November 7th, 2005

Brad @ Burning Man

Am I Being Cheap, or Are Most of You Being Crazy?

One of the ideas I've been kicking around, come lease renewal next spring, is moving to a nicer place. I actually know one, in west county. I priced rents last year, and it's almost exactly 50% more than this place. But what it has that this place doesn't: two swimming pools, a gym, two fast food places and a Denny's in walking distance, basement storage, and about 50% more room. It's also in a heck of a lot better shape. I'd still have grocery shopping in walking distance. I'm very familiar with the complex; I lived there years ago, and loved it. But what I can't wrap my head around is paying that high a percentage of my income for housing.

See, I'm old fashioned. When I grew up, one rule that financial institutions used for evaluating your credit risk was that ideally, your mortgage or rent should be no more than 25% of your take-home pay. It could go a little higher than that, but if it reached 33% of your take-home pay, it was assumed that you were one minor disaster away from bankruptcy. When I bought my first house in the early 1990s, the realtor and several financial institutions explained to me that that was terribly old-fashioned of me. Now it was assumed that your housing expense should be about 33% of your take-home pay, and you weren't considered to be high-risk until it reached 50%. And since then, I've heard it claimed (by people with suspicious ties to the housing bubble) that no, in the 21st century food and energy costs are so much lower that everybody can afford nicer housing, so it's assumed that you'll spend 50% of your income on housing and you're not high-risk until you get close to two thirds.

The idea of spending one third of my after-tax income just to pay the rent or mortgage blew my mind, and still does. I couldn't and wouldn't imagine living that way. Which is why, for all that it was by my standards a very nice house, I ended up working in the professional class but living in a working class neighborhood.

So, yes, I can see that I could live in a lot better place if I could talk myself into spending roughly another $200 a month on rent. (Utilities would probably stay about the same; newer building, better windows and better insulation.) Right now my rent is almost exactly 25% of my take-home pay; at the new place it would be not quite 40%. So by the standard budgeting rule as updated for the 21st century, as it has been explained to me, the other apartment ought to be perfectly affordable. But I look over my budget and for the life of me, I can't find $200 worth of expenses that I'm "supposed" to live without to live there. I live pretty close to the bone, and have no revolving debt to pay off, and I still can't figure out where that money would come from. So the way I see it, either the rule is stupid, or I'm stupid, at least about this. And for the life of me, I can't figure out which.

So I'm curious. If you don't mind my asking, and this is only for those of you individuals or households who are paying your own mortgage or rent without help or subsidy from outside the household, what percentage of your average monthly take-home pay are you spending on housing? To simplify things: if you rent, just count your rent. If you live in a condo, count your rent or mortgage plus condo fees. If you own, give me the whole monthly fixed cost, mortgage plus mandatory mortgage insurance if you're carrying it plus withheld property tax. Then round off, because we're just talking ballpark estimates here.

Poll #606987 Monthly Housing Cost

What fraction of your household's average monthly total income does it cost you to pay your monthly rent or mortgage? Pick the closest answer.

Two thirds or more.
Around half.
Around one third.
Around a quarter.
A lot less than one fourth.