Minimum Wage Increases Would Improve Housing Affordability and Increase Tax Revenue

A report by the Voorhees Center for Neighborhood and Community Improvement and the Labor Education Program at the University of Illinois at Urbana-Champaign, The Impact of a Minimum Wage Increase on Housing Affordability in Illinois, finds that a higher minimum wage would improve housing affordability, reduce enrollment in public assistance programs, and increase state and local tax revenues. An increase in the minimum wage would better enable low-wage workers to afford their housing, but affordable housing production would still be needed. An increase in the minimum wage will not reverse the trend of housing costs rising faster than incomes. In addition, low income seniors and people with disabilities not in the workforce would continue to face affordability challenges.

Using American Community Survey (ACS) Public Use Micro Sample (PUMS) data, the authors estimated the impact of a minimum wage increase on the number of cost-burdened low wage households, spending more than 30% of their income on housing. The authors estimated the following impacts given a hypothetical increase in Illinois’ minimum wage to $10, $13, and $15 per hour.

All three scenarios would reduce the number of cost-burdened renter and owner households. The authors noted that higher minimum wages would not eliminate the need for housing subsidies among low income seniors and people with disabilities who are unable to work.

The authors predicted that fewer low-wage workers would rely on the Supplemental Nutrition Assistance Program (SNAP) and Medicaid if the state increased the minimum wage. The authors also highlighted that 27% of Illinois households receiving housing assistance through HUD programs derive a significant portion of their income from work. Minimum wage increases could make some of these households ineligible for assistance. The authors caution that a higher wage might not result in a net benefit to the household losing assistance if its new earnings do not keep pace with housing costs. 

The authors also estimated the potential employment and tax revenue impact of minimum wage increases. They projected that a $13 minimum wage would result in a 0.22% decline in employment in the Chicago area, while a $15 minimum wage would lead to a 0.67% gain. For the state, an increase to a $10, $13, or $15 minimum wage would result in a decrease in employment by 1.41%, 0.89%, or 0.78%, respectively. At the same time, the authors estimated that statewide minimum wage increases to $10, $13, or $15 per hour would result in additional state and local tax revenues of $554 million, $1.55 billion, or $2.35 billion, respectively.

Given that an increase in the minimum wage would have beneficial impacts on housing affordability, public assistance, and tax revenues and limited impact on employment, the report recommends the state enact a baseline minimum wage of at least $10 per hour. The report goes on to recommend higher minimum wages for higher-cost regions like the Chicago metropolitan region, for which they recommend a $15 minimum wage “implemented gradually in tandem with increases already planned for the City of Chicago.”

The Impact of a Minimum Wage Increase on Housing Affordability in Illinois is available at: http://bit.ly/2o2fQKF