Minimum Wage Kills Affordable Housing - Creates Real Estate Opportunity

The title of today's blog doesn't sound possible if you are of the mind set that we need to help everybody because they aren't smart enough to help themselves. It couldn't possibly be true because we are told time and time again by the bleeding hearts that the minimum wage is the only thing separating the working poor from living in the streets. But alas, some simple number crunching and comparisons to actual published government documents reveal that indeed, the minimum wage and other government regulations aimed at making life better for the working poor actually go a long way to making many of them worse off.

Let's take a look at a minimum wage example where the minimum wage is $10/hour. It is higher in Ontario ($10.25) and lower in other places but the roundness makes the example slightly easier to demonstrate. In this example we have a slumlord who operates dozens of low rental units that he purchased at relatively high prices despite the shabby condition of many of them. In each of these units, he charges $160 per week or $694/month ($160 x 52 weeks / 12 months). He arrives at this figure rather simply - he gets it from his banker. The banker tells him that all people can afford to spend 40% of their income on housing. The banker tells him that the minimum wage is $10/hour and the normal person works 40 hours a week making $400/week. With 40% for housing, his tenants should be making payments of $160/week.

This may sound simplistic, but how does it compare to reality? As I said, the Ontario minimum wage is slightly higher and according to Stats Canada, the average monthly rent for a 1 bedroom apartment in Ontario in 2010 was $736.  That extra 25 cents an hour in Ontario's minimum wage raises the expected rate in my calculation to $711/month.  So, the actual rate charged is just $25 above my simple calculation.

What does this tell us? 

It tells us that minimum wages are propping up rent prices, which in turn are propping up the property values of affordable housing. As an investor, if you know this happens, then the time to purchase rental properties geared towards affordable housing is right after the government announces that the minimum wages are going up. Here's an example demonstrating the proof of this:

John owns a property and is collecting the expected rental rate of $711/month in Ontario based on his bankers recommended rate charge, which is based on the current minimum wage of $10.25/hour.

The government announces that it is going to raise the minimum wage to $11/hour beginning in 3 months.
Bill, an astute investor,recognizing the potential in real estate gains, does the simple calculation and determines that the property values should go up by the same percentage as the rent increase. The rate of increase in the wage is 7.3%. Bill offers John 5% below the market rate for the property knowing that he will make 7.3% when the wage actually rises. John accepts the offer, taking his money out of the market and Bill will now make 12.3% (5%+7.3%) in the first year. He knows that even if the economy turns bad, as long as he can rent the apartment, the value of the property will not fall.

Is the Minimum Wage Recipient Better Off?
The expected rental rate per unit will jump to $762/month, gobbling up 40% of the increase in the minimum wage and defeating the government's 'will' to make the person better off. Many other government intrusions, particularly those involving spending tax dollars, continue to drive up the cost of government debt creating an inflationary effect on the cost of basic goods including food and fuel. These items make up nearly 100% of the non-housing spending of low wage earners, so the remaining increase in the minimum wage is negated by inflation.

I've kept this as simple as possible because I've never seen this issue addressed anywhere. Hopefully it will create some discussion.

G BECK Pt 1 Damon Vickers DAY AFTER THE DOLLAR CRASHES Brad Thor Glenn F...

Beck rightly talks about the Rise and Fall of the Roman Empire as the earliest documented example of currency devaluation. It happened in the 3rd century in the Western Roman Empire, a period of 26 different Roman Emperors, most of whom died when they thought they could hold out on the entitlements to public servants - the Roman Soldiers. It was a nightmare period to live in.

It's going to be much worse this time around because it will happen quickly. Damon Vickers offers a two week scenario and I'll let him and beck explain the rest.

The Day After The Dollar Crashes - A Survival Guide

'Call it the Debt Union' - Euro Crisis FAR from Over

If there is was any doubt on this side of the Atlantic about the continued debt crisis in Europe, look no further than this video of the European parliament and an impassioned plea by Nigel Farage to allow Greece, Ireland and Portugal to fail.

'Call it the Debt Union' - Nigel Farage - 1 Translation(s) dotSUB

Earlier this morning I read an article from a Swiss banker who said that when money pours into his bank, there is a crisis looming. He's learned this quite well over his 40 years on the job. He then continued by stating that the money pouring in right now DWARFS all other pre-crisis inflows of capital into his bank.

Social Security Trustee Admits its a Ponzi Scheme

From Friday February 4th, 2011

Peter Schiff Interviews Charles Blahous, one of two Public Trustees of the U.S. social security system. Blahous knows that Social Security is troubled and recently wrote an op-ed piece in the WSJ including the following quoted pieces:

1. regarding the State of The Union Address: "Mr. Obama mentioned Social Security only long enough to issue vague warnings against "putting at risk current retirees" and "slashing benefits for future generations."

2. that there is no trust fund: "Social Security is an income-transfer program in which current benefits are paid from current workers' taxes"

3. that current recipients are getting more than their share: "Current wage- indexing doesn't create benefit equity across generations. Rather, it ensures that each successive generation must pay higher taxes to get the same replacement rate."

4. politicians are not looking to cut spending on social security: "In no true sense, therefore, would any current Social Security reform proposal "slash" benefits. Leaders on both sides of the aisle should acknowledge that we are actually negotiating over a rate of benefit growth."

Run The Banks On The Ides of March and Reflate Real Currency

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Folks,

We need to take action. All of us. Every single person within the G20 countries who has wants to avoid the total catastrophe that will happen if the status quo is maintained, needs to do their part. The task is simple, but revolutionary. On the Ides of March, go to your bank or bank machine and withdraw all the money you can. Do NOT do this to S&L's, credit unions, or other small market bank-like firms as it will not produce the same effect.

What to do with the money?
Hold it in cash. Pay down debts at non-bank firms like furniture companies. Buy silver and gold bullion (NOT numismatics).  Transfer all of your cash to S&L's, credit unions, or other small market bank-like firms.

What Do We Hope To Achieve?
This one day run on the banks will leave the banks short of cash. Many of you will be turned away and you will begin to realize that the banks can cut you off from your life savings whenever they choose. Some may declare a bank holiday until they get more cash delivered, but ultimately, the banks need to fear the people - not the other way around.

The media will get wind of this and be watching.

All Citizens Benefit from Higher Domestic Currency

Stand up Canada!!

Any person with an ounce of common sense knows that when your home currency is strong, your vacations are much more affordable than if you have a weak currency. Similarly, when your dollar is strong, you don't need as many of them to purchase imported goods. Also, if you are a manufacturer, you need fewer dollars to purchase any imported inputs for your product.

Outside of manufacturers that use only domestic inputs, a strong dollar has some benefits even for the manufacturers. The only time this doesn't hold true is if the manufacturer is very inefficient.

Why then do we continually hear our finance ministers talk about the NEED for a weak dollar? Who are they looking out for? Certainly not the majority of their citizens. So, stand up against your government and say no to this nonsense of trying to maintain a currency that is close in value to the American dollar.

US Dollar Falling Against All Other Currencies

The US dollar is continuing its slide against all other currencies today, Feb 1, 2011

The figure to the right clearly shows that all currencies are rising (green) relative to the US dollar and that gold is falling (red) relative to all other currencies.

With Obama recently agreeing in principle to create a US-European military force to deal exclusively with food price riots that are expected to escalate in the spring, we can expect the US Dollar to continue to fall due to the continued expansion of the US Debt and we should see gold and silver rebound strongly from this recent correction.

With world leaders pronouncing the expectation of food shortages this spring (Google the announcement from January 13th, 2011) it would be prudent to begin stockpiling a couple months worth of non-perishable food right away. If the food shortages do hit your area, you don't need to be involved in the rioting.

We seek safe harbour.