Renters fly below the radar of most real estate agents, eluding notice until they express interest in becoming homebuyers. So you may be wondering: “Why should I care about renters’ wages?”
Here’s why: today’s renters are tomorrow’s first-time homebuyers. If your future crop of first-time homebuyers was struggling, wouldn’t you want to know?
California has the third-highest rental housing wage in the nation (right after Hawaii and District of Columbia), at $26.65. This means an hourly worker needs to make $26.65 per hour to qualify for an average two-bedroom apartment at 30% of their monthly income.
California’s average renter earns a lot less than $26 per hour.
Let’s start at the bottom: at California’s 2015 minimum wage of $9 per hour, a minimum-wage worker has to work:
- 118 hours a week to qualify for a two-bedroom apartment at 30% of their income (that’s nearly three full-time minimum-wage jobs); and
- 92 hours a week to qualify for a one-bedroom apartment at 30% of their income (that’s 2.3 full-time minimum-wage jobs).
The average-wage renter earns $18.96 per hour, twice more than the minimum wage… but still well below the $26.65 rental housing wage. For this average-wage renter, they need to work:
- 56 hours a week to qualify for a two-bedroom at 30% of their income (that’s 1.4 full-time average-wage jobs); and
- 52 hours a week to qualify for a one-bedroom at 30% of their income (1.3 full-time average-wage jobs).
But California is a pretty big state with varying income levels and housing costs across its regions. Here is the rental housing wage broken down further:
*Los Angeles’ minimum wage is set to increase to $15.00/hour by 2020.
The housing wage is set by the National Low Income Housing Coalition and represents the hourly wage needed to qualify for an average two-bedroom rental housing payment at 30% of a renter’s monthly income.
The San Jose metro area actually has the best renter’s market in California based on this criteria, as the average hourly wage in San Jose is basically equal to the rental housing wage. Thus, an average renter in San Jose can qualify for a two-bedroom apartment on their own. In contrast, Santa Cruz-Watsonville has one of the worst renter markets in the state, since the average hourly wage is less than half the rental housing wage. There, it takes 2.5 average hourly wage earners to qualify for a two-bedroom.
Increasing the minimum wage is just the first step
All this being said, simply raising the minimum wage won’t solve California’s rent crisis. Increasing the minimum wage across the board has its own drawbacks, from stifling small business growth and slowing job growth overall, to pushing out large businesses that find cheaper labor in other states. A better way to address the wage-rent imbalance is on a local scale.
Regions with higher costs of living need to have higher minimum wages. This will bring up the average wage in areas where rents are well out of reach for service workers.
A good way to do this is by following the local consumer price index (CPI), which reflects increases in goods and services in that area’s economy. It’s common for salaried employees to receive annual increases to account for inflation, so why shouldn’t hourly employees receive the same consideration?
In fact, landlords have already caught on to this idea, as long-term nonresidential leases are often adjusted annually based on CPI. However, when demand outstrips supply, the price of rents rises more quickly than CPI.
Therefore, to really get at the underlying problem, policy makers can loosen up zoning restrictions on multi-family construction. This will allow builders to meet the increased demand from renters, cooling down overheated rents. Some organizations are already working to change outdated zoning limitations that stifle growth and cause rents to rise more quickly than wages. Join them at your local level, or attend a city council meeting.