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No Minimum Wage Worker Can Afford The Rent

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This is the claim at least, that no minimum wage worker in the US can afford the rent. Presumably therefore all minimum wage workers are homeless, an assumption that turns out not to be true. Thus there is something wrong with the original claim. Given how helpful we are around here we shall explain to you what is wrong with it.

The claim itself:

Minimum wage workers cannot afford rent in any U.S. state

That’s a nice headline, isn’t it?

Full-time minimum wage workers cannot afford a two-bedroom rental anywhere in the U.S. and cannot afford a one-bedroom rental in 95% of U.S. counties, according to the National Low Income Housing Coalition’s annual “Out of Reach” report.

Horrors.

The report is here and it’s a handful of “isn’t this terrible” (add “?” or “!” to taste) with a lot of pages of numbers showing this to be true in every city and county across the country.

It suffers from a number of problems this calculation.

The first and most obvious is that it considers market incomes only. HUD has a budget of some $50 billion a year and even that bureaucracy must be able to alleviate some amount of housing shortage with that amount of money. As it indeed does, it administers the Section 8 housing voucher scheme which enables millions of households to be able to afford the rent they couldn’t on their other income.

That is, this report is showing the situation before what we already do about the problem, not what more needs to be done after we’ve already splashed the cash. Which isn’t, as we know, the way to do it. For what we desire to know is how much more of the problem requires attention, not how much there would be if we weren’t even doing anything. This becomes more important when we consider the call made in the report – you guessed it, much more money must be spent – for we cannot possibly calculate how much more must be spent unless we know the residual of the problem still to be dealt with rather than the size before we do what we already do.

No, really, think on it. Say we expanded Section 8 – as Joe Biden is suggesting as it happens – so that every low income person in the country could in fact afford the rental of a nice snug place. This report would read exactly the same as it does now. It would still be true that minimum wage workers could not afford the rent even though we’re paying the rent for them. The report just isn’t telling us anything useful that is.

Then there’s a more fundamental problem. The basic human economic unit is the household. We should thus be looking at household income to determine whether people can afford a lifestyle, not the income of one person. This becomes more obvious when we think of what is being discussed here, the possession of s house inside which it is possible to be a household. The modal household is a two earner one so we should at minimum be considering that. But further, an awful lot of minimum wage workers live with someone who earns more than minimum wage.

Sticking the entire cost of an entire household upon the one wage is, well, casuistic, don’cha think?

But here’s the bit that really grates. From the report:

The report’s Housing Wage is 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.

Well, that rather depends upon what HUD’s fair market rent is really. As it happens:

HUD uses FMRs primarily to help determine the following:
– Payment standard amounts for the Section 8 Housing Choice Voucher program
(Between 90 percent and 110 percent of the FMR)

That is, if you can’t afford the fair market rent then this is when HUD will aid you in paying the rent you’ve got to pay. See above, we’re already solving some part of this problem with some part of that $50 billion a year. Bu8t of course this gets better too. For the report’s definition of not being able to afford the rent is set at the level where you can get aid to pay the rent. They’re actually using that standard at which we start to help as their insistence that people can’t afford it.

All a bit circular. And yet it gets worse. That fair rent level:

Calculated at the 40th percentile

Fair rent is whatever is 40% up the distribution from the bottom that is. And yet, and yet:

The percentage of hourly paid workers earning the prevailing federal minimum wage or less edged down from 2.1 percent in 2018 to 1.9 percent in 2019.

The minimum wage is around the second percentile. And why should people at the second percentile be able to afford housing at the 40th percentile? What would be wrong with people at the second percentile of income occupying the housing that’s at the second percentile in the spectrum of housing prices? Or, if we think they need some subsidy, the 10th, or 20th?

It’s amazing, amaaaazing even, how often these insistences that other people should have more of our money are based upon shaky foundations, isn’t it?

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1 COMMENT

  1. Excellent analysis as usual. And of course, if more money were given to alleviate the problem, it would make it worse, by increasing effective demand for housing, rather than increasing supply.

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