'Really Dire': New Berkeley Rule Requires Builders To Pay For Workers' Healthcare, Training

A new ordinance passed in Berkeley that mandates contractors pay for the healthcare of construction workers and apprenticeship programs elicited jubilation from workers and union representatives but consternation from some developers that the unintended consequences could be higher costs for developers and a slower pace of housing development.

Last month, the Berkeley City Council passed an ordinance dubbed HARD HATS, or Helping Achieve Responsible Development with Healthcare and Apprenticeship Training Standards, applying to any development over 50K SF.

The ordinance is the first of its kind in the Bay Area and was the brainchild of Mayor Jesse Arreguin. 

“Construction is incredibly hard and dangerous work and the men and women of our construction trades are working hard to build our city and build housing in our city and we need to honor their hard work by making sure they have basic access to healthcare and good-paying jobs,” Arreguin said during the May 2 city council meeting.

Several of the union workers who called into the meeting praised the ordinance and expressed optimism that the ordinance would soon migrate to other cities in the Bay Area and greater California.

“We applaud the city of Berkeley for taking this bold step to support construction workers,” said Keith Brown, executive secretary of the Alameda Labor Council. 

Not everyone is as thrilled.

“It really is a math problem,” Executive Director of the Action Housing Coalition Corey Smith said, adding that more costs for developers, could make them leery of undertaking projects ultimately resulting in fewer job opportunities for construction workers.  

Bay Area Council Vice President of Public Policy Louis Mirante agreed that the unintended consequences of the ordinance could include jacking up the cost of development to the point where housing developers will refuse to work in places that have layered on onerous fees not found in other cities.

“I’ve had developers tell me they are not going to do business in Berkeley if these fees are not offset,” Mirante told Bisnow in an interview. 

Valiance Capital CEO Phan Nguyen Le, who develops multifamily and student housing units in and around Berkeley, said during a recent Bisnow panel discussion on student housing that the ordinance could have a detrimental effect on student housing production.

“What this means is that you will see an increase in hard costs of 30%,” he said. “If you are looking at a hard cost number of $400K for a unit, that unit will now cost $520K.”

From 2010 to 2020, the private sector built 27 student housing projects in Berkeley, according to Nguyen Le, and 16 of those projects were more than 50K SF. From a unit perspective, the large projects accounted for 84% of the total housing supply built in the decade. 

The costs will vary from project to project, but the Bureau of Labor Statistics estimates the average cost for a contractor to provide one construction worker health insurance is between $500 and $1K per month.

Nguyen Le also found that of the 12 student housing projects being constructed in Berkeley, eight of them are larger than 50K SF. 

“This ordinance will be a huge factor and it will make a lot of deals fail to pencil,” he said. 

Charles Kahn, the managing principal of Studio KDA, said he is trying to shepherd project applications through the city to beat the Dec. 31 deadline.

“It is a wonderful law in concept,” Kahn said. “But the cost implications are really, really dire.”

Mirante said the Bay Area Council is not officially opposing the law because the city of Berkeley has pledged to undertake an economic analysis comprehensively looking at the city’s fee structure and seeing if offsets of fees in other places can help ease the expense-side implications for developers. 

“It’s death by a thousand cuts in Berkeley,” he said. “There is a 1% arts fee for developers. The easiest thing would be to reduce affordable housing requirements, reduce impact fees and get rid of other bad policies. Target those costs, not the workers.”

Arreguin said the city is committed to looking at revamping the cost structure.

“We have to be able to build the homes that we need in our city,” he said. 

But for right now, the ordinance is on the books, set to take effect on Jan. 1, and the other fees remain in place.