(HUD USER) March 22, 2018 — How much of your income should you set aside for rent? With the cost of housing on the rise, researchers are reexamining the 30-percent rule of thumb for measuring rental burden.

In July 2014, the Joint Center for Housing Studies of Harvard University released a study finding that nearly half of all renter households in the United States were cost burdened in 2012. This interactive map shows that people living along the east and west coasts and in urban areas bear the greatest cost burdens. HUD defines cost-burdened families as those “who pay more than 30 percent of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.” Severe rent burden is defined as paying more than 50 percent of one’s income on rent.

The 30-percent rule — that a household should spend no more than 30 percent of its income on housing costs — has long been accepted in academic circles and is often included in blogs and websites on family budgeting. A recent Business Week article, however, argues that the 30-percent rule is “nearly useless.” The authors suggest that calculating housing cost burden using only income ratios oversimplifies the issue of housing affordability. Frank Nothaft, chief economist at Freddie Mac, is quoted in the article as saying, “If your income is $500,000 a year, you can pay 40 percent and still have money left. But if your income is $20,000 a year, it will be hard to make ends meet if you’re paying 30 percent of your income on rent.”

As living costs increase, does the 30 percent rule accurately measure rental affordability?

Source: https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html