It's often assumed that it's cheaper to rent than buy property, but white hot rental markets in big cities are challenging that assumption.
Apartment rentals in major areas are becoming nearly as costly as frothy home prices, a new report suggests, and require salaries well in to the six figures to maintain a certain standard of living while renting a two bedroom apartment. A study released this week by Smart Asset surveyed markets in 15 big U.S. cities, and the amounts required to live in them. Smart Asset found that rentals fell in only 3 of those markets last year.
Using a federal government formula for housing affordability as a baseline, Smart Asset created a 28 percent rent-to-income ratio to determine how much money households needed to afford rent in all 300 cities. It then broke out which of those cities was the most expensive to live in.
The report confirmed what many residents in large urban areas already suspected: It takes lots of money to live in places like New York City and San Francisco, both of which topped Smart Asset's list of most expensive places to live. Most observers have cited the influence of Silicon Valley as driving up costs in San Francisco, while New York's biggest industry—the finance sector—and a heavily regulated rental market are seen as key factors drives up living costs.
According to the study, the Southwest U.S.—including Phoenix, Los Angeles and Dallas—is the most torrid place in the country in terms of rent prices.
Yet San Fran and New York have the highest cost of living: The former tops the list with $216,219 required to pay rent and "live comfortably," whose definition includes occupying a two bedroom apartment, while the latter is second with more than $158,000 needed in salary. The Bay City's median household income is just over $78,000, according to Smart Asset, while Rent Jungle lists the average price of a one bedroom apartment in the city as a wallet-busting $3100.
Despite a conspicuous construction boom, New York City still suffers from a dearth of affordable housing, a legacy of what some critics say is a patchwork of regulation that squeezes affordable housing.
"If you love New York and you've decided to live in the city, you'll have to learn to love the high cost of housing, food and transportation," Smart Asset wrote. "In the Big Apple, the cost of living is nearly 70 percent higher (or more than that in some neighborhoods) than average costs in the rest of the nation."
The National Multifamily Housing Council says the city's rent regulation, originally designed to boost the stock of cheap rentals, is little more than "an ineffective and often counterproductive housing policy" that undercuts the availability and quantity of affordable units.
Los Angeles, Boston and Washington, D.C. rounded out Smart Asset's top five most expensive cities.