ALBANY, N.Y. (NEWS10)- Renters looking for a place to call home in New York may have noticed the price of rent is going up. Financial experts suggest people spend 30% of their gross income on rent but that’s not the case for half of all renters.
The average price of rent has slowly been creeping up over time. In January 2017 the average rent for a one-bedroom apartment in New York was $906, compared to $953 in January 2021, based on information from Statista. The current average rent for a one-bedroom apartment is $1588, according to a report by Quotewizard.
The 30% rule for spending on rent is meant to act as a guide for people to manage a balanced budget. However, the National Foundation for Credit Counseling suggests a more flexible option, saying people should spend between 25-35% of their gross income on rent. This leaves room for other expenses like food, transportation, insurance, and entertainment.
The problem for half of all renters in New York is that they are spending more than 30% on rent, said Quotewizard. Using the fair market rent price set by U.S. Housing and Urban Development (HUD) for Albany County in 2021 ($912), to stay within a rent that uses 30% of their gross income, someone would have to make $3040 a month, or $36,480 a year.
Below are HUD’s Fair Market Rent values for a one-bedroom apartment in Capital Region counties. Higher rents are seen in places like Albany, Saratoga, and Schenectady County. Lower rents are seen in counties like Columbia, Fulton, and Montgomery.
HUD One-Bedroom Fair Market Rent values
HUD’s fair market rent values include utilities but using the same gross income of $3040 a month, someone paying the current average rate of $1588 would be spending 52% of their income on rent. Any remaining bills would have to be paid with $1452.
Spending too much on rent can impact people’s ability to get loans. Banks and financial institutions look at people’s debt to income ratio before approving loans or credit cards. Experts like NerdWallet and Lending Tree say an ideal debt-to-income ratio is between 28-36%. Debt to income ratios are calculated based on how much people pay (debt) compared to their income.
If 50% of New York renters are paying more than 30% towards rent, it puts them at a disadvantage to obtain loans or lines of credit. The debt to income ratio, without any other bills, in the above scenario, is 52% (total monthly expenses divided by your gross monthly income, multiplied by 100).
To meet an ideal ratio (32%), the person in this example would only be able to spend $972.80 a month total on bills, a goal unattainable for many New Yorkers.