• In 37 of 45 large metro areas analyzed, an increase in minimum wages will lower rent burdens for minimum-wage-earners by at least 1 percentage point, and in some cases by more than 20 percentage points.
• Even with expected increases in local minimum wages next year, the typical minimum wage-earning renter will still be considered “rent burdened” — paying more than 30% of their income on rent — in 43 of the 45 large markets analyzed.

In a large majority of markets analyzed by Zillow, even a modest increase in the local minimum wage is enough to materially improve rent affordability for minimum-wage-earners — but ultimately not enough to help ease the increasingly heavy rent burden carried by the nation’s lowest-paid workers.

Consumer prices have risen more than 20%[1] over the past 11 years, but the federal minimum wage has remained unchanged at $7.25/hour over this period. In 2019, 1.6 million employees nationwide earned the federal minimum wage or less, representing 1.9% of all hourly workers. In the absence of a federal increase to the minimum wage, many states and localities have enacted their own minimums above the federal limit in recent years. 

Nationwide, 29 states and the District of Columbia pay a minimum wage higher than the federal level, and an additional 48 localities have set their own wage limits. A further 25 states and several localities have minimum wage increases coming in 2021. We analyzed how rent budens — the share of income used to pay rent — will shift for workers earning their metro area’s minimum wage or less, assuming that rents will be largely unchanged from the time of this analysis to the time raises are likely to be implemented (Jan. 1 in many cases). We found that in 37 of the 45 large metro areas analyzed, an increase in wages will lower rent burdens for minimum-wage-earners by at least 1 percentage point, and in some cases by more than 20 percentage points.

A Heavy Burden

Among these large metros, the biggest potential improvement in housing affordability for minimum wage workers — in this case, the largest drop in the share of income needed to afford the monthly rent — was observed in Richmond, Va.  Virginia is the only state with an impending minimum wage hike that currently pays the same as the federal minimum of $7.25/hour. In 2021, that wage will increase to $9.50/hour — a comparatively low wage relative to other nearby locales (including Washington, D.C., where the wage is expected to rise to $15.20/hour next year), but still enough to put an extra $360/month into the pockets of full-time minimum wage earners. That boost in pay would mean Richmond-area workers earning the minimum wage should expect to spend 49.7% of their income on a typical local rental unit, down from 71.9% — an improvement of 22.2 percentage points. Richmond is one of a half dozen metro areas in which the typical rent burden for minimum wage workers is expected to  ease by 10 percentage points or more in 2021 upon implementation of higher local minimum wages.

Virginia is one of several states with plans to reach a $15/hour minimum wage in phases over the next few years. Assuming an across-the-board minimum wage increase to $15/hour, the typical rent burden for minimum wage earners nationwide would fall from 32.6% — above the 30% threshold where one is considered “rent burdened,” with little left in the budget to afford other monthly expenses  – to 21.6%. 

An increase of this magnitude would undoubtedly help minimum wage earning households across industries and races. The median rent burden nationwide for educators earning minimum wage would fall from 39.2% to 27.2%. Food service and accommodation workers would see their individual burdens drop from 33.3% to 20.7%. Black and Latinx minimum wage workers would both experience a drop from 32.6% to 21.6%, respectively. 

The Local Reality

But minimum wage earners live in individual markets with their own local housing costs and pace of growth that combine to form the national aggregates — so applying these aggregates to renters in highly unique markets is misleading. Richmond is a good example: Even with its very large improvement in affordability once a wage hike is implemented, the lowest-income earners overall  in the Richmond area will still be expected to pay almost half of their income on rent each month — still well above the threshold to be considered rent burdened. In just two of the large metro areas analyzed — Fresno and Bakersfield, Calif. — would the expected increase in minimum wages be enough to bring a typical renter earning the minimum wage below the 30% rent affordability threshold.

Some cities have gone beyond state-level increases in the minimum wage to account for the sometimes higher cost of living/faster pace of housing cost growth in urban centers relative to the suburbs or the state as a whole. The city of Chicago, for example, is set to raise its minimum wage to $15/hour in July — $4/hour more than the statewide increase to $11/hour that Illinois is implementing on  January 1. This is important, because even with that extra income, rent burdens for minimum wage earners in the city of Chicago — distinct from the larger metro area and state medians — barely budge in the face of rapidly rising living costs in the city, and the median rent burden is still more than 30%.

Almost universally, even modestly higher wages will provide at least some help to those earning the least. Even so, in many places the impending incremental gains in monthly wages will do little to immediately help the lowest-income populations. Like Virginia, Florida has a goal of eventually reaching a statewide $15 minimum wage. But that full raise won’t happen all at once next year, and in the meantime roughly two-thirds or more (a minimum of 67%) of minimum wage earners in all 8 of the Florida markets included in this analysis will remain rent burdened in 2021.

Cementing Gains

Finally, this analysis assumes that rents will remain unchanged over the longer term — which we acknowledge is very unlikely, and that rents are much more likely to rise to some extent in most areas over the course of next year and beyond. To cement these gains in affordability and keep rents from skyrocketing in the long term, pro-growth land use decisions at the neighborhood and municipal levels – and challenges to exclusionary zoning policies – are necessary to create enough rental housing in general to meet demand. Because without a sufficient supply of rentals, extra income from wage increases will continue to be absorbed by rent price increases. 

Finally, broad public policies must address persistent poverty in order to make a difference in affordable housing. This means investments in policies that grow the economy and combat recessions and unemployment, alongside a revamped commitment to safety-net social and economic policies that supplement incomes.

Methodology

Zillow combined U.S. Census Bureau’s 2019 American Community Survey (ACS) data to get wage and income data at the MSA and city level with data on current and projected minimum wages and minimum wage earners across the country in the top 200 MSAs[2] by population and 50 largest cities. To gather the sample of renter households that we deemed “minimum wage households”, we took households where at least one earner was a minimum wage earner and where the minimum wage earnings make up at least one third of the total household wages. This filters out households where a minimum wage earner accounts for example, for 5% of the household wages as we would not expect this individual to be contributing heavily to the rental payments. The minimum wage threshold is based on monthly wages, assuming any individual who made less than their localities monthly minimum wage is a minimum wage worker. The locality specific monthly minimum wage is the minimum wage times 252*8/12 – assuming full time workers work 252 days a year and 8 hours a day, divided by 12 for a monthly wage. We also took into account the effective date for minimum wage increases, applying only a partial increase to wages in the model if the increase happens after January 1, 2021. 

To model rent burdens, we took the average YoY increases of ZORI (Zillow Observed Rent Index) for all months in 2020 for each locality and applied that to the 2019 rent payments in ACS to get a 2020 value and we assume that rents are unchanged in 2021. The burdens are on an individual level, not on a household level. So we took the sum of all individual wages earned in ACS to aggregate to a household wage value. The individual’s share of household wages is assumed to be the share of rent for which they are responsible (ex. if an individual’s wages are $1000 per month and the household wages are $3000 per month, we assume that the individual is responsible for one third of the rent payments as they make one third of the household wages). The wage increases were modeled using the increases to hourly wages using the Economic Policy Institute’s Minimum Wage Tracker. Hourly wages of workers were determined in ACS using the usual hours worked per week and yearly wages – estimating that monthly hours worked were equal to 52*UHRSWORK/12 and monthly wages were equal to INCWAGE/12. Using the hourly value, we estimated a monthly increase in wages based on the increase in minimum wage in the given locality. To get the final income value used for rent burdens, we estimated supplemental income in ACS by taking (INCTOT – INCWAGE)/12, assuming this value does not change over time, and added it to the modeled monthly wages. Final rent burdens took the individual portion of rent paid divided by the individual modeled wage plus supplemental income value. 

The national level minimum wage increase was modeled by assuming every individual who was making less than $15 per hour in the 2019 ACS data kept the same income in 2020 and moved to making $15 per hour in 2021.

[1] Based on changes in CPI-U from August 2009 to August 2020.
[2] This list is constructed of all MSAs in the top 100 by population that have upcoming minimum wage increases at the state level. For states that have an upcoming increase but no MSAs (without locality changes) in the top 100 by population, the next largest MSA was chosen — to the top 200 by population.