GHC Thematic Report: $15 Minimum Wage Positive for NE Ohio Multifamily Housing

President Biden has recently endorsed a plan to more than double the federal minimum wage in steps over four years. The president’s plan aims to lift many low-wage workers out of poverty and boost the economy through additional consumer spending. 

Already, several states are on track to reach a $15 minimum wage in the next few years, such as California, Florida, and Massachusetts. However, places with a lower cost of living, like Northeast Ohio, may feel the impact of such an increase more acutely. 

For residents of Northeast Ohio, a higher minimum wage could lead to short-term job losses, but it would also raise livability in low-cost areas. Over time, higher wages would firm up the tenancies of multifamily locations and result in organic rent inflation—which is good news for asset owners. 

But according to an article by WSJ, economists are currently divided on the issue due to the risk of widespread job loss, especially in the hospitality sector. Some economists have assessed the “patchwork of state and local increases and found little job loss relative to nearby areas with lower minimums. But others say jobs losses tied to a $15 minimum wage could be more severe, especially in states with a relatively low cost of living.”

In a 2019 study by the nonpartisan Congressional Budget Office, researchers found that raising the federal minimum wage to $15 an hour by 2025 could cost 1.3 million Americans their jobs. The same study found the higher level could boost the pay of about 27 million workers and lift 1.3 million Americans out of poverty.

Increasing the Minimum Wage in Ohio

In Ohio, State Senators Hearcel F. Craig (D-Columbus) and Cecil Thomas (D-Avondale) announced in January that they will be introducing legislation to raise the state’s minimum wage in increments over the next 7 years. Representative Bridget Kelly (D-Cincinnati) has introduced companion legislation in the Ohio House as well. 

Currently, Ohio’s minimum wage stands at $8.80 per hour—an increase of 10 cents from 2020’s $8.70 per hour. The new legislation would increase it to $10.00 per hour starting in January 2022, with yearly increases of $1.00 in every subsequent year until 2027 when it would reach $15 per hour.

In her memo for the new bill, Rep. Kelly says the minimum wage increase that began in Jan. 2021 leaves a full-time worker in Ohio about $3,000 below the federal poverty line for a family of three.

According to a 2019 report from Policy Matters Ohio, a think tank, around 37% of Ohio’s workforce (or 2 million workers) would benefit from a $15 minimum wage either because they currently make less than that per hour or they earn just above it.

What This Means for Workforce Housing

Wage growth is key to reversing the rise of income inequality, enhancing social mobility, reducing poverty, boosting middle class incomes, and aiding asset building and retirement security. 

From a real estate perspective, raising the minimum wage to $15 would lead to rising median incomes for tenants of workforce housing. This would likely generate a boost to Northeast Ohio’s economy as people will be more comfortable spending money and affording rental prices. 

With rising median incomes, low-wage workers will be more likely to spend their new money on expenses like groceries, bills, and even upgrading their living situations. 

Evidence of this happened already when unemployed workers received an additional $600 per week from the federal stimulus package during the COVID-19 crisis, according to JPMorgan Chase Institute research.