Recently I was having a conversation with a family member about the current minimum wage and how it has not increased in the past 13 years. We also talked about how it related to the housing market. This prompted me to do some research into the exact history of minimum wages and how they have increased as well as the average home price. The family member in question purchased their home in 99' so we used that year and compared it to today.
To start with the history of the minimum wage. Minimum wage was first put in place after the passing of The Fair Labors Standard Act in 1938. To keep this short and sweet, we will move on to what grabbed my attention the most.
There have always been gaps in the raising of the minimum wage, so I wanted to see how other gaps compared to the 13 year one we are in currently. To no surprise the largest gap is our current one, however some others were a gap from 97' to 07' where wages were stagnant at $5.15 for a decade, as well as a 9 year gap from 81' to 90' were wages stayed at $3.35. Besides these 3 largest gaps, there was always a raise every 2 to 3 years with a few 5-6 year exceptions. The issue is all 3 of the longest gaps have occurred in the last 41 years, and total up to 32 years of stagnation.
Now how this connected to housing and the conversation I was having. We have the average housing price sold chart here and the median housing value here. I used the values here and used minimum wage as the base that would be used to pay for these homes. I told my family member that we will assume that this person has no other financial obligations other then to pay for their home, as well as they only worked “standard” 40 hour weeks. No days taken off, other then PTO so that this person worked all 52 weeks at 40 hours every week. Oh…and NO taxes whatsoever. With these assumptions I calculated the following.
ALSO – I am taking the lowest and highest value per year. The median is a more reliable statistic as the higher value homes can truly skew the numbers, but I will show both.
Average home sold in 1999, sold for $189,00 and $205,000
Median value for a home in 1999 was between $123,000 and $130,000
Minimum wage for 1999 was $5.15
At $5.15, 40 hours a week, 52 weeks a year a person working a minimum wage job makes $10,712 a year. This means if this person decided to purchase a home in 1999 the amount of time needed to purchase the average home would be between – 17.64 and 18.01 years, doing nothing other then paying off that house. To buy a home somewhere in the middle, it would take the person between – 11.48 and 12.13 years at minimum wage.
Average home sold in 2021, sold for between $418,000 and $478,000
Median value for a home in 2021 was between $302,000 and $353,000
Minimum wage for 2021 is and remains $7.25
At $7.25, 40 hours a week, 52 weeks a year. A person working a minimum wage job makes $15,080 a year. Again if the person decides to made the wonderful choice of purchasing a home in 2021 the amount of time needed to purchase the average home would take between – 27.72 and 31.70 years, doing nothing buy paying that house off. To buy a house in the middle, it would take between – 20.03 and 23.41 years at minimum wage.
Takeaway
In just 22 years, the amount of time needed to purchase the average home has gone up by roughly 10-14 years, while the time needed to purchase a home in the middle has gone up by roughly 8.5-12 years. Again this is with NO other financial obligations and no taxes or interest whatsoever.
Even with the numbers staring them in the face, my family member still thought that their struggles in the mid to late 90s were comparable to today. This highlights just how out of touch some people are and that was with a home bought and minimum wage in the late late 90s.