Based on cost of living and the national minimum wage, most Americans can't even afford a modest apartment without being cost burdened by rent. (iStock)
Odds are, you can’t afford your rent.
The average household needs to make at least six figures to comfortably afford the average fair market rent for a two-bedroom apartment in the seven largest U.S. cities., according a new SmartAsset study that looked at how much it would cost to afford a two-bedroom apartment in America’s 25 largest cities.
A household that spends more than 30 percent of its income on housing is considered “cost-burdened,” according to the U.S. Department of Housing and Urban Development, but for the majority of the largest cities in the U.S., renters require incredibly large incomes to stay under that percentage.
San Francisco, Calif. is the most expensive city for renters on the list, where in order to avoid being so rent burdened, someone would need to make $188,000 per year. The average household income in the area is $103,801 per year.
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The numbers are similar for New York, the second least affordable place on the list, where New Yorkers would need to earn a minimum of $162,400 in order to pay no more than 28 percent of their income on a place in the Big Apple, where the average two-bedroom apartment runs $3,800 a month.
And Boston renters would need to make $143,800 to cover the $40,300 required for a two-bedroom apartment per year. But the average household income is only $63,600.
The gap between what renters earn per hour and what it costs to afford a modest apartment at average market levels across the U.S. is just as wide: The hourly wage needed to make a modest two-bedroom apartment affordable is $22.10, according to the annual “Out Of Reach” report from the National Low Income Housing Coalition’s, which documents the affordability of rental housing to low-income families across the U.S.; for a modest one-bedroom, it’s $17.90. Meanwhile, the average hourly wage of U.S. renters stands at $16.88.
In fact, someone working a 40-hour week on the federal $7.25 minimum wage can’t afford to rent a “modest” two-bed apartment in any state in the country, according to the report. And renters would need to make more than three times the minimum wage to afford a two-bedroom apartment.
In other words, renters would need to work a 122-hour week for all 52 weeks of the year — or work three full-time jobs in order to afford a modest two-bedroom rental home. For a one-bedroom, renters would need to work 99 hours per week throughout the year.
“The report’s Housing Wage is an estimate of the hourly wage a full-time worker must earn to afford a rental home at HUD’s fair market rent (FMR) without spending more than 30 percent of his or her income on housing costs,” Diane Yentel, the president and CEO of NLIHC, told Moneyish in an email.
“FMRs provide an estimate of what a family moving today can expect to pay for a modestly priced rental home in a given area. This year’s findings demonstrate how far out of reach modestly priced housing is for the growing low-wage work force, despite recent wage growth, and for other vulnerable populations across the country.”
The most expensive state is Hawaii, where workers would need an hourly income of $36.13 to afford rent, in contrast to the state’s average hourly wage of $16.16. Arkansas is the least expensive state at $13.84 — not including Puerto Rico at $9.24 — where workers would need to make $13.84 an hour, while the average hourly wage is $13.05.
The study finds that numbers are even worse for low-income households, defined as households earning less than the poverty level or 30 percent of the area’s average income. Four-person households making an annual $26,420 or less can only afford to spend $660 a month on rent, while the national average fair market rent for a one-bedroom rental is $931.
The rule of thumb is that no more than 30 percent of your income should be going toward housing costs including utilities, Erin Lowry, financial blogger and author of the book “Broke Millennial,” told Moneyish. “However, it is incredible hard for people to achieve this,” she added. “Realistically, hopefully no more than 50 percent should be going towards your rent.”
“There are many factors contributing to the current affordable housing crisis,” Yentel said. “But the simplest explanation is that wages are not keeping pace with rapidly rising rental housing costs. This will be a challenge for the foreseeable future – seven out of the ten occupations projected to add the greatest number of new jobs by 2016 provide a median wage lower than the one-bedroom Housing Wage.”
And as important as higher minimum wages are, they are not the silver-bullet solution for housing affordability, Yentel said. The report found that 38 local jurisdictions have their own minimum wages higher than the state or federal minimum-wage, but all fall short of the local one-bedroom Housing Wage.
For those who are struggling to afford fair market rent, Lowry offered a few tips:
Focus more on earning — and less on cutting things out of your life
“Hearing advice like ‘Don’t eat out,’ which most personal finance advisors give, is not helpful when you’re already in such an intense situation because you’re probably already doing that,” she said. She recommends figuring out how to earn more money instead. To do this, she suggests starting at your current position and speaking directly with your boss to negotiate ways to take on more responsibility.
Be flexible about your living situation
“This can be difficult advice, but consider moving to where the jobs are,” Lowry said. “If you’re in a place where there aren’t a lot of opportunities, this might be an answer at least in the short-run.” Consider moving back in with family members to mitigate costs of living, she advised, or moving out of high-cost, trendy neighborhoods.
Negotiate with your landlord
If you’ve proven that you’re a reliable tenant who pays rent on time, negotiating with your landlord could be a way to reduce how much you’re paying for bills. “Maybe offer to do some things around the building like being a handyman or doing superintendent chores,” she suggested. “What I did when I knew rent was going to take up a huge chunk of my paycheck was to take every opportunity I could to make things work — like turning off my AC when I could in the summer,” she said. Paying rent on time showed her landlord that she was a reliable tenant — so every time the rent was raised, she was able to counter so it didn’t increase that much.