McDonald's is raising the cost of houses; you will pay allot more!

Retail giants, fast-food chains, and ride-hailing companies are offering higher wages and cash payments. Referral and signing bonuses, rarely needed before to fill entry-level, low-wage jobs, are now commonplace. How will McDonald’s impact real estate prices? Will the impact be temporary or long lasting?

What is happening with wages?

McDonald’s Corp. announced Thursday it will raise hourly wages by about 10%, bringing the average wage at its restaurants to more than $13 an hour. Chipotle Mexican Grill Inc. said earlier this week it will set hourly starting wages at $11 to $18. Target Corp. and Costco Wholesale Corp. have increased theirs to $15 and $16, respectively.

Amazon.com Inc. also upped the labor market ante Thursday by announcing plans to hire 75,000 people in the U.S. and Canada at starting pay that will average more than $17 an hour. New employees will get hiring bonuses of $1,000 and those fully vaccinated for Covid-19 will get additional $100.

To get drivers back to ride-hailing gigs, Uber Technologies Inc. and Lyft Inc. are giving out cash bonuses for referring new drivers. In April, Uber said it would earmark an additional $250 million for near-term pay incentives, and that drivers in cities like Chicago and Philadelphia are making more than twice the hourly minimum age. Lyft said some of its drivers are bringing in at least $40 an hour.

As long as workers remain in such high demand and enhanced jobless benefits remain, employers may need to bump up wages even higher than $15 an hour, according to Wells Fargo’s Vitner. As more Baby Boomers retire, that could give workers even more leverage in the coming years, he said.

Wage creep to other skilled professions

As wages at the lower end of the job spectrum increase, other skilled workers also demand higher wages. Take for example if fast food jobs like McDonalds that require lower skills are paying 15 and hour, shouldn’t a carpenter or roofer make substantially more? As low skilled workers make more, higher skilled workers will also demand more for their skill set and companies will pay the higher wages to keep things “fair” and their employees happy.

Inflationary pressures continue to mount

Rising wages will also add to inflationary pressures. As employers’ costs rise, consumer prices are more likely to follow suit, stoking an already heated debate. Fed officials have said price pressures from pent-up demand and bottlenecks will likely prove temporary, but many others expect the pickup in inflation to prove more lasting as higher wages become more entrenched. Someone has to pay these costs, companies will pass these on in the form of higher prices for goods and services

With inflation, houses will cost allot more:

As costs increase, the housing industry is not immune. Think of the amount of items that go into a house from appliances, lumber, etc… and all the labor needed to install everything from framing, roofing, plumbing, HVAC. All the input costs going into a house are rising substantially from appliances to labor costs. Lumber for example has almost tripled in price (it has since settled back down) adding almost $36k to the average cost to build a home (National Association of Homebuilders). This huge price jump hasn’t even factored in the jump in labor costs or other materials used in a house.

We are on a way one street higher

Once higher wages are given/expected they can only go higher. It is not like a business will now say to their employee that they are going to reduce their salary going forward. In real life once wages go up, they stay up. With wages rising rapidly and staying high, housing will be profoundly impacted as construction costs rise substantially. These costs will be passed on to the buyer making houses even less affordable.

McDonalds is not the reason houses are now more expensive, they are merely indicative of the pressures driving wages higher. These trends look to not only stay but accelerate as demand for lower skilled workers increases with the reopening economy. Furthermore lower skilled wages will increase wages of higher skilled workers.

Although many of our politicians like to believe money grows on trees, unfortunately real life is radically different. As wages rise, prices for goods and services will also rise substantially. We saw this today in the highest inflation reading in 13 years where consumer prices soared 5.4%. Housing will not be immune with costs jumping due to material and labor costs. Money doesn’t grow on trees, we will all ultimately pay higher prices.

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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