Can You Afford Your Rent?
For years the housing rule of thumb was: It's within your means or affordable if it costs less than 30 percent of your income. However, a recent study suggests that the equation has changed. Commute times as well as your mode of transportation also make a serious financial impact -- so these elements now figure into it.
So how much should you be spending?
The new limit -- which combines transportation and housing costs -- states that this total should not exceed 45 percent of your income.
These new findings come from The Center for Neighborhood Technology (CNT) and were the subject of an article in The Arizona Republic. The study combined demographic, economic and transportation information from 337 metropolitan U.S. areas and it was determined that transportation costs now needed to be factored into the equation. This figure is not exclusive to renters, though, homeowners should also use the same figure to determine their home's affordability.
A recent article on Rented Spaces, looking at a study from the National Low Income Housing Coalition, painted a bleak picture for renters, particularly those in low-income areas. At the new suggested 45 percent limit -- and even at the previous 30 percent -- this demographic will not be able to easily afford basic shelter for their families and also not be able to dig themselves out of debt.
Acting on its findings, the CNT began working with Illinois' legislators last year to develop the recently passed Housing and Transportation Affordability Index Act. This new tool will hopefully provide better access to housing and transportation costs; it might also serve as a benchmark that will help agencies determine how their investment decisions can affect the cost of living for urban dwellers.