Understanding rent-income ratio
While fluctuating housing availability and prices can alter rent in any given area, ideally tenants should only be spending around 30% of their income on rent each month.
Figuring out your perfect spending vs. income ratio isn’t just for a tenant's benefit; landlords often look at that same ratio to make sure they feel confident potential tenants can afford it.
Why 30 percent?
Although there’s some debate about how much of an income should be spent on rent, according to the U.S. Census Bureau, the conventional 30 percent rule evolved from the United States National Housing Act of 1937.
After establishing a public housing program, the government set up guidelines to ensure people were not being unfairly charged for rental units. It was decided that in order to qualify for housing assistance, families could not make more than 5-6 times the amount of rent.
As the housing market and economy fluctuated, the Brooke Amendment of 1969 adjusted the guidelines so that the rent threshold was 25 percent of a family’s income instead of the vague “5-6 times” what they earn. In the 80s, that amount evolved to 30 percent and became known as an industry standard for the amount that a household could spend on rent and still have enough left over for other non-discretionary spending.