Lowering Housing Costs, Avoid Minimum Wage Increase?

The other day, I wrote about pushing an initiative to loosen zoning restrictions with the goal of lowering housing costs and reducing our greenhouse gas emissions.  I said a broad coalition should support these zoning changes.  And there's one more group that should support the changes: our local businesses.

Across the nation, minimum wage increases are being put on the ballot and passed.  A major opponent, obviously, is the business community that will have to pay these higher wages.  The goal of the increase is to make it easier for people to afford to live in our expensive cities.  But what if instead of raising wages, we cut living expenses?

This is a pretty rough calculation and there will be plenty to quibble with by ignoring many nuances.  But I still think it reveals the ballpark effect of fixing our housing crisis.

Right now, the median house value in San Diego is about $518,000.  To afford that median house, assuming a 30-year fixed mortgage at a current rate of 4 percent and a standard 20 percent down payment, the mortgage would cost $1,978 a month.  (Yes, I am simplifying by ignoring property taxes, etc.)  Assuming a person works, on average, four 40-hour weeks a month, or 160 hours, the person would need to make $12.36/hour just to cover the mortgage.

Meanwhile, the median house value for the United States is about $183,000.  Making the same assumptions, the mortgage for that median house would require a wage of $4.37/hour.  That's a difference of about $8/hour (Not to mention $67,000 less for a downpayment).

Now, what if we do our building right, and make it possible to not own a car? It costs an average of $8,698 a year, or $725 a month, to own and operate a small car.  Just paying for that car costs $4.50 an hour for an average worker.

So, a national median house, with no car, requires an hourly wage of $4.37/hour.  To afford a median San Diego house and average car requires a wage of $16.86/hour. If we could push house prices down to the national average and avoid car ownership, we could give San Diegans an effective wage increase of $12.50/hour, or about $24,000 a year. I've never seen such a substantial minimum wage increase proposal.

Of course, this is just a thought experiment. It would take major changes and cause a lot of disruption to drive house prices down so much.  But if businesses want to dampen the pressure of potential wage increases, they should get behind zoning reform.  Regardless of the true numbers, any negative effect on house prices leads to a lesser need for higher wages.