Economists' Outlook

Housing stats and analysis from NAR's research experts.

Did you know? The Minimum Wage

On January 1, 2016 the minimum wage will rise in 14 states. What is the minimum wage in your area? How do minimum wage workers interact with the housing market in your area?

Regardless of one’s position on the minimum wage, it is helpful to learn more about it. The federal minimum wage is prescribed by the Fair Labor Standards Act (FLSA). Effective July 24, 2009, the federal minimum wage is $7.25 per hour. While there are provisions for some types of employees to be paid less than the minimum wage, (i.e. youth, some students, and tipped workers) the wage can generally be thought of as a national floor for wages.[1]

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How many workers are affected by the minimum wage? According to research from the Bureau of Labor and Statistics (BLS) based on the Current Population Survey (CPS), there were 146.3 million workers in the United States in 2014. As shown in Figure 1, of these, 77.2 million were paid hourly wages. The other 69.1 million are either salaried, self-employed, or have some other non-hourly arrangement. Out of the 77.2 million who reported hourly wages, 3.0 million reported an hourly wage rate equal to or less than the Federal Minimum Wage, currently $7.25 per hour.[2] Other studies show that an additional 10 to 25 million workers earn “near-minimum” wages with the result varying with the specific definition of near-minimum.[3]

Some states already have wage laws that stipulate minimum wages above the federal minimum wage. On January 1, 2016, the minimum wage will rise in 14 states—in one dozen because of recent legislative action and in two because of automatic costs of living adjustments. Two additional states and the District of Columbia have increases scheduled for mid-2016 and Nevada has a cost of living increase which may occur in July. As of January 1, 2016, two states, California and Massachusetts, will have minimum wages of $10.00. They join a handful of localities, including the District of Columbia, with double-digit minimum wages.[4]

How does a minimum wage job translate into housing affordability? We converted each state’s minimum wage into an annual income assuming full-time work of 40 hours per week for 50 weeks per year.[5] We then computed the dollar amount that would represent an affordable monthly payment, no more than 25 percent of income for mortgage principal and interest.[6] From that monthly payment, we calculated an affordable loan amount, for a thirty-year fixed rate mortgage at a 4 percent interest rate.[7] To facilitate a broader housing market comparison, we also calculated an affordable monthly rent.[8] The data for each state and the District of Columbia is shown in the figure below. While we know that minimum wage workers come from families of all income levels, data from the EPI show that the average share of income earned by a near-minimum wage worker is just over half (54.3%).[9] Additionally, nearly one-quarter (23.7%) of these workers are the sole providers of family income.[10]

In Washington, DC, where the minimum wage is the highest, a minimum wage worker could make payments on a mortgage loan of $91,600 or qualify to rent an apartment with a monthly rent of $525. In the highest wage states, Massachusetts and California, a single minimum wage income could be sufficient to finance a mortgage loan of a little more than $87,200 or qualify to rent an apartment with a monthly rent of $500. By comparison, in areas where the federal minimum wage prevails, a minimum wage worker could make payments on a mortgage loan of just over $63,200 or qualify to rent an apartment with a monthly rent of $363.

Finding affordable homes is likely to be difficult as these amounts are well under the national median. While there are homes in these price ranges in some locations, they are getting harder to find. From recent Existing Home Sales data from the National Association of Realtors®, we know that sales of homes priced under $100,000 have been declining. In 2015 through November, sales under $100,000 were 8.5 percent lower than the same period in 2014. Given strong demand, limited supply, and continued low construction, these trends are likely to continue. What does affordability for minimum wage workers look like in your area?

There will be negative consequence of some losing jobs or slower job creation, though the magnitude is debated among economists.

For more information from NAR Research on affordability, visit For similar information on affordability for workers of specific occupations with an emphasis on Millennials and their occupations, see the National Housing Conference’s 2015 Paycheck to Paycheck report and data.

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[2] Per the BLS report, this figure is based on the hourly wage only and does not include overtime pay, tips, or commissions. For details, see: Characteristics of Minimum Wage Workers, 2014.

[3] A review of CPS data by the Economic Policy Institute (EPI) estimates that a total of 13 million workers earn hourly wages of $10 or less and 28 million earn $12 or less. The EPI study uses a different methodology than the BLS for estimating worker wage rates and does include salaried workers (which the BLS excludes). However, the EPI estimate for workers at or below the current federal minimum wage (2.5 million - 2016) is consistent with the BLS estimate (3.0 million - 2014). See appendix table 1: A review of 2014 CPS data by the Pew Research Center found 20.6 million “near-minimum” wage workers. This review examined workers making more than the minimum that applies in their state, but less than $10.10 per hour.

[4] For information on local minimum wages see the Society of Human Resource Management,

[5] For areas where there is no minimum wage or where there is a lower minimum wage than the federal minimum wage, we used the highest applicable wage (i.e. the federal minimum wage).

[6] Other affordability calculations make an estimate for property insurance and taxes. Generally, when mortgage principal, interest, taxes, and insurance are included, the threshold for affordability is 28 percent. Because we exclude consideration of taxes and insurance, we use a 25 percent threshold here. Put another way, our estimation is comparable to a 28 percent affordability ratio when taxes and insurance are 3 percent of income.

[7] This calculation makes no adjustment to the interest rate for mortgage insurance which is likely required for those making down payments for home purchase of less than 20 percent. This calculation also does not adjust for borrower characteristics such as credit score or other debt outstanding which may raise the interest rate at which a borrower can secure a loan and/or reduce the total amount that can be borrowed.

[8] Affordable monthly rent assumes that 30 percent or less of monthly income can go toward rent.

[9] The EPI figure is for “affected” workers, those who earn $13 or less by 2020 and would be directly or indirectly impacted by an increase in the federal minimum wage to $12 by 2020.

[10] Ibid. The figures in the table best approximate the situation for workers who are sole providers, but given the average share of family income earned by these workers, doubling the affordable loan and rent amounts may be the best representation of what is “typical.”

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