators actually propose laws to make it worse.
With all the regulations California imposes on business, homebuilding is expensive to begin with. When a general contractor starts a new housing project, he often hires other companies, or subcontractors, to do specialty work like framing, plumbing and electrical. These subcontractors also have employees working for them. In the course of business, the general contractor pays the subcontracting companies, and the subcontractors’ workers are paid directly by their employers for the work they do.
However, under a proposed new law, Assembly Bill 1701, if bad subcontractors fail to pay their employees, the general contractor would be responsible for that payment — even if he’s already paid the subcontractor — forcing a double payment for labor performed. If that sounds fundamentally unfair, it is; but it gets worse.
In addition to being financially responsible for fixing a problem not of his making, AB1701 also authorizes what’s called “a private right of action” — lawyer lingo for shakedown lawsuits — against a general contractor for a liability he did not cause, nor could anticipate or prevent. It just lets the bad actors off the hook and forces workers to turn to trial attorneys to recoup their wages from the general contractor instead of their employer.
And we’ve seen what that movie looks like: trial attorneys are empowered to chase after good businesses and actual harmed employees see little in return. This is not a viable solution; plenty of labor laws already exist to protect these workers and punish bad actors that don’t pay.
The unintended consequences of AB1701 are real and needlessly increase building costs. It discourages new builders from entering the marketplace when they are needed most. It adds to high housing costs, including litigation delays.
The state lags far behind in building sufficient housing to meet demand, and by most estimates will fail spectacularly to keep up with a projected 13 percent population increase and 24 percent jobs increase over the next eight to 10 years. The median-priced home in Orange County approaches the highest in the nation at $760,000. And the situation gets worse down the income scale: renters now pay more than 35 percent of their income toward shelter, and overall homeownership rates are the lowest since the 1940s.
Lawmakers must do no harm in a housing crisis as bad as California’s. AB1701, and all similar “good intention” bills that do not result in more actual rooftops, must be shelved now.