It’s no secret that the price of entry to buy a home in the U.S. has shot up in recent years. It requires a household income of $94,000 to buy a starter home and $114,000 to buy a median-priced home, according to Realtor.com.
A new report from Zillow shows a similar trend for renters. In eight major markets—up from four just five years ago—a household income of more than $100,000 is needed to comfortably afford rent.
On a national basis, renters need an annual income of more than $80,000—up from $60,000 five years ago. That is an increase of 34.5% since April 2020.
Rent is considered “comfortable” if it consumes less than 30% of household income. “A renter making the median income and leasing a typical U.S. rental is just on the right side of the 30% affordability line — the rent burden threshold — spending 29.6% of their income on rent,” the report said.
However, in the eight markets that require six-figure incomes, the typical rent is “many hundreds of dollars above the national asking rent of $2,024.”
In New York City, a household needs an income of $145,000, 24.8% more than in 2020, to pay rent of $3,624 and stay below the 30% income threshold for affordability. Other metros in the six-figure category that have also seen sharp increases in income requirements are San Jose ($136,500), Boston ($127,000), San Francisco ($124,000), San Diego ($123,000), Los Angeles ($119,000), Miami ($110,000) and Riverside, CA ($103,000).
The highest spikes in this group were in Miami (up 54.4%), Riverside (up 45.6%) and San Diego (up 40.8%).
The household incomes that renters needed to stay below 30% in other cities, though, are not requiring six-figure incomes, also soared in some cases after 2020. They rose 52% in Tampa, 51.2% in Providence, 45% in Hartford, 43% in Virginia Beach, 41.6% in Indianapolis, and 40.2% in Richmond. Many other cities saw increases above 30%.
The challenges renters face are exacerbated by the fact that over the five years, rent for a typical U.S apartment ballooned by 28.7% to $1,858 and for a typical single-family home 42.9% to $2,256. In contrast, median household income only climbed 22.5% to $82,000, well behind rent growth.
Fortunately for median earners, rents are still affordable in many markets, the report stated. And in Buffalo, Oklahoma City, and Louisville, renters would pay 23% or less of their income to landlords. The most affordable rents are to be found in Austin, Minneapolis, Raleigh, St. Louis and Salt Lake City.
The overall direction of rents nationwide remains upward. They have increased 3.4% from last year, with 47 of the 50 largest metros affected. One metro that has taken strong steps to give renters a break is New York City. On June 11, the city’s Fairness in Apartment Rental Expenses (FARE) Act is expected to go into effect. It has the backing of Zillow.
FARE requires the hiring party -- often a landlord or property management company -- to pay the fees involved in hiring a broker, instead of the renter. In addition, rental listings must disclose any fees to be paid by tenants. “High upfront costs, which usually include a broker fee, first month’s rent, and security deposit make it difficult for New Yorkers to move to a new home within the five boroughs,” according to the publication StreetEasy Reads, which also supports the law.
It said the average upfront cost to move into an NYC rental with a broker fee rose to $12,951 this year — a record-breaking high equivalent to 17% of the city’s median household income – and 48% more than the average for rentals without the fee.
“Broker fees disproportionately affect New Yorkers looking for a more affordable home to rent,” it commented. However, the law has been opposed by the Real Estate Board of New York and the New York State Association of Realtors. A court is currently deciding the issue.
“With the recent passage of the FARE Act by the New York City Council and ongoing legislative conversations around broker fees in the Massachusetts and New York state legislatures, renters may see a reprieve in the near future,” Zillow stated.
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