As a general rule, renters shouldn't be spending more than 30 percent of their income on rent.
If a household is spending more than that amount on rent, it becomes more and more difficult to put money toward other expenses. Saving becomes increasingly harder as more money goes toward rent.
A new report by Apartment List looked into the number of cost-burdened renters across the 100 largest metros in the U.S.
Analysts used U.S. Census data from 2005 to 2016 and divided affordability challenges into three categories:
“Not cost-burdened”-- less than 30 percent of income spent on rent, “moderately cost-burdened”-- 30 to 50 percent of income spent on rent and “severely cost-burdened”-- more than 50 percent of income spent on rent.
Apartment List researchers found on average, nearly half of American renters are spending more than 30 percent of their income on rent. A quarter of renters are severely cost-burdened.
California and Florida have the highest number of cost-burdened renters, while the South and Midwest are the most affordable regions in the country, according to the report.
Although nearly half of Americans are cost-burdened, in 2016, the number of cost-burdened renters reached the lowest level since 2008 due to the growth of high-income earners.
For example, the San Jose and San Francisco metros have lower shares of cost-burdened renters because of the number of high-income renters in area. Tech industry workers in the Bay Area bring in significantly higher incomes than renters working in other metros across the country.
In the Sacramento metro, nearly 54 percent of renters were cost-burdened in 2016, making it number 85 for affordability in the nation's top 100 metros. Nearly 29 percent of Sacramento renters were severely cost-burdened.
The city landed on the bottom of the list for affordable cities while seeing fast-growing rent and a growing population. The researchers behind the report found that rent in Sacramento increased from 2005 to 2016 but income decreased, which may be a reason why many renters are severely cost-burdened in the area.
However, Sacramento is seeing an influx of higher income renters move into the region from nearby expensive markets such as the Bay Area. Even though the city is seeing the rent increase outpace income, the change in composition of the renter population has helped drop the overall number of cost-burdened renters compared to the past few years.
The Stockton-Lodi region mirrored the Sacramento metro in the number of cost-burdened renters. Nearly 54 percent of renters in the area are cost-burdened and 28 percent are severely cost-burdened. Like Sacramento, Stockton has also seen rent spike in the past couple of years.
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