Is It My Imagination, Or Is My Rent Really High?
If the concept of rent being no more than 30% of your take-home (after tax) pay seems about as realistic as purple unicorns, you might be wondering why rent is so high anyway.
In 2015, 11.8 million U.S. households spent half or more of their income on rent, and this figure is projected to increase, according to the Enterprise Resource Center and the Harvard Joint Center for Housing Studies.
Many factors are responsible:
ScarcityIf you rent in a large metro area with heavy restrictions on new construction and with height restrictions on how tall buildings can be (hello San Francisco), you get scarcity conditions really fast. You have a situation where building isn’t keeping up with demand. When that happens, people tend to move in and then, like in Hotel California, never leave. This drives up rents for available units.
People aren’t buyingThe percentage of homes sold to first-time homebuyers—traditionally the foundation of the housing market—is still down. And when people aren’t buying, they’re renting, keeping the availability of rentals scarce. In 2015, only
Low wages/high unemploymentIn cities where wages are stagnant and jobs are scarce, people can’t afford to buy a home or to stay in the home they bought during better times. This also leads to more demand for rental units, which—you guessed it—drives up the price.
Rent control/Rent stabilizationThe people who are already in a rent-controlled or rent-stabilized dwellings don’t ever ask why their rent is so high because their rent is being kept artificially
Great locationLocation, location, location is a cliché for a reason—it’s true. If the area is attractive and provides great amenities, it’s going to cost you to live there.
What to doIt’s obviously not a great idea to have 40% or 50% (and yes, even 70% for some people) of your paycheck going to rent. You have little to no “fun” money, you likely don’t have an emergency fund, and it will be nearly impossible to get out of the cycle.
Here are some considerations if paying less rent is your goal:
- Move from the “cool” area
- Get one or two roomies
- Compromise on “must-have” amenities
- Invest time to look for bargain apartments