Big city, small apartments to follow 30% housing guidelines

Dream of living in a big city in California while still being able to afford the occasional dinner out and entertainment, maybe a once-a-year vacation and socking away a few dollars for retirement?

Uh, think small. Very small. Like studio small.

California is an expensive place to call home, whether you are buying or renting. And if you’re going to follow the decades-old guideline of spending 30% or less on housing every month, you have few choices — find a roommate or look for a smaller (and more affordable) space.

So how much — uh, little — space are we talking about? It depends on the California city and your income. RENTCafe crunched data and determined how far you can squeeze the average income per city compared to the average rent and price per square foot. Trust me, it’s going to take the average-Californian living in coastal cities some serious squeezing.

Ditch the bookshelf (embrace ebooks), forget the coffee table and learn to use the words “comfy” and “quaint.”

Let’s be honest, many renters can only afford 333 square feet in LA

Los Angeles is the most cost- and space-constrained in the nation — and state, of course. The average wage-earner could only afford about 333 square feet and limit their spending to 30% of their monthly income in Los Angeles, about half the size of the average 792-square-foot apartment in the City of Angels. The figure is based on rent of $2,463 per month, according to RENTCafe.

San Diego finished in second-place in the state, and No. 10 in the U.S. at 552 square feet — about 330 square feet smaller than the average apartment in the state’s second-largest city.

Bay Area cities San Jose and San Francisco finished in third- and fourth-place in the state, and Nos. 12 and 15 nationwide. Both cities have incredibly high-priced rent for apartments — $2,706 and $3,607, respectively — but the average employee earns more than those in Los Angeles and San Diego.

Fresno (36 in U.S.), Sacramento (37) and Oakland (47) all require the average residents to live in much smaller spaces to follow the 30%-or-less guideline.

Where does space equal 30% spend on rent?

So, where does spending 30% of your paycheck on rent meet — or even exceed — the average apartment size in a California city? Think boots, Dwight Yoakam and oil. Yep, Bakersfield.

Bakersfield skyline.

The average resident can spend 30% of her income and live in the average-sized 862-square-foot apartment in Bakersfield, where rent is about $992 per month.

Several other California cities are listed, and if housing costs are forcing you to look at other states (or you just need more space), the RENTCafe report offers a nifty way to compare and see how far your dollars will stretch.

Please remember that the data is based on average earnings and average apartment size and rents. NerdWallet has a nifty online salary calculator that allows you to compare your current salary and what you will need to earn in a comparable city.

How far spending 30% of income goes in …

  • Los Angeles: 333 square feet
  • Oakland: 340 square feet
  • San Francisco: 407 square feet
  • Long Beach: 443 square feet
  • San Diego: 552 square feet
  • San Jose: 551 square feet
  • Riverside: 589 square feet
  • Sacramento: 600 square feet
  • Fresno: 640 square feet
  • Bakersfield: 862 square feet

Feature photo of apartments by Vladislav Gurfinkel/Shutterstock

Tax reform affects Bay Area homeowners the most

California may boast one of the lowest property tax rates in the nation, but the Golden State also has some of the most expensive housing markets.

The average San Jose and San Francisco homeowner paid $9,626 and $8,493 in real estate taxes in 2017, the second- and third-most in the U.S., behind only the $10,200 in New York City.

San Jose and San Francisco homeowners also paid the most in mortgage interest at $15,000 and $14,500. Almost one of every three federal income tax returns claimed paying real estate taxes in 2017, according to the LendingTree report.

However, thanks to fast-rising prices that have greatly increased equity rates, few homeowners in the Bay Area have mortgage insurance — a rather costly coverage for homeowners with less than 20% equity.

Los Angeles finished as the 10th priciest metro market in the nation, with the average homeowner paying $6,635 in property taxes — less than Austin, Houston and Dallas, popular destination cities for those moving from the Golden State.

Property taxes are a major concern for higher-income Californians in pricier markets, especially with the federal tax overhaul of 2017. With a local tax cap of $10,000, some higher-income homeowners are hurt by the tax cuts, since they only receive credit for some of their local taxes — property and state income taxes.

Of course, many taxpayers, even those who own homes with a mortgage, pass on itemized tax returns in favor of the standardized deduction.

Despite the changes, many consumers looking to buy are shrugging off the implications from tax reform, according to a recent Redfin report. Only 55% say the tax overhaul is affecting their buying decisions, slightly higher than the 53% rate nationwide.

Blacks, Hispanic homeowners suffered the most from foreclosure, housing collapse

Foreclosures affected many homeowners in California, as the housing market collapsed and values plummeted between 2007 and 2015.

About 1.1 million homeowners were foreclosure victims in the state, according to CoreLogic.

But communities of color — those with a majority of African-American and/or Hispanic homeowners — were the hardest hit, and will have the longest and most challenging recovery, according to a Zillow report.

Blacks, Hispanics depend more on their homes for building personal wealth

Foreclosures often occurred more in communities of color than those in largely white neighborhoods. And those communities depend more on their homes to build personal wealth.

For the average American homeowner, a house accounts for 42.1% of their personal wealth, but the figure is much larger for African-Americans and Hispanics at 55.6% and 64.7%, respectively. For white homeowners, a home accounts for only 38.1% of their personal wealth.

And that home-dependent wealth greatly increased in 2007, considered the peak of the housing market in California. A house was 61.8% of African-American family’s wealth and 73.1% for Hispanics, much larger than 46.5% for the average white homeowner.

So, in communities of color — think neighborhoods in Fresno, Los Angeles, Oakland, Sacramento and Stockton — more African-Americans and Hispanics lost their homes to foreclosure on a percentage basis.

Meanwhile, in mostly white communities, a smaller percentage of homeowners experienced foreclosures and many have enjoyed nifty returns from the recent run-up in real estate prices. In fact, five of the seven cities in the nation with the largest price gains during the past two decades were in California, with Oakland topping the list, according to PropertyClub.

Foreclosures happened three times more in communities of color in SF

If you look at San Francisco and Los Angeles, foreclosures in communities of color were much more likely, according to the report. In San Francisco, foreclosures happened 3.3 times more in communities of color compared to largely white neighborhoods. Primarily white neighborhoods are 62.3% of homes in San Francisco, but comprised only 43.5% of foreclosures.

Los Angeles was better, but foreclosures were still twice as likely to hit African-American and Hispanic neighborhoods than mostly white areas. White neighborhoods account for 49% of homes in the city, but only had 31% of foreclosures.

Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.