Average Wages Need to Increase 25% to Make Rent Affordable

The median-income earning household in Los Angeles would need to earn 25% more to afford the median rent in the city, according to a new report from Apartment List. The median household income in Los Angeles is $56,245 and would need $13,835 or $70,080 more to avoid becoming cost-burdened by rent for the average two bedroom. These numbers place the hourly wage to afford a two-bedroom apartment at $34 per hour.

There are a variety of factors impacting rents in Los Angeles, but the primary issue is an imbalance between supply and demand. “The good news is that all cities with a high quality of life are going to have high rents relative to wages, and L.A. continues to be a great place to live,” Igor Popov, chief economist at Apartment List, tells GlobeSt.com. “The bad news is that a lack of dense construction may be keeping prices artificially high, so that housing supply isn’t rising to meet demand. Both lead to high rents.”

In addition to rising demand and a shortage of housing and new construction, there is also a lack of single-family housing development in Los Angeles. That is keeping people in rental units longer than before. “A lack of dense housing development is one factor, but single-family home construction has also been lagging since the financial crisis,” says Popov. “Moreover, on the demand side, more high-earning households are choosing to rent instead of own, putting more upward pressure on rents.”

There may be a large and expanding gap between wages and rents, but the gap doesn’t seem to be impacting occupancy rates. However, people are stacking up to bear the rent burden. “I think roommate and housemate arrangements are becoming increasingly common, and to make rent, people are sharing housing for longer. In some cases, even after they pair off and get married,” says Popov.

Los Angeles isn’t the only city where rent growth is exceeding wage growth. The report also found that the 24% of the top 100 cities in the US are cost-burdened for the median-income earning household. In Los Angeles, Popov expects rents will continue to outpace wages. “I think L.A. rents will continue to outpace wages. The economy keeps growing, more and more high earners are choosing to rent, and L.A. continues to be a desirable place to live,” he says.