It's time we gave working families a wage they can truly live on
Earlier this year, lawmakers in my home state of New York agreed to increase the statewide minimum wage from $7.25 to $9 over the next three years. It's time for the federal government to follow suit--and not just because it would give low-income workers a fair shake at a decent life. It's also sound housing policy.
There's no shortage of compelling reasons to increase the minimum wage: rising poverty rates among working families and a growing income gap between the haves and the have-nots, decades of inflation without corresponding cost-of-living adjustments, stagnating wages while corporate profits soar. But there's one argument you don't hear often enough: basics like housing are simply unaffordable to minimum-wage workers today.
Let's run through the numbers. At today's minimum wage of $7.25, a single mother of two working full-time makes about $15,000 a year, putting her just below the poverty line. According to the U.S. Department of Housing and Urban Development, in a relatively low-rent city like Indianapolis the fair-market rent for a two-bedroom apartment is $765 a month. So assuming no federal or state taxes--which we all know isn't really the case--she would have to pay 61 percent of her monthly income just to cover rent, leaving little for food, healthcare and other basics.
Research shows that such cost-burdened families tend to have unstable living situations, making them vulnerable to frequent moves and bouts of homelessness, with severe implications on a child's health, development and school performance. This is a particularly serious concern for low-income renters, who lack the resources to make rent payments when faced with a sudden reduction in income, an unexpected illness or another emergency.
Of course, rents vary from market to market, and many states (like New York) have set their own, higher wage floors. But according to the National Low Income Housing Coalition, in no state can a minimum-wage worker afford a two-bedroom unit at fair-market rates without paying more than 30 percent of their income in rent, a common benchmark for housing affordability.
So, how would raising the minimum wage help? First, let's take a closer look at the problem.
America's low-income families are facing a growing affordable housing crisis. More than 20 million families pay more than half of their income on housing, 8.5 million of which are low-income renters. That's almost a 50-percent jump from a decade ago, according to Harvard's Joint Center for Housing Studies.
Meanwhile, rents are expected to rise by five percent this year alone and few expect wages to match that pace, meaning an even deeper affordability crisis.
There are two basic ways to alleviate a severe cost burden: reduce rent or increase income. We have several ideas for accomplishing the former, including more resources for rental assistance, expanding programs that increase the supply of affordable rental homes and attracting more private investment in affordable housing development through public-private partnerships.
But to make a meaningful dent in the problem, we also need to address the income side. A few months ago, President Obama unveiled his plan to raise the federal minimum wage to $9. If that change were enacted, the single mom from Indianapolis would see her annual income jump to about $18,700, lifting her above the poverty line. Assuming the same fair-market rent, she would now have to pay 49 percent of her monthly income on housing--still a meaningful burden, but one that's far less severe.
It also would leave roughly $300 a month for her to spend elsewhere in the economy--on food, diapers, medicine, clothing. That wouldn't just improve her life and the lives of her kids; it would boost the entire local economy. It's time we gave working families a wage they can truly live on. It's not only the right thing to do, it's smart policy too.
Terri Ludwig is the President and CEO of Enterprise Community Partners, a leading national provider of the development capital and expertise it takes to create decent, affordable homes in thriving communities.