Half of US households overpay for housing

Government guidelines advise homeowners to allocate no more than 30% of their income to housing, yet data reveals this is unattainable for nearly half the population.

As Americans look for ways to cut costs, one expense consistently takes up the largest share of their budget: housing. For decades, policymakers have defined those spending more than 30% of their pre-tax income on housing as “cost-burdened.” The reasoning is simple: spending too much on housing leaves less money for food, transportation, education, or savings.

A Nationwide Snapshot of Housing Costs

Nationally, the average homeowner allocates 28.4% of their pre-tax earnings towards mortgage payments, but this number varies significantly across different regions. In 21 states and Washington, D.C., homeowners spend over 30% of their median household income on mortgages.

The national median monthly pre-tax household income is $5,547. The median monthly mortgage payment is $1,624. The median home price is $333,187. These numbers reveal the strain many families face.

Where Homeownership Is Most Affordable

The Midwest is the most affordable region, where residents spend only 22% of their income on mortgage payments. The South follows at 28%, then the Northeast at 30%. The West is a clear outlier, with residents spending 41% of their income on housing.

States with the lowest share of income spent on mortgages are West Virginia (16.6%), Iowa (17.7%), and Kansas (19.5%). West Virginia also has the lowest median mortgage payment at just $700 a month and the lowest median home price at $144,000.

At the other end, Hawaii is the least affordable state. Homeowners there spend 62.3% of their median income on mortgages. The median home price in Hawaii is $903,000. California (53.2%) and Washington, D.C. (43.9%) follow close behind.

High home prices are a major driver of the crisis. Seven of the 10 most expensive median home prices are in the West. Yet, state income doesn’t explain the entire problem. The highest median household incomes are in the Northeast, led by Maryland and Washington, D.C., where residents still struggle with high housing costs.

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The 30% financial guideline has its roots in the 1968 Fair Housing Act. Originally, public housing rent was capped at 25% of a resident’s income. Congress increased that cap to 30% in 1981. While the rule is a useful benchmark, its effectiveness varies widely by location.

Why Housing Costs Vary So Much

There are many reasons why Hawaii is so expensive. Chief among them is that it’s an island. Nearly everything, including building supplies, has to be shipped there or flown in, adding to the cost of living. Its tropical climate also makes it a desirable place for foreign investors to buy property, which drives up housing costs.

Western states, excluding Hawaii, also ranked low in terms of affordability. In fact, the top 10 least affordable states were all located in the West, with the exception of Washington, D.C., which the Census classifies as a Southern state. Residents of Washington, D.C. spend nearly 44% of their income on mortgage payments.

The remaining states that made the list of the top 10 least affordable places were Montana, Washington, Oregon, Utah, Idaho, Colorado, and Nevada. Homeowners in these states spend between almost 43% and under 40% of their income on mortgages.

Notably, there is no strong correlation between state income and the proportion of earnings spent on housing in the West.

The states with the highest median household incomes tended to be in the Northeast, led by Maryland, Massachusetts, New Jersey, and New Hampshire, all hovering around $90,000 a year. California follows at the No. 6 spot with a median household income of about $85,000.

To determine affordability, a comparison was made between two metrics: the median monthly mortgage payment and the median monthly pre-tax household income. The calculation assumed a 30-year, fixed-rate mortgage at an interest rate of 6.15%. Using that rate and median home prices, the median monthly mortgage payment was calculated. Data for income came from the U.S. Census Bureau’s 2021 1-year American Community Survey.