When it was announced last week that Chipotle would be the first company to publicly partner with the city to subsidize housing for low- and moderate-income Denverites, a lot of people had the same question:
Why doesn't Chipotle just pay its employees enough money to afford Denver housing?
The answer, as you can probably guess, is in economics.
"The balance between costs of housing in the city and wages… those two are grossly out of line," said Erik Soliván, executive director of the Denver Office of Housing and Opportunities for People Everywhere (HOPE). "We have a lot of people with jobs, the lowest -- probably -- unemployment rate in the country, but the wages are not keeping pace and are being far out-paced by the cost of rent."
According to a fact sheet provided by the city, more than 13,000 renter households making 40 to 80 percent of the annual median income are severely cost burdened, spending 40 percent or more of their incomes on rent. And as Soliván notes, the city has more than 90 percent workforce participation -- "which is incredibly high" -- while rent has increased 9 percent in one year.
"A 9 percent wage increase in one year doesn’t happen," he said.
The service industry can't keep up.
Chipotle's involvement in what the city is currently calling the Lower Income Voucher Equity (LIVE) Pilot Initiative looks like this: The chain will contribute funds that will be matched by the city, then identify employees who meet the criteria to participate in the program.
The same goes for anyone else the city partners with. The program is meant to target health-care workers, teachers, young people just starting out in Denver and service workers.
Here's some information about working at Chipotle, provided by the company:
- They pay hourly workers approximately $11.20, which is above the federal minimum wage of $7.25 and Colorado's minimum wage of $9.30.
- They have twice-yearly merit increases for all Colorado hourly employees.
- They foster a “promote from within” culture. The majority of managers come from within.
- Full-time crew compensation starts at $31,000 and goes up to $127,000 for what they call "restaurateurs."
- Crew members get benefits such as medical, dental, vision, 401K, paid vacation, bonuses and more.
- All full-time crew and hourly managers working more than 32 hours per week on average who’ve been with the company for a year or more are eligible for a bonus each December.
- After one year of service, employees are eligible to receive up to $5,250 in tuition reimbursement.
If you're making $31,000 a year -- and let's say for the sake of simplicity that you're taking all of that home -- that's about $2,583 per month. If you were to abide by the rule of not spending more than 40 percent of your take-home on housing, that means you should spend no more than $1,033 a month on rent. In July, average monthly rent in Denver reached $1,419.74.
"We are looking at that gap and our employers are saying, 'There’s no way I can give a 9 percent wage increase to employees in one year,'" Soliván said.
So back to the original question: Why doesn't Chipotle just pay more?
"If you just paid every Chipotle employee a dollar an hour more, which probably wouldn't do a whole lot for their economic situation, you’d either have to raise prices or you would probably start to find that your stock price is dropping," said Bud Bilanich, an adjunct faculty member in the Department of Management at the University of Denver.
"I think that with large, publicly traded companies in the food service business or those that provide home health aid and things like that, it’s a matter of economics. A lot of decisions are made by stock price, and in this particular case, you’re likely to see costs go up and revenues maybe even decrease because those markets are very, very sensitive.
"I think the really big companies -- it’s really just economics for them. They want to keep their stock price up, they want to keep their investors, so they need to keep their costs down."
The traditional image of a food service worker is of a young person who still lives with their parents or lives with roommates. These jobs have been seen as first jobs from which people move on or move up. But more and more, Bilanich points out, the jobs are being filled by older people with families to support.
"The rent market, the home ownership market here, is beyond the reach of our core workforce," Soliván said. "They don’t qualify for social safety net benefits, but they also don’t qualify, because of their wages, to buy into Denver."
As a result of the imbalance between wages and rent, employers are having a harder time hiring.
Soliván said he's heard from companies of all kinds that people are turning down job offers because the pay doesn't match the cost of living in Denver.
And when companies look to open offices and add jobs here, they choose the suburbs, creating urban sprawl.
"When I’ve talked to some companies that come on campus to recruit, particularly if they’re relocating to Denver, unless they’re sort of super hip, they’re not trying to be in LoDo or RiNo or even the Highlands these days," said Bilanich. "They want to go to the suburbs, mainly because you get down around Douglas County, somewhere in there, housing is relatively affordable as opposed to buying a house in Denver."
So, in comes the city's LIVE Initiative.
As Soliván explained last week, the program will “look at the existing vacancies in our housing markets, in our rental markets — neighborhoods such as LoDo, by the ballpark, in the Highlands and other areas where there’s been massive construction of apartment units of the last couple years,” and find 400 vacant apartments to subsidize for low- to moderate-income families and individuals.
It's meant to take the surplus of housing for the highest earners and make it affordable to everyone else, for whom housing in their price range is scarce.
Over the first two years of the pilot program, 5 percent of what each renter pays will be put into savings accounts that should help them move to other housing.
Chipotle is only the first employer partner to be announced, and other partners will include the Denver Housing Authority, charitable foundations, the Downtown Denver Partnership and the Apartment Association and apartment building owners and operators.
Applications for the LIVE program open late this fall.
