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How was the American Dream wage calculated?

The American Dream wage was established as the hourly waged needed by the “average” employee in Athens-Clarke County (ACC) in 2007. We chose ACC because it draws consumers from surrounding counties. To calculate this amount we did the following.

1. We determined the price of the median-priced home in Athens-Clarke County by consulting the Athens-Clarke County Tax Assessor’s office website. Using a standard online mortgage calculator we determined the amount needed to purchase a home of that value.

We made the following assumptions in determining the monthly amount needed to pay mortgage, insurance, taxes, and utility costs. We did not weight the figures to the poor or the rich. Rather, we tried to use figures that represented the “average” citizen in ACC. Our assumptions included the following:

a. The person buying the house would finance 95% of the total price.
b. The person would receive a 30 year fixed-rate mortgage at 6.5% interest.
c. Annual property taxes would be $1,559
d. Property insurance would be $988 (the default entered by the mortgage calculator).
e. Monthly private mortgage insurance (PMI) would be $81.45.
f. Monthly utilities would be $267 (obtained from Athens Land Trust).

According to these assumptions, the total monthly cost for housing would be:

Monthly Principle and Interest: $ 858.06
Monthly Property Tax: $ 129.92
Monthly Property Insurance $ 82.33
Monthly Private Mortgage Insurance $ 81.45
Monthly Utilities $ 267.00
Total monthly payment: $1,419.00

2. According to HUD guidelines, no more than 30% of gross income should go for housing-related costs. Thus, a household would need to make $4,730 per month, or $56,760 per year, to afford the median priced home in Athens-Clarke County.

3. We next calculated the hourly wage single-earner and dual-earner households would need to make to afford the American Dream. We assumed that all individuals in the household would work full time.

$56,760 / 2080 work hrs per year = $27.29 for a single earner household.
$56,760 / 2080 work hrs per year / 2 earners = $13.64/ hour for a dual-earner household.

4. We next determined the number of one- and two-person households in the 15-64 years of age category using Census 2000 data (PCT15, Census 2000 Summary File 4 (SF 4). We did not include individuals over 65 years
because we wanted to focus on the population that is most likely to be employed.

Total households with householder 15-64 yrs in ACC in 2000: 34,299

Two-person households 11,128

Married couple with own children < 18 yrs 5,616
Married couple, no own children < 18 yrs 5,512

One-person households 23,171

Single parent with own children < 18 yrs 3,700
Single householder, no own children < 18 yrs 2,226
Non-family, householder lives alone 9,273
Non-family, householder not living alone 7,972*

*We included this under one-person households because the non-family
status may indicate only one earner would pay for the home.

5. To determine a single wage needed in the county to buy the median-priced home was a challenge. Do we base the needed wage on a single-earner household? Or on a married couple household? We decided to use an average of the amounts needed by both single- and two-person households, adjusted for the number of one- and two-person households in Athens Clarke County with an individual 15–64 years of age.

a. Multiply the number of one-person households by $27.29 per hour. 23,171 households x $27.29 per hour = $632,337

b. Multiply the number of two-person households by 2 to get the total number of earners and multiplied this by $13.64 per hour.
11,128 x 2 people/household = 22,256 earners x $13.64 per hour = $303,572

c. Add the amounts and divided by the total number of earners
($632,337 + $303,572) / (23,171 + 22,256) = $935,909 / 45,427 = $20.60 / hour

$20.50 was used as the “average” wage employers in Athens Clarke County need to pay to allow the “average” earner to afford the American Dream of owning the median priced home while paying no more than 30% of the gross income for housing-related costs.