Last week, Democrats in Congress reintroduced the Raise the Wage Act, a bill that would gradually increase the federal minimum wage to $15 an hour and finally fulfill the key demand of a movement that started with a fast-food workers’ strike in New York City in 2012. If enacted, the bill would more than double the current federal minimum wage of $7.25 an hour. According to the House Education and Labor Committee, it would also raise wages for around 32 million workers, roughly a fifth of the American workforce, and lift 1.3 million people out of poverty.
Congressional sponsors say a minimum-wage increase could help speed the economy’s recovery from the Covid-19 recession. But well before the pandemic began, minimum-wage workers were struggling to cover basic expenses, and for them, a $15 minimum wage by 2025 could be too little, too late. Adjusted for inflation, the buying power of $15 in 2012, when the strike began, was actually $16.97, according to the Bureau of Labor Statistics inflation calculator. By 2025, $15 would have the same buying power as $12 in 2012 terms, according to a SmartAsset inflation projection. So even if the wage increase is approved, it would be like responding to a demand for $17 with $12 — thirteen years later.
According to last year’s Out of Reach report from the National Low Income Housing Coalition, full-time workers needed to earn more than $15 an hour — often much more — to be able to afford a typical two-bedroom apartment in all but four U.S. states. Currently, the average minimum-wage worker in the United States has to work two entire full-time jobs (79 hours a week) in order to be able to afford the average one-bedroom apartment, according to the report. The national “housing wage,” which the group defines as “an estimate of the hourly wage full-time workers must earn to afford a rental home at HUD’s fair market rent without spending more than 30% of their incomes,” is $19.56 an hour for a typical one-bedroom home and $23.96 an hour for a two-bedroom unit. In states like Washington, California, and Massachusetts, the housing wage exceeds $30 an hour.
Most debates about America’s affordable-housing shortage revolve around policies aimed at increasing the supply and reducing the cost of housing, from upzoning urban land to requiring affordable units in market-rate projects, expanding housing choice vouchers, and spending more money on new affordable-housing construction. But part of the affordable-housing problem, especially in places with relatively lower-cost housing markets, is that renters just don’t have enough money, as some have argued. Could a minimum-wage increase be an effective affordable-housing policy? Or would landlords simply increase rents to adjust to tenants having more income?
Two recent papers explore the question. For a forthcoming article in the journal Regional Science and Urban Economics, Atsushi Yamagishi, a Ph.D. student in the Princeton University Department of Economics, studied the impact of a 2007 minimum-wage law revision in Japan. Looking at regional variations in wage and rent increases, and differences in rent increases between older and newer apartments, Yamagishi estimated that a 10% increase in minimum wages induced a 2.5% to 4.5% increase in housing rents in urban areas. The research suggests that minimum-wage increases benefit workers, but also their landlords, Yamagishi tells Next City.
“The typical counter-argument against minimum-wage hikes is like, oh, it might hit the local economy very badly and destroy jobs and it’s even bad for workers, but my findings suggest that even if I take into account all these potential side effects, minimum wage [increases] still benefit workers,” Yamagishi says. “But at the same time … the benefit for workers was somewhat attenuated due to this housing-costs increase. And this benefit goes to homeowners, and we should be careful about that, because homeowners are usually kind of very wealthy people and we don’t want to benefit them too much. They aren’t the target of the redistribution policy.”
Another paper from the Federal Reserve Bank of Philadelphia, published in 2019, explores whether minimum-wage increases benefit the intended households. The authors used data from RentBureau, which tracks “payment patterns of individual leases in multifamily properties,” to determine how payments were affected in states where minimum wages were increased between 2000 and 2009 versus states without increases. They found that renters in areas with increased wages defaulted on rent substantially less than renters in other areas during the three months after the increase occurred. But the effect was reduced over time as landlords raise rents, the authors found. Brent W. Ambrose, a professor in the Smeal College of Business at The Pennsylvania State University and co-author of the paper, says it’s a basic consequence of supply and demand that prices, including housing prices, will eventually respond to wage increases.
“Our study indicates that there are some benefits of [raising the minimum wage],” Ambrose says. “It would help stabilize households at the very low income level and, potentially, our results suggest that the default rate on their leases … might go down. But it’s not a panacea for everything, because we observe that the market will react and rents will go up over time as well.”
Other policies that progressive groups have advocated for, like rent control, could theoretically restrict the amount of a wage increase that is claimed by landlords. But Ambrose and many economists believe rent control distorts the housing market by restricting the supply of low-cost housing over time.
A minimum wage increase would benefit very low income renters even if their landlords end up jacking up rents, says Andrew Aurand, vice president of research for the National Low Income Housing Coalition. At the lowest end of the market, charging higher rents could theoretically let landlords make much-needed repairs to their units (if landlords are motivated to do so). And a minimum-wage increase could theoretically help increase the supply of subsidized housing as well. Renters who use vouchers or live in public housing pay a portion of their income toward rent, and if their income grows, so does their payment. That means the agencies supplying the subsidy would theoretically have more money to distribute to other tenants, Aurand notes. In addition to restricting evictions, providing more rental assistance, and investing in more affordable-housing around the country, Aurand says, raising renters’ income is an obvious way to help.
“We’re fully supportive of raising the minimum wage because of what we see among extremely low-income renters,” says. “They don’t earn enough to afford their basic needs. One of the most expensive of those needs is housing, and this would at least give them some additional options.”
This article is part of Backyard, a newsletter exploring scalable solutions to make housing fairer, more affordable and more environmentally sustainable. Subscribe to our weekly Backyard newsletter.
Jared Brey is Next City's housing correspondent, based in Philadelphia. He is a former staff writer at Philadelphia magazine and PlanPhilly, and his work has appeared in Columbia Journalism Review, Landscape Architecture Magazine, U.S. News & World Report, Philadelphia Weekly, and other publications.