The Guidelines for Rent Versus Salary

The amount you should pay for rent may depend on the size of your family.

There are no hard and fast rules for what percentage of your salary should be spent on rent. The United States Department of Housing and Urban Development (HUD) has published a guideline and economists and financial planners have their own guidelines and opinions. The bottom line is that you need to look at your overall budget and decide exactly how much you can afford to pay. This may change depending on factors such as your location and whether you are trying to save money.

Guideline History

According to HUD, families who spend more than 30 percent of their income on housing are considered “cost burdened.” These families may have difficulty affording necessities such as food and transportation. According to a 2006 paper by the Census Bureau, this 30 percent guideline evolved from the United States National Housing Act of 1937, which set income limits for eligibility to live in public housing. The 1937 act set the income limit at five to six times the rent. Over time, various amendments were made to the act. By 1981, the income limit had been raised to 30 percent of income – rents for public housing could not exceed 30 percent of a families' income. According to the papers' authors, this 30 percent figure has now become a rule of thumb for general housing affordability.

Location

There are some regions of the country where it is normal to spend more than 30 percent of your income on rent. According to a 2010 survey by MSN, these tend to be areas with a small stock of available rental properties and a large group of people who are working but cannot afford to buy a home. For example, rents in Greenville, South Carolina, rose more than 11 percent in 2010 because new jobs increased the number of people moving to Greenville, but the housing stock did not increase. Rents may also be higher in areas such as Portland, Oregon, where there are very low vacancy rates. As of 2011, HUD reports that more than 12 million families around the U.S. spend more than 50 percent of their income on housing.

Other Expenses

When you are determining how much of your salary to pay on rent, take into account all of your expenses. For example, you may have child support payments or debt repayments to make, and this will affect the amount of rent you can afford. Also consider whether there are any trade-offs to paying a higher rent. For example, it may make sense to pay more than 30 percent of your income to rent an apartment close to your work. This may allow you to save money on transportation costs and offset the higher rent.

Budgeting

If you are saving money for a large purchase, such as the down payment on a home, or to pay off debt, then you may need to pay less than 30 percent of your salary on rent. Walter Updegrave, writing in CNN Money, suggests letting your expenses dictate what you can afford. He suggests making a budget, setting out all of your income and expenditures, including money each month for savings or pension. The money left over is what you can afford to pay for rent. By using this method, you may end up paying more or less than 30 percent of your income on rent, but you will not end up paying more than you can afford.

References

• United States Census Bureau: Who Can Afford To Live in a Home?: A Look at Data From the 2006 American Community Survey; Mary Schwartz and Ellen Wilson; 2006
• CNN Money: Basic Budgeting; Walter Updegrave; 2005
• HUD.gov: Affordable Housing
• MSN Real Estate: July Rental Advice: As Rents Rise, What's a Renter to Do?; Karen Aho; 2010