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Minimum wage hike could increase LA rents, economists say

L.A. City Council approved a proposal Tuesday that will raise the city’s minimum wage to address income equality and the region's high cost of living. But economists say this is only the first step in making rents more affordable. 

Housing prices in L.A. are rising fast because the city isn’t building enough new units, says UCLA housing researcher Rosalie Ray, who co-authored a study that identified L.A. as the most unaffordable rental market in the nation.

“What you’re essentially doing is increasing the buying power without increasing the supply, which will just drive up the prices,” she said. 

A full-time worker in L.A. earning the current minimum wage of $9 an hour makes about $19,000 a year. In the year 2020, L.A.’s minimum wage will be $15 an hour, and that same worker will make a little more than $30,000 a year.

That means around 700,000 minimum wage workers will have more money to compete for the same low inventory of rental units. And that will push up prices.

Ray said Angelenos couldn't afford most of the renters' market in L.A. even if they were paid $15 an hour today. One exception is those who are making minimum wage and living in rent-controlled units. If they stay put, “This is a sweet spot," she said. "And this is a moment where they will see an immediate benefit from the passage of the bill.”

L.A.'s Department of Building and Safety is projecting a 29 percent increase in new units this fiscal year over last, with 12,000 units permitted. Still, that isn't enough to keep up with the city's population growth, said Chris Thornberg, economist and co-founder of Beacon Economics

"What we need is housing — period," he said. "Whether we build it to be affordable or not, ultimately it’s about adding to the supply."