How Much of My Income Should Go Towards Rent?

We break down how to work out how much rent you can afford, and the signs that you could be spreading your finances too thin. 

Housing is a significant cost in New Zealand. Not only for those chipping away on a mortgage amidst rising interest rates. But also for the roughly one-third of Kiwis living in rentals. In fact, the average renter spends a bigger share of their salary on rent than the average homeowner does on a mortgage.

As of August 2023, the median rent in New Zealand was $620 per week. That’s a pretty significant cost. And for those in the big cities, the costs are even higher. Aucklanders, for example, are coughing up an average of $670 per week. 

With rents rising, and inflationary pressures pushing up the cost of living in general, it can feel as if renting is increasingly unaffordable. But what exactly is unaffordable or affordable rent? And if a place is affordable, is it sensible?

Canstar guides you through just how much should you spend on rent, and some tips to keep costs down.

How much of your income should go towards rent?

Thirty per cent is the golden number when it comes to rent affordability. The 30% rule specifies that no more than 30% of your gross income (income before tax, KiwiSaver, student loan deductions, etc.) should go towards rent. And, overall, it remains good advice.

But the full picture isn’t quite that simple.

How much you should spend on rent, and how much you can afford to spend are two separate things. If it’s feasible, 20%-25% of your gross income is probably a better figure. This will ensure you still have plenty of room in your budget for other expenses, entertainment and leisure, and of course savings and investments.

But again, it all depends on you. Based on your financial goals, you may opt for a place that only equates to 15% of your gross income. Just because you can afford to spend more, doesn’t necessarily mean you should. If you’re planning to buy your first home, for example, you should try to spend as little as possible on rent.

In fact, according to Canstar’s latest Pulse report of prospective first home buyers, 54% said they were living with family in order to better save for a deposit. Doesn’t get much cheaper than that!

So it’s fair to say you should think of 30% as the cap, not the goal.

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Work out a budget

To get a clearer picture of what you should spend on rent, it’s helpful to create a budget. This is going to be a lot more personalised than a general percentage.

Calculate how much you need for expenses, savings and investments. Allow a reasonable sum for entertainment, leisure and non-essential purchases. And once you know how much is left, you can decide how much of it you want to go towards rent.

If you’re not sure where to start, one popular budgeting method is the 50/30/20 rule. Under this method, 50% of your income is put towards necessities, like housing and food, 30% goes towards things such as going out and entertainment, and 20% is used for savings or to pay down debt.

But again, this is only one budgeting method. It may not suit your own goals or needs.

→Related article: How Much Deposit Do You Need To Buy A House?

Searching for the Cheapest Personal Loan?

If you’re looking for the cheapest personal loan, Canstar’s personal loan comparison tables can help. The table below displays the sponsored unsecured personal loan products available on Canstar’s database for a three-year loan of $10,000 in Auckland, with links to lenders’ websites. Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.

What if your rent is over 30% of your income?

If you are spending over 30% of your income on rent it’s not necessarily the end of the world. This figure, while widely quoted, is at the end of the day only a general rule. Firstly, it may pay to assess why your rent is above 30% of your income. If you’re paying for a place that’s more lavish, or larger than necessary, you might want to consider moving.

But there are plenty of other reasons why your rent may be over 30% of your income, even if you’re not living it up in a penthouse suite. And depending on your reasoning, you may still find that your rent is reasonable for your circumstances.

Rent in your region is less affordable

Rent affordability varies widely. So for some, the 30% figure won’t be realistic, no matter how cheap a place you find. If you live in Auckland Central, for example, and your salary is on the low end, spending less than 30% on rent may just not be an option.

After all, if you were paying the previously mentioned Auckland average of $670, you’d need a gross income of around $116,000 to stay under the 30% cap. Even if you assume this rent was split between two working adults who were paying $335 each, they’d still need to be making at least $58,000 a year.

For many, sticking to these numbers just isn’t an option. In fact, in the year ending in June 2022, around a quarter of renters spent more than 40%, of their disposable income on rent.

And many sole earners and/or low-income households are spending much more than this. Rent hikes continue to outpace increases in salaries. As a result, a greater percentage of people’s weekly pay packets is going towards keeping a roof over their heads.

It saves on other expenses

Your rent isn’t all there is to consider. Living further out of a city will typically be cheaper, for example, but you then need to factor in petrol or public transport costs. Whereas opting for a place that’s more expensive but allows you to walk everywhere and forego car ownership could end up being cheaper each week.

There’s also the utilities to factor in. If your house is well insulated, double glazed, and has energy-efficient heating, it could end up a cheaper option than a cold and damp house with a lower weekly rent.

It may also be worth living in a share house with more people. Splitting wi-fi, power and gas among five can be cheaper than splitting utilities between just two.

On the other hand, if you’re particularly economical, will moving out of a house with power-hungry flatmates make living alone cheaper?

You’re a student

Student living can be a bit of an anomaly. And I’m not just talking about the struggle to get your flatmates to pay you their share of the toilet paper and dish soap you bought.

The reality is, most young students survive on a mixture of part-time work, student loans, and support from family. And because universities tend to be in the big centres, students can be stuck paying high rents. As a result, sticking to the 30% rule isn’t really the priority. So long as your rent isn’t causing you financial hardship, it should be okay.

Your income is high enough to justify it

If you’re making $200,000 a year, and 50% or even 60% of your income goes towards housing, you’ll still be left with plenty of disposable income. And while it’s not advisable to spend 60% of your income on rent, regardless of how much you earn, it is a testament to the fact that you can afford to be a little more flexible. While 30% remains a suitable limit, if you’re earning megabucks, you certainly have the freedom to spend more should you need/want to.

How can I keep rent down?

Tips that could help lower your rent, include:

  • Check the market rent in your area here. You could be overpaying. If so, you could look for a new place, or you may even be able to apply to the Tenancy Tribunal to force a reduction.
  • Get flatmates. Typically, living with more people will be cheaper than with fewer.
  • If you don’t drive, and have a parking space, see if you can rent it out.
  • If work is being done to the property that temporarily impacts your living standard (eg. a second bathroom or a backyard is unusable) you may be entitled to a temporary rent reduction.
  • Use Canstar Blue to compare electricity providers, broadband providers, and bundled utilities to get a better deal on your utilities and lower your monthly bills.

Where can you get financial help?

If you need help managing rental payments or any housing costs, check the govt. website for more advice. 

If you’re looking for help with managing your finances, you may want to contact a financial counsellor. There are free community services in NZ, such as MoneyTalks, that can help you manage your finances. You can contact MoneyTalks, a free financial helpline for advice and support from trained financial mentors. MoneyTalks can also connect you with services in your community, and organise face-to-face help with your household and personal finances from a financial mentor.

Compare home and contents insurance with Canstar

If you’re renting, you won’t need to worry about home insurance, but your contents are on you. So it’s important that the things you love most are insured. But how can you be sure you’re getting the best deal on contents insurance? That’s where we come in. Here at Canstar, we take a lot of the hard work out, by comparing contents insurance providers for you. So you can find the best deal. Just click the button below to learn more and to start comparing.

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About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.

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