housing affordability and minimum wage

Minimum Wage and the Housing Affordability Crisis

housing affordability and minimum wage

Recently a few articles such as this and this provided some shocking insight into minimum wage and its relation to apartment affordability. The report by the National Low-Income Housing Coalition that is cited shows the number of hours of work required at minimum wage in each state to be able to afford the 2015 Fair Rent of $806. Minimum wage workers would need to clock between 49 and 125 hours to be able to afford the 2015 Fair Rent of $806. Note that 125 hours is more than the 120 hours a worker might expect to clock in an entire month. It is a shocking insight into housing affordability and a tool to incite the national debate for raising the minimum wage across the United States. The study, however, doesn’t tell the whole story.

 

I recalculated those hours based off of each state’s minimum wage and average rent for a one-bedroom apartment. Using those values, the number of hours worked rises to between 80 and 245 hours. Here are the ten states with the most affordable rent for minimum wage workers.

 

Screen Shot 2016-01-27 at 4.48.56 PM

 

These are the ten states with the least affordable rent for minimum wage workers.

 

Screen Shot 2016-01-27 at 4.49.23 PM

 

Yet, I’m not saying we should rush out and raise the minimum wage because of these results. Actually, if you delve into the data there are two other conclusions that one could make. First, you notice there is a positive correlation between rent and minimum wage. It’s hard to say which came first, but it is evidence to support the argument that increasing wages does little to increase affordability because prices simply adjust accordingly. The economic theory suggests that if employers have to increase wages, they will simply pass on that increase to their customers in the form of higher prices. In the end, the increased minimum wage does nothing to change the purchasing power of those wages. I’m not making the argument that you should draw that conclusion from this data, but this data could signal that relationship.

 

Another point that is often overlooked or neglected for the purpose of political correctness is that minimum wage workers are not living in apartments at this average rental rate. At least, they are not living there alone. Either you have a household working to afford the rent, or more likely, minimum wage workers are living in cheaper apartments. Minimum wage is not the average worker’s salary. It is the absolute left side or minimum of the salary distribution. While average apartment rents get reported, you don’t see the full distribution of rents. In all likelihood, minimum wage workers are living in apartments that cost far less than the average rent. When you make the minimum wage, you don’t get to live in an “average” apartment. When you make an average salary, you don’t get to live in the nicest and most expensive apartment. It’s just a fundamental fact of economics and does not have to be political. If you want to have a nicer apartment, don’t settle for minimum wage employment. Get some extra training and education, get to work on time, do a great job, and soon you will find yourself in a good position for a raise and promotion. Strive to do more than the minimum and be more than the minimum. Also, take some time to look at the data being reported and its interpretation.