Home Finance Report: Average Renters Spend More than a Quarter of Income on Rent

Report: Average Renters Spend More than a Quarter of Income on Rent

National Apartment Association, TransUnion
Courtesy of Thom Milkovic

By Catherine Sweeney 

Rental rates across the nation continue to climb due to a lack of housing supply and an increasing demand from renters. According to a recent survey from the National Apartment Association, which analyzed apartment affordability by looking at the rent-to-income ratio, renters on average are spending more than a quarter of their income on rent each month.

The report showed that during 2020, U.S. renters on average spent approximately 27 percent of their total income on rent. In the first quarter of 2021, which is the most recent data available, the average portion of income spent on rent increased approximately 0.4 percent. According to the U.S. Census Bureau, the average annual household income was calculated at $67,521. 

“We analyzed residential lease applicants screened by TransUnion’s ResidentScreening platform between January 1, 2020 and April 30, 2021. We looked at rent as a percentage of income, which represented the average income and average rents nationally and in the 50 states plus D.C.,” said Paula Munger, associate vice president of industry research and analysis at the National Apartment Association. 

Average income spent on rent varies state by state. However, states perceived largely as expensive to live in tended to be ranked as more affordable due to higher paying jobs in those locations. According to NAA, the top three most affordable locations were North Dakota, Washington D.C. and New York. In these locations renters on average pay 20, 22 and 23 percent of total income on rent, respectively. 

States that were ranked as the most expensive include Hawaii, New Hampshire and Maine, with renters in Hawaii and New Hampshire averaging 33 percent and Maine averaging 32 percent of total income spent on rent.   

“States often considered unaffordable (like New York, Massachusetts and Washington D.C.) are actually relatively affordable mainly due to the higher income levels of people who live there. Also, as of Q1 2021, the pandemic did not seem to have much of an impact on affordability – at the national level, that is, when comparing it to Q1 2020,” Munger said. 

She continued, “Only six states were over the 30 percent of the income spent on rent threshold. States like Maine and Delaware place in the unaffordable category mainly due to lower income levels.”

States along the West Coast generally ranked as expensive. Washington was ranked as slightly more affordable than both Oregon and California, but it still ranked above the national average. Renters in the state are earning approximately $49,330 per year and spend about 28 percent of it on rent alone. In Oregon, NAA data shows that renters on average earn less than those in Washington at approximately $41,372. However, approximately 31 percent of a renter’s total income will go toward rent. Renters in California tend to earn the highest income of the region at $52,167, but they ranked just below Oregon with 30 percent of income spent on rent. 

“For the state of California, we found that in quarter 1 of 2020, it was the seventh least affordable state. In Q1 2021, it slipped to 13th least affordable. We used additional data sources to determine this was driven mostly by wage increases (+1.6 percent) although rents dropped as well (-0.1 percent) over those same time periods,” Munger said. 

Overall, data from NAA shows that average rental rates coincide heavily with average income in a given area. However, as space becomes scarce and demand for housing increases, rental rates are only expected to grow along with the demand. 

According to a third quarter U.S. multifamily market report from CBRE, rental vacancy across the nation fell by 1.2 percent quarter-over-quarter to a record low of 2.9 percent. At the same time, rental rates have increased 6.2 percent quarter-over-quarter to $1,873 per month. The third quarter also saw the delivery of 68,000 units across the U.S., bringing the year-to-date total to 190,000 units. However, demand remains strong, with CBRE reporting a record net absorption of 450,100 units so far this year.  

“With vacancy rates as low as they are now, affordability will only decrease. The U.S. has been underproducing housing of all types for years. Not until we get more supply, will we see downward pressure on rents,” Munger said. “That said, income levels have been on the rise, which will help ease some affordability concerns. Couple that with more supply over the next five years, and we stand to see plenty of improvement.”