Average Rent Now Costs 30% of Ordinary Americans' Income

How much of your paycheck goes toward rent?

The rapid growth in people's rent and the not-so-rapid growth in their incomes means housing costs take an ever-increasing chunk out of people's budgets. The latest data from Moody's Analytics shows that the average rent-to-income ratio reached 30% at the end of last year. That's the highest it's been since the research and data provider started tracking it.

"As the disparity between rent growth and income growth widens, American's wallets feel financial distress as wage growth trails rent growth," said the report. In itself, this is a worrying trend. Even more concerning? The research shows the rent-to-income ratio in New York is almost 70%. It raises questions about how people can cover the essentials and still keep a roof over their heads.

What does it mean to spend 30% of your income on rent?

There's a common rule of thumb that says you shouldn't spend more than 30% of your income on rent. But in some parts of the country, lower earners will struggle to find affordable housing for less than 30% of their income. This is reflected in research from the Census Bureau that showed over 19 million renters spent more than 30% of their income on housing in 2021.

According to the Department of Housing and Urban Development (HUD), households that spend more than 30% of their money on housing could struggle to pay for other essentials. For example, let's say you bring home $30,000 a year and spend 30% on rent. Even if you could find a place to rent for $750 a month, you'd only have $1,750 left to cover food, utilities, transport, healthcare, and other costs. That's a lot less than the average American who spends over $3,500 a month on non-housing costs.

To look at it another way, according to research from The Ascent, the median income for an average American is around $70,000. Spending 30% on rent would mean around $1,750 on housing and leave over $4,000 for other spending -- including savings and investments. Even then, Redfin put the median U.S. rent in January at $1,942. You'd need to earn $77,680 a year to afford that and keep your housing costs at 30% of your income.

How can you keep your rental costs down?

If your housing costs eat up a large portion of your income, it can have a big impact on your financial well being. You may feel as if there's never enough cash in your bank account to cover your living expenses, never mind build financial security for the future. If you aren't able to increase your income, perhaps there are ways you can reduce your housing costs.

1. Find a roommate

A roommate (or two) is a great way to cut your housing expenses. Not only can you split the rent, you can also split the costs of utilities and other bills. That said, take time to vet potential roomies carefully -- you want to find someone you get along with who's not going to stiff you on the rent or otherwise harm you. Know what criteria are important to you before you start looking, and interview candidates carefully before you agree to share your space with them.

2. Consider moving to a lower cost area

It isn't always easy to find an affordable area that's also close enough to work to avoid a long commute and safe enough to walk home at night. Upscale neighborhoods with lots of amenities are more attractive, but can cost a pretty penny. Be strategic in choosing lower-cost areas without compromising your security and well-being.

3. Try to negotiate

Given how competitive the rental market is, you may feel pressured to sign a lease for the first affordable apartment you find. But there may be space to negotiate a little, especially if you're able to pay a certain number of months upfront or offer to help with maintenance or other parts of building management. As long as you ask nicely and don't push too hard, the worst that can happen is they say no.

Bottom line

After spiking last year, rental costs are starting to come down again. Even so, more and more Americans are spending a higher percentage of their paycheck on housing, which puts pressure on their ability to cover other costs. The good news is that if you can get your rental costs to less than 30% of your income, you'll be doing better than the average American renter.