For decades, financial advisors and the federal government have recommended that Americans spend no more than 30% of their gross income on housing.
But as home prices and rents have skyrocketed in recent years, that so-called 30% rule is increasingly challenging to follow. And for a whopping half of US renters, it seems to have become impossible.
Almost half — 49.7% — of American renter households spent more than 30% of their income on housing costs in 2023, according to estimates released by the US Census Bureau from its 2023 American Community Survey. That's unchanged from 2022, when the median ratio of income-to-housing costs for renters was also 31%.
Among racial and ethnic groups, Black renters were the most frequently cost-burdened, with 56% spending more than 30% of their income on rent, according to the census data. Hispanic renters were the second-most affected, with 53% cost-burdened, while 47% of white renters were cost-burdened.
Renters are struggling more than homeowners. Rents rose faster than home prices for the first time in a decade, the census found. Rents rose by 3.8% between 2022 and 2023, while home prices rose by 1.8%. And a greater share of tenants were low-income or very low-income and had significantly less wealth than homeowners.
But homeowners are also struggling. Mortgage interest rates recently hit a two-decade high, and rising insurance premiums, growing home-repair costs, and property taxes add to the burden. Last year, first-time homeownership affordability hit its lowest level since the 1980s.
The number of cost-burdened homeowners — those who spent more than 30% of their income on housing and utilities — rose by about 3 million people from 2019 to 2022, a recent report from the Harvard Joint Center for Housing Studies on the state of US housing found. Most of this increase was among those making less than $30,000 a year. The report found a full 30% of Black and 28% of Hispanic homeowners were cost-burdened in 2022, compared with 21% of white homeowners.
While the Federal Reserve finally announced its first interest-rate cut in four years, the move probably won't bring housing costs down by much. The US is suffering from a severe shortage of homes — the only way to solve it is to build many more units of housing. And that takes time.
Are you spending more than 30% of your income on housing costs? Reach out to this reporter to share your story at erelman@bjinnox.com.
Correction: September 25, 2024 — An earlier version of this story misstated a recent move by the Federal Reserve. It cut interest rates; it didn't hike them.
