SoHo, NYC/Flickr user Shinya Suzuki
New York City rents are astronomically high. And for most, the rent is unaffordable to the point where it is eating up the vast majority of take-home pay, says the Global Cities Business Alliance Housing for Inclusive Cities report. For the average worker in the Big Apple, rental costs take up 63.1 percent of monthly paychecks, leaving little wiggle room for other expenses.
The average monthly rent in NYC is $2,629. San Francisco is comparatively higher at $2,824 per month, but average workers in the San Francisco spend just 50.5 percent of wages on rent due to more rapidly rising incomes on the West Coast.
Beijing workers are by far the most out-priced, spending 122.9 percent of their incomes on average rent. Someone earning the average salary in Beijing cannot live alone or has to seek out employer-secured housing to circumvent the astronomically high housing costs, according to the report.
Are New York City wages sluggish?
While San Francisco residents are still contributing far too much of their paychecks to rental costs at 50.5 percent — beyond the recommended 30 percent of income spent on housing (mortgage or rent) — some might question why Bay Area residents spend significantly less portions of their paychecks on rent than those in NYC.
Wages aren’t necessarily stagnant in NYC, where company wage bills have increased dramatically due to rising housing prices. In fact, high housing costs sometimes dissuade employees from relocating to a metro, and in order to counteract rising rents, companies offer a wage premium.
[graphiq id=”keQwEydyaHj” title=”Average Per Capita Income in New York City ” width=”585″ height=”503″ url=”https://w.graphiq.com/w/keQwEydyaHj” link=”http://places.findthehome.com/l/71121/New-York-City-NY” link_text=”Average Per Capita Income in New York City | FindTheHome”]
The GCBA draws up a hypothetical situation in which housing costs elevates at 10 percent between 2010 and 2015, in line with inflation at roughly 2 percent annually. If housing grew at a more “modest” rate rather than above it, the housing-related wage premium in 2015 in NYC would be $12 billion, making up 3.8 percent of the actual total wage bill.
But in reality, higher housing costs cause workers to demand higher wages and therefore cause firms to pay employees more.
What if expensive housing was made affordable?
The study points out that in NYC, unrealized spending is as high as $7 billion in 2015. Under the assumption that if the cost of housing were lower, consumers would have additional income to spend on other goods and services. The GCBA points out that New Yorkers (and residents in other cities with outlandishly high rents) could put that money back into the economy in other ways.
However, the GCBA is also presuming that companies would not reduce employee salaries if the costs of housing dropped in a city, and in a city like NYC, it’s difficult to imagine rents dropping on their own anytime in the near future. Nonetheless, freedom to delineate income to savings, debt pay-off and lifestyle costs without government funding would be optimal for middle-income earners who wouldn’t otherwise fall into the unaffordability gap elsewhere.
