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Minimum Wage Earners Face the Affordability Hammer

According to a new study from Zillow, only in 10 of the 50 largest U.S. cities can two full-time workers earning minimum wage comfortably afford a typical two-bedroom rental. Nationally, four minimum-wage workers would have to double up in both bedrooms to not stretch their budgets.

In cities where there are higher-than-average rents–but the minimum wage is also higher–workers tend to fare better. It takes 2.5 full-time workers on average spending 30% of their income to pay two-bedroom rent in cities with minimum wage set beyond the federal level.

"This is perhaps the only context in which San Francisco is more affordable than San Antonio," said Zillow Senior Economist Nicole Bachaud. "Renters have been squeezed by record-fast rent growth while incomes haven't kept up. That's true for those making minimum wage, but especially so where the minimum wage hasn't budged for more than a decade. Clearing the path for more construction, especially at entry-level prices, is needed to make housing more affordable across the board."

Of the 10 cities where two full-time workers earning minimum wage could afford a typical two-bedroom rental, all have a minimum wage of at least $10 an hour. That includes cities with relatively inexpensive rent prices, such as Cleveland and Albuquerque, and also cities where a two-bedroom rental costs more than the national average, including Sacramento, Chicago, and Minneapolis.

The study cites six cities where at least four full-time minimum-wage incomes would be needed to reasonably afford a two-bedroom rental: Austin, Atlanta, Charlotte, Nashville, Dallas, and Raleigh. All use the federal minimum wage of $7.25 an hour and have been among the hottest housing markets in the country in recent years. Charlotte, Dallas, Nashville, and Atlanta are also among Zillow's hottest markets for 2023, making it likely that affordability will become even tighter in those markets.

A higher minimum wage on its own is not a solution to the affordability challenges facing low-income renters. Fourteen of the cities analyzed have minimum wages of at least $15 an hour—more than twice the federal minimum. Even in these cities, a single full-time worker earning minimum wage cannot reasonably afford a typical one-bedroom rental, and the minimum wage would need to at least double for that to be the case in eight of those cities. In San Francisco, which has the highest one-bedroom rents in the country, an income of $49.01 an hour is needed to reasonably afford such a rental.

Zillow research has shown that even modest densification measures — such as allowing two units of housing on a fraction of single-family lots in large metros—could add 3.3 million homes, and meaningfully slow housing price growth over the long term. A large majority (77%) of homeowners and renters surveyed by Zillow last year were supportive of either new accessory dwelling units, duplexes, or triplexes in residential neighborhoods.

Zillow noted that application fees can also add up during a rental search. More than half (57%) of renters submit at least two applications, with the typical application fee coming in between $40 and $59. For a flat fee of $29, renters can use Zillow's rental application to apply online for an unlimited number of participating properties for 30 days, which gives them the ability to control costs and add flexibility to their search.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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