BAM Key Details:

  • A new Zillow study shows minimum wage earners need three roommates (or four jobs) to afford a typical two-bedroom rental unit. 
  • Only in 10 of the 50 largest U.S. metros can two full-time workers earning the minimum wage afford a two-bedroom rental without straining their budgets. 

There’s a reason why so many minimum wage earners still live with their parents.

According to a new Zillow analysis, two full-time minimum wage earners can comfortably afford a typical two-bedroom rental unit in only 10 of the 50 largest U.S. metros. 

In the other 40, three or even four full-time incomes are needed to cover the cost of rent without straining any budgets.

And by “strain,” we don’t mean, “Guess I’ll have to cut back on my daily Starbucks.” Think, “Do we pay the rent this month… or eat?” And by eat, we mean ramen and eggs toast.

While rent growth is slowing, for many, being able to afford a two-bedroom rental with only one full-time minimum wage roommate means moving to a different part of the country.

So, what will it take to make housing affordable for more Americans?

A higher minimum wage helps—but isn’t enough on its own

Even in relatively expensive markets, rental affordability is better where the minimum wage is higher. In cities where rental costs are higher than average but where the minimum wage is also higher, workers tend to find it easier to afford a place to live.

On average, it takes 2.5 full-time minimum wage workers spending 30% of their income to cover rent for a two-bedroom unit in cities where the minimum wage is set higher than the federal rate.

This is perhaps the only context in which San Francisco is more affordable than San Antonio. Renters have been squeezed by record-fast rent growth while incomes haven’t kept up. That’s true for those making minimum wage, but especially so where the minimum wage hasn’t budged for more than a decade. Clearing the path for more construction, especially at entry-level prices, is needed to make housing more affordable across the board.

Nicole Bachaud

Zillow Senior Economist

Of the 10 metros where two full-time minimum wage workers can afford a typical two-bedroom rental unit, all of them have a minimum wage of at least $10 an hour.

That includes cities like Cleveland and Albuquerque, where rental costs are relatively inexpensive, as well as cities like Sacramento, Chicago, and Minneapolis, where a typical two-bedroom unit costs more than the national average.

In Chicago, for example, it takes 1.9 full-time minimum wage incomes to comfortably afford a typical two-bedroom rental unit in the area—compared to the national average of 3.8 incomes.

In the following six metros, the rent for a two-bedroom unit would cost at least four full-time minimum wage incomes: 

  1. Austin, TX
  2. Atlanta, GA
  3. Charlotte, NC
  4. Nashville, TN
  5. Dallas, TX
  6. Raleigh, NC

All of the above use the federal minimum wage of $7.25 an hour, which hasn’t changed since 2009. Four of those—Charlotte, Dallas, Nashville, and Atlanta—are among Zillow’s hottest housing markets for 2023, which will likely drive rental costs further up.

While a higher minimum wage helps, on its own, it’s not a solution to the affordability crisis facing low-income renters.

Fourteen of the 50 cities analyzed have minimum wages of at least $15 an hour—more than double the federal rate. Even in those 14 metros, a single full-time minimum wage worker cannot comfortably afford a typical one-bedroom rental unit

In San Francisco, for example, which has the most expensive one-bedroom rental units in the country, a solitary renter would need an income of $49.01 an hour to comfortably afford one.

Building more homes will do the most to improve affordability

It all comes down to supply and demand. To bring down rental costs, we need more available homes to rent. Zillow’s research shows that modest densification measures—like allowing two housing units in a fraction of the space for a single-family home in large metros—could add 3.3 million new homes to rent, which would slow housing price growth over the long term. 

A sizable majority (77%) of renters and homeowners surveyed by Zillow in 2022 supported either new accessory dwelling units, duplexes, or triplexes in residential areas.

To determine the optimal price range, renters searching for an affordable home can use Zillow’s rent affordability calculator. They can also check out Zillow’s rental market trends tool to stay on top of price trends in the city or cities they’re searching.

Taking the sting out of apartment applications

Monthly rent isn’t the only cost that puts a strain on the budgets of low-income renters. More than half of renters (57%) submit two or more applications, and the typical application fee costs $40 to $59. Fortunately, Zillow users have a more budget-friendly option.  

Renters shopping on the Zillow platform can pay a flat fee of $29 to apply online for an unlimited number of participating properties (that’s an important detail) for 30 days, saving them a considerable amount of cash, which they can save toward the rental deposit. 

What can you do to help?

Many of your prospective buyer clients are probably renters. And, depending on what they can afford and what’s available in your area, continuing to rent may be the best (short-term) solution for them. 

Ultimately, you want them to enter the market when they’re financially ready for it. But in the meantime, nothing says you can’t look out for them and alert them to anything that could help them save money every month—money they could put into savings for a down payment.  

So, when they’re ready to buy a home, they’ll naturally think of the agent who helped them find the best rental property they could afford.