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Renting 'is unaffordable to minimum wage workers in every state,' study finds

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Affordable housing is out of reach for minimum wage workers in this country, a new study found, even as policymakers fight for a nationwide "living wage."

The median homeowner and rent costs in every state are simply unaffordable to those earning the minimum wage, according to a new report by LendingTree, and have been since 2000.

"The reality is that in much of the country, the gap between the minimum wage and what it actually takes to live is huge," David Cooper, a senior analyst at the Economic Policy Institute, told Yahoo Finance. "And even fairly ambitious targets like $15 are going to fall short in a lot of places."

The federal minimum wage currently sits at $7.25 an hour, a number that has been in place since 2009. As of 2021, the minimum wage in 30 states is higher than the federal minimum.

To conduct its study, LendingTree used U.S. Department of Labor and U.S. Census Bureau data to identify whether owning or renting a home is affordable to an individual working a full-time minimum wage job in each state.

The researchers defined a maximum of 30% of gross monthly income on housing as affordable. They calculated how much in monthly housing costs a person working 40 hours a week for 52 weeks a year at the minimum wage hourly rate in their state could afford. They then compared that to the median monthly homeowner and rent costs derived from the U.S. Census Bureau’s 2019 American Community Survey.

"In terms of raw dollars, owning and renting have become less affordable since 2000," LendingTree researchers stated in the report.

For instance, the median monthly homeowner costs in 2000 was $771 higher than what was affordable. The median rent was $296 higher than what a minimum wage worker could afford. In 2019, the affordability gap grew even more, to $1,072 for owning and $423 for renting.

People in the streets blow horns and raise signs that say '$15 #FIGHTFOR15'
People celebrate the passage of the $15 minimum wage for fast-food workers by the New York State Fast Food Wage Board during a rally in New York on July 22, 2015. REUTERS/Brendan McDermid

How unaffordable is owning?

Long known as the American Dream, owning a home is not possible for minimum wage workers, the researchers found.

"On average across the 50 states, an affordable monthly housing payment for minimum wage workers is $1,074 less than the median monthly housing costs paid by homeowners with a mortgage," the report said.

The affordability gap for owning is worst in Hawaii, which has an hourly rate of $10.10. At that rate, a minimum wage worker can afford a monthly payment of $525. But the median monthly cost for a homeowner is $2,472.

New Jersey is the second-most unaffordable state. The state offers an hourly wage of $12, which translates into an affordable monthly housing payment of $624. But the median monthly cost for a homeowner in New Jersey with a mortgage is $2,413.

The states with the smallest affordability gaps for owning are Arkansas, West Virginia, and New Mexico. But minimum wage workers would still need to pay about $800 more a month than they can afford to meet the median homeowner payment in those states.

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A "For Rent" sign is placed in front of a home in Arlington, Virginia, U.S., June 8, 2021. The U.S. Supreme Court has declined to block the U.S. Centers for Disease Control and Prevention's pandemic-related eviction moratorium. Picture taken June 8, 2021. REUTERS/Will Dunham

States where renting is least affordable on minimum wage

While renting is often cheaper, it's still an unaffordable expense for minimum wage workers.

"Across the nation, the average difference between an affordable monthly housing payment and median gross rent is $533," LendingTree said.

The cheapest places for a minimum wage renters are Arkansas, Maine, and West Virginia, where the median rent less than $300 of what they can afford.

Hawaii is again the most unaffordable state for minimum wage workers to rent a home. The state has a median monthly rent of $1,651, but minimum wage workers can only afford $525. California follows with a median rent of $1,614, but a minimum wage worker can only afford $676 — even though the state-mandated minimum is $13 an hour for employers with more than 26 employees.

"I'm not on [minimum] wage but I'm not happy with the results. I was under the impression the wage hike was to provide a living wage. Now with the rent increasing drastically, making $15 is no longer a viable option," Maurice, an emergency medical technician from Southern California, told Yahoo Finance.

Speaker of the House Nancy Pelosi (D-CA) speaks to the media about legislation to raise the minimum wage during a briefing on Capitol Hill in Washington, U.S., March 11, 2021.      REUTERS/Joshua Roberts
Speaker of the House Nancy Pelosi (D-CA) speaks to the media about legislation to raise the minimum wage during a briefing on Capitol Hill in Washington, U.S., March 11, 2021. REUTERS/Joshua Roberts

While a $15 minimum wage won't sizably shift workers' ability to afford rent in places like Hawaii or California, "getting states, cities, and hopefully the country on the path to a higher minimum wage— even if it falls short of what’s truly necessary — is still immensely helpful because it makes closing that gap a lot easier the next time around," EPI's Cooper said.

He added that once lawmakers get the federal minimum wage up to "an adequate level," they should build in an automatic inflation adjustment over time to "ensure that the buying power of a minimum wage income is preserved even as prices go up."

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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