alt Hacker NewsIt’s true that average rent prices are regional and poorer areas have lower rents, but that doesn’t tend to make much difference in urban areas and large cities where the majority of people live now. Why do you feel that rent scales with disposable income? Economists generally say the opposite based on housing being a core necesessity; that people pay rent in proportion to their income, and only what’s left over the the disposable amount. That’s why we have the 30% rule, for example.
You’re technically correct, btw, rental housing is a market and is subject to market forces, meaning what people are willing to pay. I’m just not so sure about framing rent as being lower priority than other necessities. And rent prices have been increasing faster than other necessities, and faster than income, so that might be a confounding factor in your argument.
Still, my initial reaction above is due to the fact that in the US and in Europe in most large cities, the average rent is north of $1000/mo.
>Why do you feel that rent scales with disposable income?
Because I'm from a country where 30 years ago average income was $220/month. Today it's $2475/month.
A large portion of people live in the same houses and apartments now as people did back then. The housing hasn't changed, but today renting a 70 sqm apartment costs you $800/month - the same apartment that people in 1996 lived in with their $220 monthly wage.
The reason why I think that housing is "lower priority" when setting a price is because the sale/rent price for housing is more divorced from the "manufacturing cost" compared to other goods. This happens for a number of reasons:
1. Housing scales with money. Most people live well beyond the "minimum required" for housing. You could survive living in a tiny room with a shared bathroom, but most of us want more than that. Compare this to food - rich and poor people will drink a similar amount of milk. You can't really spend 100x on milk and actually get appreciable benefits from doing so. You can with housing. (Same goes for most other goods. A $3 million car is not 100x better than a $30k car, it's not even 10x better.)
2. Housing is non-fungible. You can't have two houses in the same location. Food, furniture, and electronics are fungible.
3. Housing doesn't depreciate with use compared to other goods. You drink milk and it's gone. You drive your car and it degrades. Your house degrades simply by existing - your use of it will degrade it a little, but living in it also means you do maintenance, like cleaning, that will help keep its value.
4. Because of the above, housing is an asset that people invest in. This is a bit circular, but it also means a lot of people don't want to see housing become cheaper.
>And rent prices have been increasing faster than other necessities, and faster than income, so that might be a confounding factor in your argument.
Because the cost to produce other necessities hasn't increased as quickly as incomes have increased. We have better technology and better economies-of-scale that has made the cost of other goods cheaper. Now people have more money left over to pay for rent, so they do.