Rent taking up larger share of urban income, travel expenses rising

The average urban resident is now paying more towards rent as a share of total expenditure than was the case earlier.

 

The share of rent in consumption expenditure has risen to 6.58 per cent, according to data from the recently released Household Consumption Expenditure Survey 2023-24. This is the highest it has been in surveys going back to the turn of the millennium. The share of rent in urban expenditure was 4.46 per cent in a similar survey conducted in 1999-00. It has risen with every round of the survey.

 

The Survey polls people across the country to understand household consumption and expenditure patterns. The data is used for compiling the index by which inflation is calculated. The numbers presented here are based on the monthly per capita consumption expenditure (MPCE) in India during 2023-24. It does not take into account items that households receive for free. The share of rent after accounting for such items is 6.5 per cent.

 

The numbers also reflect a growing divide between rural and urban India when it comes to rents. Rural rents as a share of consumption expenditure without accounting for freebies have grown from 0.39 per cent of spends in 1999-00 to 0.56 per cent in 2023-24. 

 

The expenditure on travel or conveyance dipped compared to the previous year for urban areas. It accounted for 8.46 per cent of total spends in 2023-24 compared to 8.59 per cent in the previous year. This too has seen a rising trend from the 5.52 per cent level seen in 1999-00.

 

Here, rural India’s spends have risen faster and almost closed the gap with urban India. Rural India’s conveyance expenditure accounted for 7.59 per cent of spends in 2023-24 compared to 2.94 per cent in 1999-00.

 

Higher housing expenses can have implications for lifetime savings, suggested a July 2022 study titled “Housing Expenditure and Income Inequality” from authors Christian Dustmann of the University College London, Bernd Fitzenberger from the Friedrich-Alexander University, and Humboldt University of Berlin’s Markus Zimmermann. The study looked at rising income inequality in Germany since the 1990s. A larger share of lower-income household spends went towards housing even as the richer households spent lesser amounts relative to their incomes.

 

“Younger cohorts spend more on housing and save less than older cohorts did at the same age, which will affect future wealth accumulation, particularly at the bottom of the income distribution,” said the study.

 

But it could get worse.

 

More developed countries such as members of the Organisation for Economic Co-operation and Development (OECD), and the European Union (EU) spent significantly more on rent relative to their expenditure, suggested an April 2024 OECD note.

 

“Housing-related expenditure constituted the single-highest household expenditure item in OECD and EU countries in 2022, at an average of around 22.5% of final household consumption expenditure for OECD countries and 22.2% for EU countries,” it said.

 

Some countries are more expensive than others in terms of housing. Housing-related expenses constituted a quarter of consumption expenditure for many countries, including Canada, Belgium, Denmark, Finland, France, Ireland, Japan, and the UK, according to the OECD data.