Santa Fe plays dangerous game w/ new minimum wage

The “City Different” is making headlines again with its minimum wage law. Recently, it became obvious that the extremely progressive city was going to raise its minimum wage from $15.00 to $17.50 an hour. That’s a near 17% increase which comes on top of annual increases based on annual inflation (CPI) adjustments.

But, what came out of City Council comes with a twist. Now, the wage will rise to $17.50 AND increases will be tied to a combination of rent increases and annual inflation growth of up to 5%. Not surprisingly, there is no downward ratchet if prices or rents drop.

The biggest issue is that Santa Fe rents are way more volatile than CPI. The good news is that in recent years Santa Fe has done a much better job of increasing its rents have begun to stabilize due to new apartment constructions that are helping to slow rent growth, but many factors can impact rents. If rents rise to the point where you get a few years of 5% minimum wage growth in a row wages will become a real problem for local businesses.

Take a starting point of $17.50 and raise it by 5% which gets you: $18.38. Do it again and $18.38 rises to: $19.30.

Again, CPI typically increases at a 2 to 3% annual rate. Growth got out of control during the Biden Administration in 2021 and 2022, but the trend is far more restrained.

One report found that Santa Fe rents grew by 40% on average over a recent 5 year period between 2016 and 2021. That’s before the worst of inflation of the Biden years. Can Santa Fe builders keep enough apartments and other rental properties available to prevent minimum wage sticker shock? We’re about to find out, but it is unfortunate that this wage increase is now adding new and unrelated factors into the formula.