Connor Sen, an opinion writer for Bloomberg News, recently expressed his view that rising minimum wages are creating a framework for a “new, more sustainable housing expansion” in the US.
While speculation and lax mortgage underwriting fueled the last housing boom in this country, too many homeowners carried mortgages they simply could not repay due to having too much debt, suffered job losses when the economy turned and/or then the resetting of interest rates. We all know the results of that last housing boom…foreclosures, forced selling, downward pressure on prices and negative effects within the housing and financial systems throughout the country…and we hope to not see those results again.
The nature of the “next” housing boom appears to be much different. According to Sen, this forthcoming housing boom seems to be fueled by labor activists who have been fighting for increases in minimum wages, either mandated and voted upon by laws and voters, or “…adopted by large employers in response to public pressure and a tight labor market,”
Companies such as Costco and Target have already or will soon raise their minimum wages to $15/hour. Large banks have done the same yet Bank of America has gone even farther by pledging to raise its minimum wages to $17/hour next month and up to $20/hour in 2021.
Such wage increases across the country create financial and housing options for employees in lower-cost communities. A two-person full-time income can total a $70,000/year income…that income makes a mortgage on a $250,000 – $300,000 home with an FHA loan and 3.5% down payment doable. Additionally, “involuntary” renters now have a shot at becoming homeowners and building their wealth via homeownership.
Such wage increases across the country also make metros with older neighborhoods in need of revitalization doable for a new class of workers. Revitalized neighborhoods create new demand from new residents and new investors as well as new jobs when these lower-cost communities use tax breaks and down payment assistance programs as vehicles to entice new buyers.
A housing expansion built upon rising wages, a housing boom described in Sen’s opinion piece, would surely be more sustainable than the last housing boom built upon speculation and faulty underwriting. Real incomes, real mortgage underwriting, real jobs and real economic activity all increase and make sustainable real home value.