If you read almost any money guru book these days, they are still harping on a very outdated rule of thumb that doesn’t really reflect the current housing market. The advice? Keep rent to 30% or less of your income.
If someone made 2k a month, that’s $600. (roughly 24,000/yr, $7,200 rent)
If someone made 3k a month, that’s $900. (roughly 36,000/yr, 10,800 rent)
If someone made 5k a month, that’s $1500. (roughly 60,000/yr, 18,000 rent)
If someone made 9k a month, that’s $2700. (roughly 108,000/yr, 32,400 rent)
In my current area, which is a nice suburban area outside a large metropolitan, in one of the most expensive states to live in, renting a small room is $650-800+. Most larger rooms with a private bathroom will run $900+. A two bedroom apartment is $1800+. Renting a basic home is $2600+. I don’t really know how many people are really able to spend only 30% unless they are shacking up with other friends or both making a nice income.
Here’s an article that breaks down the income necessary to make rent for a 2 bedroom apartment in America’s largest cities. Many people can make the rent by not following the 30% rule or living very frugally. The problem is, many of these places have a formula in place that require you to make 3x the rent per month or make 40x the rent annually. This means that even though one may be able to afford the rent, they may not qualify based on income expectations. For a couple that both works full time? This isn’t as difficult. For a family that has one breadwinner that has a decent job but not a high paying job? That’s problematic.
To live in Southern California, it basically takes two $45,000+ salaries to qualify for anything more than a bedroom. To have a home in Southern California, it basically takes two $50,000+ salaries or four $30,000+ salaries. There’s a reason why owning a home looks like something so far in the distance at this point. How long would it take you based on your annual income and savings plan, to gather 20% down for a half a million plus home? How much can one save for a house when rent is this high?