Cost of living and minimum wage.

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Cost of living and minimum wage.

Post by Incubi » Wed, 26. May 21, 04:12

Here is something that I do not understand about economy. And I know the answer is because of dishonest practice.

Whenever minimum wage goes up, so does rent. The excuse is that people can afford higher rents with higher pay. While that looks good on paper, lets dig a little deeper. Using the 30% rule where your rent should never be more than 30% of your income. The highest minimum wage in America is $16.48/hr. A full time job is 40 hours a week but you generally only get paid for 35. based on a 52 week year that is $27,300 divide by 12 and you get $2,275 a month. 30% of that is $682.50 and that is the highest rent that you should pay. This is in Emeryville where your not likely to find even an unfurnished studio in the worst part of town for less than $1,250 which is more than half your income. The median income in Emeryville is $56,614 which claims that the average person is making over $30 and hour. So how does raising the minimum wage make the area more affordable for anyone? Mom and Pop shops that still exist have to pay more, and the person making it is still unable to benefit because the increase is absorbed by the cost of living which is already more than they can afford. Emeryville was just an example.

I can't get a reliable percentage of America making minimum wage. I saw one page claimed 1.9% which makes no sense because that is much lower than high school drop outs.

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Re: Cost of living and minimum wage.

Post by red assassin » Wed, 26. May 21, 11:26

Your assumption that rent costs simply track the minimum wage isn't true. You're assuming that the rental market consists solely of people earning minimum wage, that there's a consistent proportion of income that landlords will extract for rent, and that supply doesn't affect the price, none of which is true. A brief look at historical data shows that rental costs have significantly outpaced median incomes, never mind the minimum wage. Further, the minimum wage is closer to the median income in effectively every other developed economy and hasn't produced all the dire economic consequences warned about by US conservatives. The solution to high rents and high property prices is to increase supply by building more housing, and moderate demand in hotspot cities by removing the requirement for wealthy office workers to live in them (see for example Silicon Valley's effect on local property prices). But of course that's an unpopular policy among the wealthy and generally older people who already own property and rather like increasing property values and high rents, economic consequences of trapping entire generations in perpetually pouring most of their income into the pockets of older generations be damned.
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Re: Cost of living and minimum wage.

Post by clakclak » Wed, 26. May 21, 13:17

red assassin wrote:
Wed, 26. May 21, 11:26
[...] The solution to high rents and high property prices is to increase supply by building more housing, and moderate demand in hotspot cities by removing the requirement for wealthy office workers to live in them (see for example Silicon Valley's effect on local property prices). But of course that's an unpopular policy among the wealthy and generally older people who already own property and rather like increasing property values and high rents, economic consequences of trapping entire generations in perpetually pouring most of their income into the pockets of older generations be damned.
This is also how you generate a lot of social unrest and get many people who are no longer willing to just consider solutions like "building more housing", but instead have people calling for radical options. Kevin Kühnert (a member of the SPD one of Germany's currently ruling parties) for example controversially called for the expropriation of everyone who ownes more than one house or flat.
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Re: Cost of living and minimum wage.

Post by greypanther » Wed, 26. May 21, 15:21

I have always suspected that the main drivers behind rent price increases, are mainly supply and demand; along with people ( house owners, ) always trying to max out on their investment. Here in the UK, things got out of hand, due to Margaret Thatchers " Right to buy scheme. " The supply of social housing just disappeared very quickly. Social housing is a much, ( in my not at all humble opinion ) needed essential. Affordable homes are a very basic human right. Everyone needs a home, so in a way, owners have people over a barrel, as it were.

I am afraid I too see no evidence of it being linked to any minimum wage.
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Re: Cost of living and minimum wage.

Post by Mightysword » Wed, 26. May 21, 18:45

As other had stated, cost of living - especially rent/mortgage has very little to do with minimum wage. I would go as far as saying minimum wage has little to do with most cost living , beside being a popular political tool. The only one thing I think where something like minimum wage matter is in relate to food cost, and by food I mean groceries from the market, not cooked meals from a food shop. Because it's one item that's heavily subsidized in most developed countries and the cost stay relative the same across the board. Everything else is driven by supply / demand that something like minimum wage has no effect on what so ever.

Increase the supply of house and the supply of job, and the cost of living issue will most likely sort itself out. In the case of housing, maybe a policy prioritize local consumption over foreign investment may help, but anything else is just a short term hack.
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Re: Cost of living and minimum wage.

Post by Vertigo 7 » Wed, 26. May 21, 19:34

The fact remains that cost of living increases frequently and the minimum wage rarely does to compensate. We have people working 3 or more jobs just to put food on the table and pay their bills because some states refuse to mandate a livable wage. God forbid any of those folks have some kind of medical needs either because I can guarantee you that hardly any of them are working any of those jobs full time and would qualify for employer provided insurance. One trip to the hospital and they'll be in utter ruin.
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Re: Cost of living and minimum wage.

Post by Fishille » Wed, 26. May 21, 22:26

As a landlord I have only increased rent once, and that was because my property taxes and insurance had gone up to a point where I would get less money in rent then I paid a month on the mortgage, escrow, and management fees.

Areas with the highest cost of living are not necessarily the areas with the highest average income. The reason why the cost of living ends up being high is supply and demand. There is a huge demand for housing in the area and the supply is low. These areas are filled with people who would rather pay more in rent then move somewhere else, which is why the demand is so high. The local governments and states have to mandate a higher minimum wage to ensure there is a workforce which can work the lowest end of the spectrum. One notable situation is Aspen, Colorado where the majority of the people who work in Aspen, live outside of Aspen and have to commute there for work because the wages earned working there can not even come close to paying to live there (few exceptions, and not considering special employee housing programs)

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Re: Cost of living and minimum wage.

Post by Dreez » Thu, 27. May 21, 19:46

What i don't understand is how in the US, you can have 3 jobs and still be homeless and can't afford proper medical care...

I pay half my paycheck in rent and bills, i then live cheap - no drugs etc etc - just homemade food , one pizza a month,
and i put 1/4 of my paycheck as saving in my matress..

So i don't understand how some people who makes thousands of dollars a month, can't make a living.
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Re: Cost of living and minimum wage.

Post by Vertigo 7 » Fri, 28. May 21, 18:02

having 3 minimum wage jobs does not = thousands of dollars per month. Bear in mind, most minimum wage jobs are not full time jobs.

Employers keep minimum wage workers below 20 hours per week to avoid having to pay employee benefits such as health insurance, paid time off, retirement plans, etc. Even assuming one had a full time job at minimum wage, that comes out to a whopping $290 gross income per week, or just a fuzz over $1160/mo, and that's before taxes and any other deductions.
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Re: Cost of living and minimum wage.

Post by Mightysword » Sat, 29. May 21, 00:50

Dreez wrote:
Thu, 27. May 21, 19:46
What i don't understand is how in the US, you can have 3 jobs and still be homeless and can't afford proper medical care...

I pay half my paycheck in rent and bills, i then live cheap - no drugs etc etc - just homemade food , one pizza a month,
and i put 1/4 of my paycheck as saving in my matress..

So i don't understand how some people who makes thousands of dollars a month, can't make a living.
It's not a simple number game. Someone works multiple jobs or a family that's too busy will also have more overhead cost than normal. You mentioned one of the most important difference right there that I highlighted. If someone is too busy to cook and eat out all the time, chance is their food cost would eat up the entire income from one job, then you have things like child care, gaz, car maintenance ...etc... I once helped an acquaintance figure out why the budget for his family is bad despite their combined income is quite high, and the conclusion I arrived was to have one of them to quit the job and stay home. In turn, that person would cook and also look after the kids instead of sending them to day care. The money save would result in a net positive even after losing that income.

The healthcare is just an American thing, and while it tend to be a problem with people on low income, it's not quite tied to the number either. It's quite possible to land on a job that doesn't pay very well but give you full benefit (usually entry level government jobs), someone who works on such a job for say .... $45000 a year would probably be in a much better shape comparing to someone who work 3 minimum wage job with a combined income of $60000.
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Re: Cost of living and minimum wage.

Post by Vertigo 7 » Sat, 29. May 21, 04:55

uhhh... if someone is earing 60k/yr from minimum wage jobs they're putting in 159 hours per week which would leave a whole 9 hours for sleep, food, or anything else per week. 1 full time minimum wage job, 40 hours per week, has annual gross income of $15,080. So unless you're from a planet that has more than 24 hours in a day, your numbers are way off base.
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Re: Cost of living and minimum wage.

Post by Chips » Mon, 31. May 21, 13:53

red assassin wrote:
Wed, 26. May 21, 11:26
The solution to high rents and high property prices is to increase supply by building more housing
It's a bit more nuanced then that though. Building more properties won't devalue the existing ones by reducing demand per se (reducing prices). Currently property remains the best investment vehicle for some people's money (as in being very very safe). Property prices won't likely decrease even if we plonked 1 million houses down in one year (the increases may slow though). Maybe if we put down so many that we had a huge surplus it'd happen? The reason being those with the cash and ability to borrow would snap them up and attempt to rent them out because it's such a good investment vehicle. Perhaps after a few years with a significant surplus the empty houses unable to rent would be sold, therefore start bringing the market down (both rent and house price-wise) but it'd be slow.

Companies, meanwhile, will prioritise profit first and foremost, hence tiny houses on tiny plots of land; maximise price while minimise expenditure (by not having to buy too much land, nor giving away reasonable sized gardens/garages etc). The new houses will just become intolerably small (or the smallest allowed) and then supply slowed/stopped. They want to make profits over everything else.

The reality is that our house price boom in the UK was likely fuelled by mortgage and other lending choices. I worked at a bank who were "proud" to offer 5x my wage as mortgage given I was an employee; the standard was 3x your wage in the late 90's early 00's. I could never afford a house with even 5x mortgage due to wage being terrible - so left.

A few years later if i were buy-to-let I could borrow 100% of the property value and only pay the interest off instead - something (for obvious reasons) mere first time buyers could never achieve. They still had to satisfy all those hoops, meaning prices rose and created the ever more attractive buy-to-let as people had to rent longer to save money and couldn't get on the ladder otherwise... yadda yadda.

Stamp duty isn't really deterring at present and as we've seen, the "holiday" during the pandemic has just resulted in huge price rises for property (fuelled by potential increased demand as people suddenly realise the value of having space instead of living their lives in the restaurant/cinema/pub etc). 2nd homes to the fore again and plenty of people still doing buy-to-let.

I do think people should be able to have 2nd homes if desired, but I also think there should be cost implications (especially going beyond that with trying to build portfolios of rental properties). At the same time... we also do need a rental market, but the continued efficacy of buy-to-let and so on is just too attractive.

No idea how to solve it; build social housing, but it'd have to be bare minimum size/quality as a stop gap - otherwise why would anyone try to own their own home (as in - state, provide me everything, including a home) - they could live in one forever and demand upgrades for free if family increased in size etc. Is that viable? Why would I bother working 20 years to pay a mortgage off?

I hate the fact that house prices are so insane that people will work (even on good wages) for decades to pay for it. They could build it themselves much quicker than work-to-pay for it (materials included).

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Re: Cost of living and minimum wage.

Post by red assassin » Mon, 31. May 21, 17:11

I agree completely that there's a lot of policies which have propped up the growth of the housing market and compounded the problem. Enabling of buy-to-let mortgages and holding empty properties in expensive areas as an investment are both major problems. I also agree that incentivising building is an interesting regulatory balance given that house builders have as much of an interest as property owners in keeping prices as high as possible. I think that social housing is a good lever here, actually: if you're guaranteed a basic home, then predatory landlords and housebuilders no longer have the rest of the population over a barrel and need to provide something that's actually better for it to be worth spending the money.

I do disagree that forcing supply up one way or another won't ultimately end the problem, though. Yes, we need to force it up enough that the demand for the worst end of the property market drops out. Yes, that means building a lot of homes. (There's some degree of flex here though and this doesn't necessarily mean building properties just to leave them empty: there's not a consistent ratio of people to homes occupied; with cheaper property many people who currently live in multi-person house shares - whether with family, friends or strangers - for financial reasons would likely move to their own properties.) And ultimately we have a supply problem! Put the population change and the number of new dwellings completed on a graph together and it becomes extremely clear that supply hasn't kept up. Population change has increased steadily since the 70s; house building has not. (Data from ONS in both cases. Click for bigger.)
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Re: Cost of living and minimum wage.

Post by Mightysword » Mon, 31. May 21, 20:15

I dont know how it is now, but the place I came from (Vietnam) didn't have things like mortgage when I was there and I can't tell you its absent doesn't do anything for the price. It's a different dynamic but the supply/demand equation is the same. Most people still can't afford a house, not at young age or in the lower income bracket anyway. You have to be decisely middle class, and only after probably a decade or two of hardworking and smart budgeting that a family can buy their own house. Without the demand from the mortgage model, you just won't see many supply either. Overthere there isn't a lot of investor building house to sell (most investment is in land). Most new family house are built by commission (new family affording their new house), or apartment units built by the government, there is very little private investment. Thus property values in big cities still outstrip cost living and remain out of reach of most young people.

I think one way to solve it is for the goverment to enter the market as a participant. Build new houses/apartment to market standard (not the cheap one of social housing). Sell/rent them to the populace at (or slightly less) then market price, but it must turns a tidy profit. But those profit instead of enriching individuals, will go toward building the next unit. This way you create a sustainable housing expansion that doesn't base on greed or need something like raising tax. The scheme can only last if on the part of population don't take it as "entitlement" (oh this is built by tax money so it must be given for free or cheaply), and the part of the government to make sure the profit only goes toward building new houses, and not getting yeet into balance the general budget (which government always do). Also unlike private sell, these house can be sold under the condition that the tenant must live in the house and/or only allow to rent once the pay off the mortgage.

It won't solve the shortage in short term in any meaningful way, but overall long term it can keep price under control by providing steady supply.
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Re: Cost of living and minimum wage.

Post by greypanther » Mon, 31. May 21, 22:52

Mightysword wrote:
Mon, 31. May 21, 20:15
Also unlike private sell, these house can be sold under the condition that the tenant must live in the house and/or only allow to rent once the pay off the mortgage.
In the UK, I truly dislike what Thatcher did with her right to buy scheme, which was pretty much as you outlined here, however, greed found a way. There are several people I knew of who made an awful lot of money from her scheme, ( loopholes, ) which I am sure she meant with the best of intentions. I agree with the second half of your post, only minus this bit. It would be, has been corrupted here in the UK. Worst still here in the UK, many houses went out of the reserve of social housing and were never replaced.

I can't help thinking what my Grandma might have said about the whole situation: " The road to hell is paved with good intentions. "

I will say again: A decent home is one of the most basic of human rights. Just define decent now... :roll:
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Re: Cost of living and minimum wage.

Post by Tamina » Thu, 3. Jun 21, 17:59

Incubi wrote:
Wed, 26. May 21, 04:12
Using the 30% rule where your rent should never be more than 30% of your income. The highest minimum wage in America is $16.48/hr. A full time job is 40 hours a week but you generally only get paid for 35. based on a 52 week year that is $27,300 divide by 12 and you get $2,275 a month. 30% of that is $682.50 and that is the highest rent that you should pay. This is in Emeryville where your not likely to find even an unfurnished studio in the worst part of town for less than $1,250 which is more than half your income. The median income in Emeryville is $56,614 which claims that the average person is making over $30 and hour.
[...]
This is my angst for the day.
When I was a student, I wasn't able to and not even allowed to work for more than 10 hours a week by law. Most students work for minimum wage jobs because their low-financial situation is exploitet by the free market, and it would be even lower without minimum wage. In fact, in Germany, student interships are not even eligible for minium wage, they can pay you nothing and you have to kiss their asses how thankful you are for this "opportunity". With minimum wage, 10 hours a week, it was a fraction of my rent..

I would even say that the same people or generation of people, in positions controlling wages, are the ones having enough money to own houses and renting them to the same people they are exploiting.

In my opinnion, maximum rents should be tied to the 30% rules. Depending on how much people make in that region, the rent of an average apartment shouldn't be allowed to be increased higher than 30% of that. End of story.

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Re: Cost of living and minimum wage.

Post by Mightysword » Fri, 4. Jun 21, 03:24

Tamina wrote:
Thu, 3. Jun 21, 17:59
In my opinnion, maximum rents should be tied to the 30% rules. Depending on how much people make in that region, the rent of an average apartment shouldn't be allowed to be increased higher than 30% of that. End of story.
It won't be the end of story.

It doesn't matter what kind of scheme you can come up on the income side, it will not do anything meaningful to put more people in housing. To effectively drive down the cost of anything, you need to make sellers compete with each others for buyers, and the only way for that to happen is for supply to meet or exceed demand. Sure you can come up with reasons such as greed as the what makes the market what it is ... but I don't think that's the main reason at all. At the end of the days, the housing market is out of whack is because the buyers have to compete with each others due to low supply, and that will always drive the cost up without fail.

Say, if you have 1000 houses available and 2000 people needing one, thus the competition drives away those at lower income. Now we decide we should give those people more income, that will have some short term effect of making them more competitive but then what? Without more house added to the lots at the end of the day it will still be 2000 people competing for 1000 houses. A cap will also only achieve some short term effect, in the end you may shuffle who get a house and who doesn't (with a raffle?) but you won't be putting any more people into housing. Again, rent/price is what it is because there just isn't enough supply. And I had mentioned in my previous post, a cap might have the side effect of gutting supply in a private market which in this case just gonna make it worse for EVERYONE, unless the government themselves enters the market.


And note that most place with housing crisis is largely not due to just local factor. Before I bought my house about 14 years ago, I paid $600 for a 2 bedrooms. These days I get "weekly" offer for my house at 3-4 times the amount I bought it for. And you'll be lucky to get a 2 bedroom less than $1500 where I live. That kind of jump can not be explained by local growth or simple greed. Colorado had seen explosive growth for the last few years due to various factors, there were years it was even ranked #1 as the fastest growing state in the US. Colorado minimum wages is well above the federal one, at $12.00 an hour, Denver City actually has it own minimum wage at $14.77 this year and will raise to 15.87 next years, and most place will hire for more than that. Still, unless you work more than one job, have overtime, or share the room with someone, you will still gonna struggle with your rent (and forget about affording a house).

And that will be the case until either less people coming here or a lot more houses are built. It's the reason why New York (I think?) last year deny Amazon a plan to build the new HQ there, despite the fact it will draw in many many high paying job. That influx of workers would just give the city a new housing crisis.
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Re: Cost of living and minimum wage.

Post by Tamina » Fri, 4. Jun 21, 03:59

Rents are not driven by supply and demand. Housing is a highly speculative trading asset. People are willing to pay ever increasing prices for property because they are speculating that someone in the future will pay even more for it.

500.000 empty homes in Britain while an ever increasing number of people are living in emergency shelters.

If housing would be based on supply and demand then there wouldn't be empty houses due to nobody being willing to pay the rent. You would expect the rent to go down, but no, there are whole districts in London without a single soul living there.

Rent is what pays off those loans which were used to buy property. So rents are rising with the buying prices. The only solution is to cap rent pricing.

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Re: Cost of living and minimum wage.

Post by Mightysword » Fri, 4. Jun 21, 04:37

I will not say you're wrong because I'm not educated enough on the matter, but at the very least I will state it doesn't make sense. It makes no sense whatsoever to offer rent at a price that will leave your property empty. Even if your rent doesn't cover your loan, it's still better for it to be occupied, because otherwise you get zero and the entire loan coming from your pocket. And paying that cost at any length of time is simply suicide in term of investment both in term of raw cost and opportunity cost. When COVID hit, I know a lot of landlords who were willing to re-negotiate just to keep the tenant paying. Yeah, some tried to evict people too, but it wasn't so the unit can remain empty, but so they can rent it out to people who can actually pay, empty rent unit means landlord sitting on fire, especially if they got it through collateral investment.

So I gotta ask ... are those units actually regular housing unit or apartment that the "average" public can normally afford? Or are you talking about luxury unit? Are they really for rent? Or they're some kind of vacation house investment, or just simply real estate for sale? I had heard that London in particular suffers heavily from foreign investment in the real estate market. One of the new "scourge" on the real estate market is Airbnb. But that's not a problem capping rent gonna help, you need a whole different kind of regulation for that. At the very least, I don't think it's as simple as the number you're showing.
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Re: Cost of living and minimum wage.

Post by Vertigo 7 » Fri, 4. Jun 21, 05:22

It doesn't make sense to you because you're approaching housing like something you can just run down to Walmart and buy.

Real estate is an investment, it's not supply and demand driven. You're not going to see many landlords sign year+ leases at a guaranteed loss when they can wait and snag someone that will earn them a profit or at least break even. Land lords have to answer to the banks and if they can't make their mortgage payments and the bank forecloses on the property, then who the hell knows what happens next? Likely all of the tenants will be tossed out on the street as the bank auctions off the property. You think the bank is going to cut them a break just because no one in the area can afford the rent? Ask Trump or Kushner how that works out...
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