Alaina Leary’s wishlist for a new apartment wasn’t very long. She wanted to be within walking distance of Boston’s train lines and she wanted the rent to be less than 30% of her combined household income.
Living in a major East Coast metro area could have easily made that second wish-list item a very tall order. Leary and her partner were already paying between 30 and 40% of their gross income on an apartment that was draining their budget.
So they began the apartment hunt early to find something more affordable for their budget, launching their search in April for a place they could move into in July or August.
“Because of that, we found the perfect apartment,” Leary said. “The right price, the right location, and several added bonuses we hadn’t counted on.”
Not only do they live right on the train line leading into downtown Boston, their apartment is cat-friendly and it’s on the first floor, which they wanted. And their new monthly rent is about 25% of their combined income.
“On top of paying more for housing in Boston, we also have road tolls and the cost of everything is higher—alcohol, food, amusement, and entertainment all cost more,” Leary said. “The benefit, beyond being able to get to work, is that we have everything at our fingertips.”
Should You Follow the 30% Rule for Rent?
The 30% rule — that is, the government recommendation for the percentage of income a person or household should spend on housing — has been the standard benchmark of housing affordability since the Reagan era. Earnest data shows that in fact, many renters are paying less than 30% of their income on rent; however, the data does not reveal the nature of that housing—whether it’s shared with roommates or for a place of one’s own.
Certain areas of the country, namely the Midwest and South, remain more affordable and within easy reach of the 30% rule. But in rental hotspots like New York City, San Francisco, and Miami, skyrocketing rents means a massive strain on the budget.
How Location Influences How Much Rent You Can Afford
Economist David Bieri, association professor of economics and public policy at Virginia Tech, said he believes the 30% rule to be outdated because it doesn’t give any leverage for variables such as income, age, family structure and, most importantly, location.
“Housing in Detroit is not the same as housing in San Francisco. Why is that, to me, the most compelling argument for scrapping the 30% rule?” he asked. “The location determines other things, too, in terms of what you get where you live.”
“The location determines other things, too, in terms of what you get where you live.”
Those “other things” are location amenities. Good school districts mean higher housing prices, as does proximity to public transportation and metro or subway stops. Beautiful year-round weather generally means higher rent, he said, but freezing winters and cold Januarys usually mean lower rent.
He used San Francisco as an example: great weather, stunning beaches, brilliant minds hard at work at Silicon Valley.
“All of that stuff is captured in your rent and it has nothing to do with the roof over your head per say, but it has everything to do with the location that you’re in,” he said. “And so the old adage, location, location, location — we have to take it very seriously because the economic evidence for it is so strong that it would suggest that you shouldn’t really continue the superstitious belief in the 30% rule.”
Whether they adhere to or abandon the old standby, the outlook for the growing number of renters doesn’t show a reprieve anytime soon. There are 43.3 million households in the U.S. that rent, including families with more than 30 million children, according to the report, the State of the Nation’s Housing 2017 by the Joint Center for Housing Studies of Harvard University.
More Young Renters Are Facing Unaffordable Rental Prices
The number of renters under the age of 35 grew 25% between 2005 and 2016, the increase mainly driven by their generation’s delay in buying their own homes.
According to the State of the Nation’s Housing, the typical renter has a household income of $37,000, well below the typical homeowner’s household average income of $70,800. At the same time, a surge in high-end construction and rising rates for existing apartments has caused the number of rentals at the $2,000 per month mark or higher to skyrocket a whopping 97% between 2005 and 2015.
With the influx of new renters and the steadily rising rental prices, the number of households that spend more than 50% of their income on rent is predicted to rise by 11%, to 13.1 million households, by 2025 according to research by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners Inc.
“Trying to observe that [30%] ratio puts a lot of pressure on a lot on households. If they’re overspending in one area, if they want to avoid living on credit cards, they have to cut back in other areas,” said Kathleen Nemetz, a registered investment advisor and certified financial planner in San Rafael, California, north of San Francisco. “So it makes it really tough to balance the budget here in the Bay Area.”
Other West Coast cities are also feeling the pinch.
Shannon, a writer from Seattle, is currently spending 61% of her monthly income on rent. She is desperately looking for more affordable housing for herself and her partner who is disabled and currently seriously ill.
“I don’t buy or replace my socks or underwear without planning for a few months,” Shannon said. “I have quit things like Audible and time to write before work at a coffee shop to save money. I work sick. I mostly have given up most stuff that isn’t just for survival.”
Make Budget Tradeoffs to Afford Rent
Nemetz said she sees those renters paying over 50%, often called “cost-burdened” renters, fall into two categories—those who cut back on everything they can, like Shannon, or those who fall deep into credit card debt.
“When I work with people who are trying to get control of their financial lives, a lot of times it happens after a transition,” she said, listing divorce, career change and a major medical event as the most common financial transitions. “We’ll do the deep drill down on where does the money go and then how can we re-stage this, what are you willing to give up?”
Nickel-and-diming your financial life, like getting rid of coffee or cutting the cord on cable can help, but Nemetz urges her clients to aim bigger. Thinking about getting a pet? Don’t, she said, unless your financial house is in order. What about a car? If you can walk, bike or take public transit to work, school, doctor’s offices and grocery stores, consider giving up your vehicle and the hefty insurance payments that come with it.
“Just do a dump on a spreadsheet at least for a month or two and examine out where the money is going. And then you figure out okay, what can I cut back?” Nemetz said.
Jareesa Tucker McClure and her husband searched high and low for a rental property in Minnesota’s Minneapolis-St. Paul area that was close to work, an easy distance to the freeway and within close proximity to places like grocery stores and banks. And with a new baby daughter, it needed to be child-friendly and big enough for a family of three.
“The Twin Cities is going through a difficult time housing wise. Home prices are skyrocketing, especially for first-time buyers, so many have to resort to renting longer—our current situation,” said McClure, who is also paying down student loans. “There’s lots of inventory being added to the area, but primarily luxury rentals that price out a lot of folks.”
They were able to find a 1,000-square foot apartment for about 25% of their combined income, not including utilities. And while may not have gotten everything they wanted, their apartment does come with one very important amenity: “heated underground parking, which is essential for Minnesota winters,” she said.
Use a Rent Calculator to Learn How Much Rent You Can Afford
Because there are so many variables, a good first step is searching for online tools to help you calculate affordability. Most are based on the 30% rule.
The National Low Income Housing Coalition published a tool for renters called Out Of Reach on their site to show the hourly wage a person needs to earn to rent a modest two-bedroom home in each state. Users can enter their zip code or click on each state for more in-depth information. keeps a housing wage calculator on its website to help people figure out what they can afford. Zillow also features a rent affordability calculator that factors in rent, location and monthly debts. Make sure the rent calculator you use factors in more than just your gross income.
Keep Savings and Debt in Mind When Using Rent Calculators
Even though Bieri sees the 30% rule as outdated and arbitrary, he isn’t giving America’s renters free license to blow their budgets on housing.
“You should worry about how leveraged you are, what’s your debt to income ratio. You should also worry about your savings, in terms of could you cover in the event of a job loss,” he said “How long can you hold your financial breath? The rule of thumb is you should be able to hold it for at least 6 months.”
“How long can you hold your financial breath? The rule of thumb is you should be able to hold it for at least 6 months.”
As for whether they want to live in a house or an apartment, in Chicago or Charleston, with one bedroom or two?
“You can’t tell them what their preferences should be,” he said. “If you want to spend 30% or 50% or 20%, that should be up to the individual.”