The Seattle city council has passed a measure banning the laws of supply and demand, at least as it applies to commodities like labor, announcing it will raise the city minimum wage to $15 per hour.
This will not end well, no matter how well meaning and earnest the Seattle city council is.
The measure will phase in the higher, local minimum over three to seven years, depending on the size of the business and benefits they provide, until it’s about the level of three grande vanilla Frappuccinos with an extra shot per hour.
(This is a measure that could only be passed by a city council comprised of three journalists, three attorneys, one community organizer and just two members with any private business experience.)
Currently about 25% of Seattle’s workers earn less than $15 per hour. At $15 per hour, that’s 60% of the city’s median wage.
Leaving aside the unfortunate facts that this will result in job loss, drive away businesses from the city limits, and the fact it will incentivize businesses to invest in machinery like robotic hamburger makers, this is happening.
Ironically, progressive flavor du jour Thomas Piketty, patron saint for “income inequality” alarm, has said that raising the minimum wage that high would be detrimental for workers and for the economy as a whole.
Seattle is one of the top tech hubs in America, along with San Jose and San Francisco, and housing affordability has worsened in the past year, as home prices have climbed faster than incomes and mortgage rates have risen, according to Jed Kolko, chief economist at Trulia (TRLA).
Still, renting costs only half as much, relative to local wages, in Seattle. Nationally, rents rose 3.3% year-over-year, but rents are climbing much more steeply in the top three tech hubs – San Jose, Seattle, and San Francisco.
The median rent for a 2-bedroom is $1,750 as of April 2014, a 9.2% increase from April 2013.
The median rent as a share of the local average wage is 30%.
As for home prices, the year-over-year price gain for the 10 tech hubs averaged 13.4%, ahead of the 11.4% gain for the other 90 large metros.
For Seattle, the year-over-year increase in asking prices as of January 2014 was 16.6% with a median price per square foot of $180 and about 55% are considered affordable to the middle class, Kolko reports.
Seattle’s feel-good minimum wage law will cost jobs in the short term and the long term, and it’s not really going to help housing in a noticeable way, since even at full-time that’s just $30,000 a year – which isn’t going to make a dent in Seattle’s high-priced housing market.
But it could have another impact on Seattle housing, since there's no way this measure won't cost jobs for the most vulnerable and lower-skilled and educated workers.
As all the newly unemployed low-wage workers seek greener pastures anywhere without a $15 per hour minimum wage, it could open up cheaper housing to middle income buyers. With the current strong demand, this could mean gentrification and price hikes in more affordable housing, which will drive lower income workers away even more.
So good luck with that Seattle. We’ll be watching the developments from back here on planet Earth.