California’s immigration laws have a significant impact on housing which will naturally effect the cost of new home construction and be of interest to property investors.
Georgia and House Bill 37
The link between immigration laws and new construction costs has been observed in Georgia. The state’s stringent immigration law, House Bill 37, penalizes workers who use fake identification to gain employment. Unauthorized immigrants can face up to 15 years in prison and $250,000 in fines.
Zillow found that the new-home premium in the Peach State surged after local authorities enforced HB 37 in 2011. New-home premium refers to the extra cost placed on newly constructed homes as opposed to existing homes.
In most places in the U.S., brand-new homes can cost 20% to 30% more than existing homes. In Georgia, the new-home premium jumped from 33.9% in 2011 to 52.2% in 2012, while rates stayed mostly flat in the rest of the nation.
Immigrant labor and the residential construction industry
The number of undocumented immigrants in Georgia decreased sharply after 2011, although they constituted a large part of the state’s construction force up until 2014.
Immigrant labor helps keep construction costs down and in turn that helps regulate the final price of new construction homes.
According to the Pew Research Center, the typical construction job in the United States which includes pouring concrete and framing, to landscaping and adding the finishing touches requires dozens of laborers, 15% of whom are undocumented immigrants.
A survey by Zillow found that two-thirds of experts believe that construction labor costs could increase nationwide if undocumented immigration slows to a trickle, though job opportunities for native workers will likely increase.
Sanctuary state
California is among six states designated as “sanctuary states” in the U.S. The Pew Research Center found that over 1.4 million out of the state’s 11.1 million undocumented immigrants live in Southern California, with 1 million residing in the Los Angeles area.
In California, state law protects undocumented immigrants who are either victims of or witness to a serious crime. Additionally, the Trust Act of 2014 prevents officials from detaining and transferring undocumented immigrants to deportation centers unless they have been charged with a grave offense.
New-home premium remains high in SoCal
Despite the high number of undocumented immigrants, California’s new-home premium is among the highest in the nation, hovering at 40% to 50%, similar to Georgia.
The National Association of Home Builders (NAHB) also found that builders have a low profit margin of 6.4%, indicating that they do not profit from cheap labor which ought to be in abundance in a sanctuary state.
It’s simply too expensive and difficult to build in the state. Aside from the cost of land, which pushes up the price for both new construction and the resale homes, builders must also comply with the California Environmental Equality Act (CEQA).
CEQA imposes numerous protocols for evaluating a proposed project’s environmental impact before a permit can be granted. This causes delays and sometimes prevents projects from even getting off the ground, driving up the costs further.
Governor Edmund “Jerry” Brown proposed a bill in 2016 to help builders work around CEQA and stimulate new home construction growth. It was met with opposition from labor unions and environmental groups.
As such, new construction continues to be expensive for both builders and potential homeowners.
