The logic goes that cities with expensive homes, high wage earners and a high standard of living would precipitate an increase in the minimum wage to keep pace with the average cost of living.  But might it also be true that a healthy increase in the minimum wage would precipitate an increase in average rental rates?   

Minimum wage was put in place as part of the Fair Labor Standards Acts of 1938 to end sweatshop labor and began at just 25 cents per hour.  The focus has now shifted to reducing poverty rates and dependence on government assistance program such as food stamps.   

Proponents of the minimum wage debate say the current rate does not provide a living wage.  According to the Economic Policy Institute, the rate should have grown to $18.28/hour in 2013 but is instead less than half at $7.25/hour.  Opponents say minimum wage increases hurt small business and cause jobs to move overseas.

Whatever your beliefs, the reality is that most minimum wage earners rent.  In many cities and states across the U.S., renters will soon enjoy improved living standards.  Landlords are aware that their prospective residents just got a pay raise and with little guess work can calculate the new earnings and raise rents accordingly. 

In the second quarter of 2014 the real Answers survey concludes 37 markets published in our MSA synopsis experienced meaningful rent growth.  Only two markets (Jacksonville, FL and Tucson, AZ) remained unchanged. 

The North is still leading the South, but all markets posted respectable gains.   Some look more like year over year appreciation then what is typical of the summertime rental market….normally a bit sluggish.  

  • ·         The leader of this summer’s survey is San Jose which includes all of Santa ClaraCounty where rents were up by $120/mo. from $2,201 to $2,321/mo. 
  • ·          In second place is San Francisco up $113/mo. from $2,073 to $2,186/mo.
  • ·          Boulder, CO was up by $94/mo. from $1,233/mo. to $1,332/mo. 
  • ·         Santa Rosa is also up by $83/mo. from $1,438/mo. to $1,521/mo.  
  • ·         Rounding out the top five this quarter is Seattle, up $54/mo. from $1,285/mo. to $1,339/mo.

 

To push rents so far on average, means many properties had to have raised their rents on individual units by hundreds of dollars.  One survey team member reported, “It was common to see a unit go up by $300, $400 or even $500 dollars, especially in the Northwest, places like Seattle and Portland.”  These increases didn’t put a dent in the occupancy rates.  Not even where there are so many new units being added to the supply.  Some markets got both a rent and occupancy boost this quarter.  Albuquerque was up by 2.1% from 91.7% to 93.60%. San Jose jumped 2% from 94.1% to 96%, absorbing new units faster than they are being built. And Colorado Springs, CO gets a whopping 4% rent increase– along with a healthy bump in occupancy of 1.3%

The primary drivers of the apartment market are population growth, employment, new supply (or lack thereof) and household formation.  All the indices are currently favorable, creating rent increases and demand for more units to the supply. 

But the rental market is also influenced by local conditions, such as the San Francisco Bay Area dot.com bust in 2001, as well as national market conditions such as the great recession of 2008. We believe that minimum wage increases will continue to influence pricing, depending on location and property type over the period of time that the scheduled rate increases are phased in.

[Editor’s Note:  AOA advises that any form of price controls will eventually distort the free market and is a “progressive” tool that is anti-free enterprise.  Our economy would function much more effectively without any form of forced government price controls set by a bunch of politicians – most of whom, have never run a successful business or even know how to balance a budget!]

Sarah Bridge is Founder and Managing Member of real ANSWERS.  Real ANSWERS has published data for the multi-family housing community since 1989 and surveys every community each quarter for current rent and occupancy levels.  For more information, please visit www.realanswers.biz

 

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