There is a particular irony lodged inside the federal government's affordable housing apparatus: almost every dollar appropriated to build subsidized housing must be spent under rules that guarantee it costs more than it should. The Davis-Bacon Act of 1931 mandates that contractors on federally funded construction projects pay workers prevailing wage rates that run, on average, 22 percent above market wages. The practical result is straightforward — every unit of government-subsidized housing is assembled by workers earning a premium that the government itself compels, and that premium is ultimately paid by whoever was supposed to benefit from the subsidy.
A Law Built for a Different Purpose
The Davis-Bacon Act was enacted in 1931 during the Hoover administration, nominally to prevent "wage-cutting" on federal public works contracts. Its legislative history, however, is less flattering. Congressional debate surrounding the act included explicit concern from supporters about workers from lower-wage Southern states — many of them Black — winning federal contracts by underbidding local (predominantly white, union) labor. Representative Robert Bacon introduced the bill specifically in response to an Alabama construction firm whose workers had won a contract on Long Island. What was marketed as wage protection for workers was, in significant part, a market-access restriction targeting non-union and minority tradesmen.
Milton Friedman argued in Capitalism and Freedom that minimum wage laws and wage-fixing mandates systematically disadvantage the most economically marginal workers — precisely those who would be most willing to compete on price and thus find their opportunity eliminated by the mandate. The Davis-Bacon Act is a durable illustration of that principle. By pegging federal construction wages to locally negotiated union scales, it excludes the contractors and workers who might build more efficiently, and it raises the floor of every project budget to a level set not by supply and demand but by political determination.
The Arithmetic of a 22 Percent Premium
The practical cost impact of prevailing wage mandates has been the subject of considerable empirical study. Research compiled by the Associated Builders and Contractors, drawing on multiple academic and government analyses, found that the Department of Labor's wage survey methodology inflates construction costs on Davis-Bacon-covered projects by approximately 9.91 percent relative to comparable non-covered work. The underlying wage premium — 22 percent above market on average — feeds directly into that cost differential.
Nine to ten percent may sound modest until one considers the scale of the federal construction budget. The Congressional Budget Office has estimated that repealing the Davis-Bacon Act would reduce total federal spending on construction by approximately 0.9 percent, translating into roughly $10.7 billion in savings over a ten-year window. The Heritage Foundation's own analysis placed the single-year savings figure — in 2010 — at $10.9 billion, with an estimated 155,000 additional construction jobs that would have been supported at lower cost structures. Both figures point in the same direction: the mandate is not free.
The Affordable Housing Paradox
The paradox sharpens when one examines government-subsidized affordable housing directly. The Low-Income Housing Tax Credit (LIHTC) program, the primary federal tool for financing affordable rental housing, is administered largely through state housing finance agencies that channel federal tax credits to private developers. Many of those projects are subject to Davis-Bacon requirements either through direct federal financing or through state programs that import the prevailing wage mandate as a condition of accelerated permitting.
The results are visible in the cost data. A 2024 analysis of LIHTC projects in North Carolina found that the median development cost per unit reached $250,000 in 2023 — more than 50 percent higher than in 2020. A 2024 study from the Terner Center for Housing Innovation at UC Berkeley examined LIHTC projects across states and found that prevailing wage requirements are a statistically significant contributor to elevated construction costs, particularly for the 4 percent tax credit projects that make up the bulk of affordable production.
The math of "affordable" housing requires some scrutiny. If a unit costs $250,000 to build, it must generate revenue sufficient to cover that capital cost even at below-market rents. That gap is filled by more subsidies — local land write-downs, state soft loans, federal HOME grants — each layer adding administrative overhead and compliance cost. A portion of that elevated construction baseline traces directly to the wage mandate that Congress has never reconsidered in any serious way since Hoover signed it.
The 2023 Expansion: Doubling Down
Rather than revisiting the mandate, the previous administration moved in the opposite direction. In August 2023, the Department of Labor finalized a comprehensive update to Davis-Bacon regulations, the most significant revision in four decades. The rule expanded the definition of covered construction activities, updated wage survey methodology in ways critics argued would further inflate prevailing wage determinations, and made it easier for the DOL to apply Davis-Bacon requirements to a broader range of federally assisted projects.
The Inflation Reduction Act of 2022 had already tied its clean energy construction tax credits to Davis-Bacon compliance, effectively mandating prevailing wages on an enormous new tranche of building activity. A survey of Associated Builders and Contractors members found that 98 percent of respondents said IRA prevailing wage and apprenticeship requirements might deter them from bidding on clean energy projects — a predictable outcome when compliance costs narrow the margin of feasibility.
Thomas Sowell has written extensively on the phenomenon he calls the "vision of the anointed" — the tendency of policy advocates to judge programs by their stated intentions rather than their actual results. The Davis-Bacon Act was framed as worker protection. Its measurable effect is to raise costs on the construction of the very housing that lower-income Americans need most, while the GAO itself concluded decades ago that significant changes in economic conditions since 1931 had made the act unnecessary.
The Free-Market Alternative
The alternative is not deregulation in the pejorative sense but simply allowing market wages to prevail. When a contractor bids on a public housing project without a prevailing wage mandate, competition drives the bid to the efficient margin. Workers still earn market wages — wages determined by what employers must pay to attract labor in that locality, not wages set by a bureaucratic survey of union contracts. The difference flows either to lower project costs, more units built per appropriated dollar, or both.
Friedrich Hayek's insight about the knowledge problem applies with particular force here. No central authority possesses sufficient information to determine what the "prevailing" wage for a given trade in a given locale should be — the wage survey methodology that the DOL uses is an approximation, and the evidence suggests it systematically overestimates. The price mechanism, operating through actual bids from actual contractors employing actual workers, conveys that information with far greater accuracy than any regulatory determination.
The federal government spends billions each year trying to build housing that lower-income families can afford. A law enacted in 1931 to exclude competitive workers from federal contracts quietly inflates every budget. Repealing the Davis-Bacon Act would not solve the housing affordability crisis — but it would stop making it worse at government expense.
