You have to consider housing cost as a % of your salary, not as a % of itself.

For example, say your rent is $1000 and your salary is $100k. A 10% increase of rent is $100; a 1% salary increase is $1000. Net gain $900.

Excellent point except for the math mistake! A 10% rent increase in $1000/month rent make the new rent $1100/month, so your total additional cost is $1200/year, not $100/year!

Then, on top of all that, your salary increase is taxable. A $1,000 salary increase will only get you about an extra $600 per year. So, you're certainly not coming out ahead.

My actual numbers are a $300/month rent increase (which totals $3,600 more per year for the same space and the same services) combined with a less than $3,000 pre-tax raise for the year.

Also see any generic michaelochurch rant about how landlords try to capture all economic gains (and they require "proof of income" so they know how much you _could_ afford if you really had to).

Meh, land is an asset, and they aren't making any more of it. A reasonable person would expect use cost to increase over time, especially in high-population centers like SF and NYC where the game is basically "is someone else as qualified as you willing to pay me more?" -- which is, incidentally, the same game we play with our salaries.

That's why fixed-rate mortgages are so great. Your housing payment is guaranteed not to rise! (taxes notwithstanding)

Slightly OT, but I am wondering what would happen if the landlords were tax at 100% (or even more) on the rent they perceive. I have this weird dream where it wouldn't be profitable to speculate on real estate, and real estate would become a commodity just like cars.

The salary in this example is per year, the rent is per month. So actually a 10% rent increase is $1200 per year and a 1% salary increase is $1000 per year for a net loss of $200.

Whoops, you're right. Point still stands though, comparing growth the way the GP did is misleading.