Raising the minimum wage is an overly simplistic way to make housing more affordable for low-income people
By Ken Wysocky for the Badger Institute
Solving the national affordable housing crisis is pretty darn easy: Just raise the minimum wage.
Or at least that’s what the national and local media, including the Milwaukee Journal Sentinel, would have their readers believe with their coverage of a report issued in July by the National Low Income Housing Coalition (NLIHC). The coalition, as its mission statement announces, is dedicated solely to achieving socially just public policy that ensures low-income people affordable homes.
The coverage of the report, which focused almost exclusively on liberal talking points, does a disservice to readers, citizens and policymakers. With almost no challenge from other perspectives, these stories offer an absurdly simplistic solution to an extremely complicated problem, one that has defied solution for decades and that cost taxpayers $51 billion in federal housing assistance last year alone.
The media narrative conveniently ignores the many studies that show raising the minimum wage can actually hurt employment of unskilled workers.
Liberal newspapers championing a liberal cause isn’t exactly a man-bites-dog story. But readers are taxpayers, too, and if they’re paying the freight for these housing policies, shouldn’t they be afforded information from a wide variety of sources? Aren’t supposedly trusted news services obligated to provide that information?
The Badger Institute asked for answers to those questions. The editor of the Journal Sentinel, George Stanley, did not respond to requests for an interview. Neither did a host of journalism educators and pundits whom we contacted for comment.
Kelly McBride of the Poynter Institute, who described herself as one of the nation’s foremost experts on journalism ethics, said she doubted that our journalist would be fair to her or to the affordable-housing coverage.
Let the market work
Here is our reporting on affordable housing. You can decide what’s fair.
The NLIHC has been issuing its annual report, “Out of Reach,” for 30 years. The report documents the gap between renters’ wages and the cost of rental housing. In Wisconsin, this year’s report says, renters must earn about $17.25 an hour in order to afford the $898 monthly fairmarket rent for a two-bedroom apartment without busting the coalition’s housing-affordability benchmark of 30% of a renter’s overall income.
Renters in Wisconsin earn an average of $14.32 an hour, crossing the affordability threshold and leaving them unable to afford other necessities, according to the report.
The NLIHC’s solution? Raise the federal minimum wage, which has remained at $7.25 an hour since 2009.
In story after story, reporters localized the NLIHC numbers, then trotted out spokespeople for local affordablehousing activist groups who agreed with the coalition’s prescription. The Journal Sentinel story follows that pattern and uses a single expert, Mike Bare, research and program coordinator for Community Advocates, a nonprofit advocate for low-income people in the Milwaukee area.
The story makes no mention of a Congressional Budget Office study last year that estimated the cost-cutting needed for businesses to offer a $15-an-hour minimum wage would mean the loss of 1.3 million jobs.
The cities of New York, Seattle and Minneapolis and several others in Illinois reported businesses shedding jobs after their minimum wages increased.
“That’s a very simplistic and bogus argument,” says Edward Pinto, director of the American Enterprise Institute Housing Center, which advocates for market-based solutions to the affordable-housing shortage. “It’s much more complicated than just raising the minimum wage. Very few people who are renters make minimum wage,” he says.
In 2018, just 1.7 million, or 2%, of all hourly paid, non-self-employed workers made the minimum wage or less, according to the U.S. Bureau of Labor Statistics (BLS). In that same year, 39% of American wage earners with either service or light-production jobs earned a median salary of nearly $27,000, or roughly $13 an hour — not much lower than the proposed $15-an-hour minimum wage.
“So, the real issue here is how do you supply enough housing so individuals making this amount of money can afford it,” Pinto says.
As one might expect, Pinto has the answer. “Where market forces are allowed to provide (housing) supply, it tamps down demand and prices decrease. But when you restrict supply through zoning, you drive up the price of land — and of housing.”
Government subsidies also distort the housing market at the expense of renters. The result? Nothing more than expensive housing made “affordable” through subsidies, Pinto says. “Subsidies have only made a lot of developers very rich — crony capitalism at its worst.”
Rehab abandoned homes
Part of the progressive narrative is accurate. Single family zoning codes, with a history of economic and racial discrimination dating back to the early 1900s, have made it too expensive for low-income people to build new homes, Pinto says.
Cities with affordable-housing shortages would be better served by “light-touch density” codes, allowing for two-, three- and four-unit homes and apartments above garages or in basements, he says. Cities in California, Minnesota, New Jersey and Oregon have had some success with this approach. Los Angeles, for instance, has successfully increased affordable housing by allowing so-called accessory dwellings, such as garage-top apartments, he points out.
“This problem is 100 years in the making, so it won’t be solved in three or four years. It might take 15 or 20 years,” Pinto says. “But if we allow light-touch density, the market will take advantage of that new right.”
Stewart Wangard, owner of Wangard Partners, a prominent Milwaukee real estate developer, also has some ideas that don’t involve a federally mandated wage increase. He strongly advocates establishing a major home-rehab program to encourage smaller developers to restore the city’s stock of rundown homes with “good bones.” Rehabbing existing housing stock is always less expensive than building new housing, he says.
There are reportedly thousands of homes in Milwaukee that are either tax-foreclosed and owned by the city, owned by banks through loan foreclosures or just outright abandoned.
“Milwaukee has a large amount of residential units, single and multifamily, that have sound basic structure,” Wangard says. “There are neighborhoods suffering from great economic distress that have large amounts of such housing available, which creates opportunities.”
Associates in Commercial Real Estate (ACRE), an initiative committed to increasing the number of minorities involved in development of commercial real estate, might be the place to start, Wangard says.
A joint effort between the Marquette University College of Business Administration, the Milwaukee School of Engineering, the University of Wisconsin-Milwaukee and the Local Initiatives Support Corp., ACRE has helped people, some of them elected and appointed government officials, get into housing development, he says.
But more access to capital, experience and mentorship is needed, he says.
Wangard hopes Lafayette Crump, the recently appointed commissioner of Milwaukee’s Department of City Development, will provide additional leadership from City Hall. Crump’s department oversees the Redevelopment Authority and the Neighborhood Improvement Development Corp.
And what about the Journal Sentinel story touting the minimum wage increase as a solution to affordable housing?
“It basically says this (raising the minimum wage) is the only way to address the lack of affordable housing, when in fact there are diverse ways of doing so,” Wangard says. “It was about as fulfilling as eating cotton candy.”
Ken Wysocky of Whitefish Bay is a freelance journalist and editor. This first appeared in the Fall Issue of Diggings, a publication of the Badger Institute. Reposted with permission.