Let’s say that we succeeded in raising the average wages for workers throughout the country. What would happen? It would eventually cause housing costs to increase to the point that it would negate any positive benefits of raising wages. And when that happens, it’s “back to the drawing board,” and working to increase workers’ wages yet again.
The best way, in my opinion, to fix that problem, is to work to decrease the real cost of housing in relation to people’s wages, so that, in the end, people are spending much less of their real incomes on housing than they are now. If we do it right, the value of houses will either stay the same, or go up only slightly, but not keep up with inflation. For example, inflation goes up by 2 percent per year, but the sale prices of houses only go up by about 1 percent per year – over time, the cost of housing will become significantly less in comparison with people’s incomes, allowing wages to go farther, and improving the well-being of Americans. And we do this, not by directly influencing market demand, but indirectly, through slowly reducing the maximum length of mortgage terms, and the percentage of a person’s or household’s income can be used to secure a loan to purchase a home.
In the end, though, people will be spending less on housing, and will have more money to spend on other things, allowing them to have a better, higher-quality life. It will allow them more economic mobility and freedom. This strategy is especially important on America’s east and west coasts, as the cost of housing in those places has become astronomical – something really needs to be done in those places to help bring housing costs back under control, and make it more affordable. In fact, the astronomical housing prices in California are part of the reason why homelessness is on the rise in places like Southern California and the San Francisco Bay area (the opioid crisis plays a big factor in that problem, but so does the high cost of housing).
Another benefit to this plan is that if a recession takes place, and a person loses even half their income, they could still afford to pay for their housing, which would help to eliminate possibility of foreclosure, which will also help to stabilize home prices, keeping them from dropping in an area due to too much foreclosure during any economic downturns.
You can find out more about this approach in my article The Other Part of Raising Wages: Lowering Housing Prices.
