Friday, July 26, 2019

It's The Rent Stupid!

Why raising the minimum wage to $15 or $18 or $20 won’t make low wage/skilled workers wealthier or better able to afford the necessities:

A study conducted by the National Low Income Housing Coalition reveals that in 99% of counties, anyone working full time at their state’s minimum wage cannot afford a market rate one bedroom apartment without spending more than 30% of their income on rent. 40% of renters nationwide, including many who make well over minimum wage, spend more than 30% of their income on rent and 3.6 million renters spend more than half of their income on rent. In New York City, one would need to make at least $30.75 per hour to comfortably afford a modest one bedroom apartment, at market rate, without spending more than 30% of their income on rent. In comparison, the average renter in the city makes about $25 per hour and the current state wide minimum wage is $11 per hour. Obviously, if people making well over minimum wage are struggling to stay afloat, raising the minimum wage a few more dollars over a few years won’t make housing and other necessities affordable. In fact, housing costs would likely grow faster than the proposed minimum wage increase. The problem is not that wages are too low, but that rents are too damn high. In California, especially along the coastal region, the problem is even worse. In San Francisco, one would need to make $49.25 per hour to comfortably afford the average one bedroom apartment, at market rate, without spending more than 30% of their income on rent. In Los Angeles it’s doable at $27 per hour, but still well over the proposed minimum wage hike of $15 or $18 per hour. In Seattle, Washington one would need to earn about $30 per hour to spend less than 30% of their income on a one bedroom apartment. It should be no surprise why these cities have more than half of the homeless population in the country.

Why Higher Skills/Education is Not The Solution

Of course, making $27, $30, or even as much as $50 per hour requires some kind of skill (like coding) or higher education. However, increased skill or education can only raise wages in so far as it gives some labor force participants a competitive edge over others (i.e. it is desirable to employers but rare). If everyone learned to code it would no longer command a high wage and it would no longer be a marketable skill. If learning statistics and SPSS became as common as learning how to use the Microsoft suite, something that every high school student knows, it would no longer allow job candidates to negotiate higher wages. Learn to code or learn a trade is not a solution to a systemic problem as higher skills and education can only ever raise wages individually never generally in proportion to rent. Send everyone to college and four year degree will no longer be a ticket to the middle class and a cushy office job as it used to be; college graduates will end up doing menial labor alongside high school dropouts. Over saturate the market with any skill, trade, or knowledge and it will bring in lower returns to those who possess them.

Why more Development is not the solution

While most major cities are suffering from a housing shortage due in large part to their own legal restrictions on new development, simply building more rental units will not necessarily make housing affordable for everyone. The YIMBY proposal of just get government out of the way and build more apartments fails to account for the fact that what they call the ‘housing market’ is actually city planning. The supply, type and size of housing in a given county or metropolitan area is decided and allocated by a city planning commission not ‘market forces’ or the abstract supply and demand curve. Ultimately, housing is and should be considered a public good just as roads, airports, and hospitals currently are even when they are built or owned by private organizations. Like these public goods, most urban development has been effected through public financing and eminent domain seizures (e.g. Urban renewal in the 50’s and 60’s). Housing instability and homelessness are not market outcomes or individual choices, they are public policy choices. The remedy is to ensure that everyone has a home regardless of their ability to pay.

How to provision affordable housing

Of course, I am not suggesting that we return to the era of public housing projects or build more rent controlled apartments; both of these options have problems in their own right such as decades long waiting lists and crime. A more radical and expedient solution would be to shift all local taxes from wages to incremental land values. Property tax schemes, as they currently stand, pass the burden to tenants and homeowners, place a premium on speculation and a penalty on improvement. Property taxes are not only regressive in nature, they’re also antithetical to development increasing as value is added to the property. A property tax only on incremental land value shifts the burden from tenants and homeowners to landlords, mortgage lenders (by reducing mortgage interest),and speculators. A property tax only on incremental land value places a premium on development and a penalty on speculation making it unprofitable to hold lots out of use to fetch a higher price. As I have detailed in previous posts, this should be done in conjunction with a liberalization of zoning ordinances, in particular, a complete abolition of single family zoning, implementation of density bonuses, and by right development of low income housing. In such instances where a proposed development for low income housing would otherwise need a variance, it should be given approval as a civil rights matter wherein refusal could possibly be contested as discrimination or adverse impact. The legal definition of low income should also be expanded to include all incomes that are at least one standard deviation less than the median area income.

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