Last week President Obama gave his State of the Union Address. As was expected, the speech was largely focused on income inequality.
He made a plea to American business owners to voluntarily raise the minimum wage they pay their employees to $10.10 an hour. To be clear, he did not ask Congress to raise the minimum wage in this State of the Union. He already did that last year and the request has languished in the hands of our do-nothing Congress.
The president also cajoled Congress to send him legislation that:
“protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations.”
A provocative statement, but one he did not extrapolate on, instead shifting gears immediately to healthcare.
In fact, the somewhat cryptic statement made above was just about the only time the President explicitly mentioned housing markets. But the proposal to raise the minimum wage cuts to the core of getting the real estate market back on track for generations to come.
Arguments against raising the minimum wage are as plentiful as they are dumb. They range from the now disproven theory that raising the minimum wage slows job creation, to the (im)moral statement that the under-skilled and undereducated simply don’t “deserve” a living wage.
Bumping an individual’s salary up from $7 to $10 an hour does not make the difference in whether that individual can purchase a home. But the economy is greater than the sum of its parts.
Increasing the minimum wage contributes to a virtuous economic cycle that spurs growth in the real estate market. Consumers have more to spend, which in turn leads to greater demand for goods and services, which encourages job growth. This is what the real estate market needs for an increased turnover volume and long-term stability.
To allow widespread poverty in an economy dependent on the purchasing power of its participants is pure folly. The collapse of the real estate bubble and the 2008 financial crisis marked a new era. Prior to 2008, wage stagnation and income inequality persisted since it was supplemented by enormous amounts of debt.
Now that the debt bubble has burst (sending our economy into a depression by the way), there are two choices: allow another debt bubble to grow, or work hard and fast to increase wages, create jobs and create the conditions of possibility for widespread savings and eventual homeownership.
Our economy has settled into a period of secular stagnation. Continued austerity only compounds the stagnation. Raising the minimum wage is a modest step toward real stimulus for the real estate market and the economy as a whole.