Percent of Income to Spend on Rent

• Most financial experts today follow the lead of the federal government in defining a housing affordability limit of 30 percent of gross income. This limit is, however, just a rule of thumb, and varies based on income and housing affordability in the area you live. If you live in Washington, D.C., or San Francisco -- where rents are very high -- unless you have a very high-paying job, you are likely to spend a significantly larger percentage of your income on rent than if you live in Omaha, Nebraska, where rents are very low.
  
  

Housing Affordability Limit Evolves Over Time

• The United States National Housing Act of 1937 established that rent for tenants in the program could not exceed 20 percent of income. By 1969, that percentage had moved up to 25 percent, and by 1981, additional legislation moved the affordability limit to 30 percent, where it generally remains to date.
  
  

Gross Salary to Rent Ratio

• You can determine how much you can afford to spend on rent by examining your gross salary to rent ratio. At the 30 percent ratio, for example, for example, if your gross income was $30,000, then you could spend $9,000 annually on rent, or $750 a month.
  
  

Demographics and the Housing Affordability Limit

• It is difficult for individuals and families with very low incomes to spend less than 30 percent of their income on rent. Low-income housing is generally scarce in the United States, and in some cities, you need to earn nearly double the minimum wage to have sufficient income to find any kind of decent housing to rent for less than 30 percent of your income. Many poor people end up spending 40 or even 50 percent of their incomes on rent in these cities. On the other hand, the very wealthy might only spend 2 to 5 percent of their income on housing.