Living Wage Rate Tied to the Cost of Housing and Child Care

Written by Dr. Amy K. Glasmeier on 06/14/2017

Living wages include several cost factors; the two most important are housing and child care expenses . The Living Wage Calculator uses the county level Fair Market Rent (FMR) rate produced by the Department of Housing and Urban Development as part of its calculus. Using the same indicator (FMR), new research by The National Low Income Housing Coalition (NLIHC) reinforces the findings of the living wage tool: the cost of living in the overwhelming majority of the nation's counties exceeds significantly a full-time income earned based on the minimum wage (http://nlihc.org/oor). As the NLIHC research shows, rent alone for a two bedroom apartment requires a wage rate that is more than $21.00 an hour. As the study indicates, this level of income is 2.9 times higher than the minimum wage of $7.25 per hour. Our computation of the living wage parallels these findings adding weight to the underlying fact; it is almost impossible to make it in America today based on incomes earned at the level of the minimum wage. According to the report, "in only 12 counties can a full-time minimum-wage worker afford a modest one- bedroom rental home."

The Coalition offers a detailed assessment of the struggle to make a living wage given the low pay associated with the minimum wage. The study points out that occupation matters significantly in a worker's ability to earn a wage sufficient to cover his or her housing costs. According to the report:

" Six of the seven occupations projected to add the greatest number of jobs by 2024 provide a median wage that is not sufficient to afford a modest one-bedroom rental home. What is particularly alarming about the high cost of housing is there are more than 11.2 million severely cost-burdened renter households spending more than half of their income on housing (NLIHC, 2017c). More than 20 million renter households live in housing poverty, meaning they cannot afford to meet their other basic needs like food, transportation, medical care, and other goods and services after they pay for their housing (NLIHC, 2017c)".

The problem of housing affordability is not just the result of low wage work. The rental real estate market continues to experience high demand. NLIHC reports "a record 43.3 million households were renters in 2016, representing a 26.5% increase since 2006 (U.S. Census Bureau, 2017b)." Meanwhile, the homeownership rate dropped from 68.8% to 63.4%. These circumstances combine to yield a decline in the national rental vacancy rate from 9.8% in the 4th quarter of 2006 to 6.9% in the 4th quarter of 2016 (U.S. Census Bureau, 2017b). According to the Consumer Price Index (CPI), the rental cost of a primary residence rose 31.9% over those ten years, which was higher than overall inflation of 19.1% (U.S. Bureau of Labor Statistics, 2017a)."

Excess demand for rental properties, a negative net increase in low-cost rental property supply and increasing income inequality fueled by continued growth of low-wage work combine to produce pressure on individuals and families seeking affordable shelter. The NALIHC reports the greatest gap in housing availability is in units for the nation's lowest-income people and families. This shortage reflects both an absence of affordable low-cost units combined with the overall competition for rental housing that places higher income households into lower cost rental units.

The NLIHC report is a significant and distressing report on the state of economic security in America. References in the report include discussion of the best and worst locations for low-income housing supply. http://nlihc.org/oor