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电报群(www.telegram8.vip):The 30% rent rule is nonsense in 2022

admin2022-02-0639

FINDING a place to live has gotten more complicated – and a lot more expensive – in the pandemic. Rents are soaring across the country with stories of bidding wars rattling nerves and exorbitant fees tacked-on in cities from Fort Lauderdale to Fort Worth.

You’re probably not going to be able to afford your dream apartment anymore. But how much can you afford?

It’s more critical than ever to figure out your spending limit on housing before you go out and fall in love with a place that will strain your budget – or worse, send you into debt.

Paying rent is often a person’s single-largest expense, and one that’s generally fixed for at least 12 months. In this market, you also have to factor in rent hikes when you renew. Which is why people search for some kind of guideline to keep them from getting in over their heads.

No matter what the Internet tells you, there’s no simple formula that’s going to help.

The long-standing rule-of-thumb in the personal finance world that renters can spend about one-third of their before-tax income on housing (including utilities) has some serious shortcomings.

First, the 30% rule is really old. It stems from an earlier standard that one should spend “a week’s wages on a month’s rent,” or 25% of income on housing, which dates back to the late 1800s.

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It became more entrenched in the 1930s, when the 25% figure was used by the government to gauge eligibility for public housing, and then again in 1969, when it was set as a cap for the percentage of income a public housing tenant could pay.

In 1981, the limit was raised to 30%, where’s it’s stayed for the past 40 years – not just for public housing tenants, but for anyone who Googles “How much should I spend on rent?”

Much has changed in the intervening decades. The size and makeup of the typical household is different. Many people now face additional non-housing expenses, such as 401(k) contributions or student loans, that renters years ago didn’t have to worry about as much.

What’s more, rents have been rising faster than wages.

Let’s say you made US$1,000 (RM4,180) a month and paid US$300 (RM1,254) a month in rent in 1990. In today’s dollars, your wages would now be US$1,150 (RM4,806) while your rent would have jumped to US$741 (RM3,097).

So what might have satisfied the 30% rule back in 1990 is now far off the mark, more like 64% thanks to different levels of inflation for each, according to calculations by David Bieri, an associate professor of urban affairs at Virginia Tech.

The 30% rule also doesn’t account for regional differences in the United States housing market.

The national average for monthly listed rent is US$1,877 (RM7,844), according to Redfin, but there are places where the average rent is far higher, making the 30% rule near-impossible for many.

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