The American North-South Divide

The 50 least expensive cities in America are all

in the south. The 50 most expensives cities are overwhelmingly in the north,

plus California and a couple of places like Miami (which is still just 56% as

expensive as New York). A "moderately affluent lifestyle" takes an

income of $69,496 in Paris, Texas. It takes an income of $166,777 in New York.

Does that seem excessive? If you spend a third of your pre-tax income on housing,

that would be $55,600 per year. Call it $1,000 a month in maintenance payments

and $3,600 a month in mortgage repayments. That means your mortgage is about

$750,000. Which doesn’t buy much in New York City these days.

This entry was posted in Uncategorized. Bookmark the permalink.

13 Responses to The American North-South Divide

  1. bafc23 says:

    I always wanted to live in Paris, now I can…

    when did the French add ‘Texas’ to the name?

  2. David Sucher says:

    It seems to me that’s missing from the discussion of cost is the notion of value.

    People are willing to pay to live in the high-cost areas because they are also high-value areas. At least that’s the mega-implication I tease out. It’s hardly flattering in that sense for Houston to trumpet that its costs are lower for what it mweans it that people don’t value living there as much as do people in SF or LA or NYC or even Seattle.

    I’m not expressing it well but there is something funny about these discussions of high-cost vs, low-cost areas and it seems to me to miss the fact that writ large markets work and what the market says about housing values is to some large extent true. Putting aside the impact of land use regs which is part but hardly all of the story. And even witgh land use regs which “artifically” tighten supply — the price is the value. Period.)

  3. Felix says:

    Don’t you find it noteworthy, David, that Texas, say (which includes places like Dallas and Austin as well as the monstrosity that is Houston) by your metric has very little value? I think one has to look at space constraints as well: Manhattan is expensive because it’s a small island, and the second most expensive city, San Francisco, is all but an island, being surrounded on three sides by water.

    Or, to put it another way: just because San Jose might cost twice as much to live in as Austin, I don’t think one can reasonably conclude that people value living in San Jose twice as much as they value living in Austin.

  4. David Sucher says:

    Yes, I agree, Felix. Such an assertion — “…people value living in San Jose twice as much as they value living in Austin.” — does seem a bit odd. And I am not economist enough to be able to sort it out.

    But what other conclusion can one reach?

    Look at it terms of cars. If you have a car for $20 thousand and one for $40 thousand, and both sell in the market with few rebates etc etc, can’t one fairly say that the car for fourty is valued at twice as much as the one for twenty?

    The market agrees that one car is worth twenty and one worth fourty. People don’t just pay fourty for the more expensive car. They value it at twice as much as the cheaper one. No?

    Why shouldn’t we apply that to regional differentials in housing? With so much of our population being somewhat footloose, isn’t that a reasonable approach?

    I say this as a resident of Seattle who likes the place but also says “Is it truly worth it to me in a house which the market says is worth far more than I think it’s worth? Maybe I should move to an area where I can use some of that excess valuation for more interesting things?” It’s only a question but people — at retirement age or maybe very young setting forth on their careers — do think somewhat along those lines.

  5. David Sucher says:

    Let me also acknowledge the “stickniess” of housing prices and the relatively slow response in the market because of transaction costs, residents’ attachment to jobs, family etc etc.

    But still, writ large, if people pay more then they must (by definition) be valuing it more. No?

  6. Matthew says:

    I think David has a point. In Britain it is commonly observed that people living in London are ‘poorer’ than those outside because housing costs are so high. But there never seems to be any compensatory value placed on the benefits of living in London – surely in some sense a ߣ400k 2-bed flat in inner London is better than a ߣ200k 2-bed flat in Chelmsford. Wasn’t this something you were getting at in your post last week about city life?

  7. Felix says:

    Yes, Matthew, there is no doubt that the increased costs of city life are highly correlated to the increased benefits of city life. But.

    Firstly, why is it that cities in the north and west should be so much more highly valued than cities in the south? That was my point with the San Jose/Austin example: I’ve heard lots of wonderful things about Austin, but I’ve never heard a single wonderful thing about San Jose. Rather, San Jose gets a sort of trickle-down effect from San Francisco and Silicon Valley: if Palo Alto is very expensive, then perforce San Jose will rise in value with it. You know, like Brooklyn. 😉

    As to David’s point, however, his argument rests on the idea that “with so much of our population being somewhat footloose,” differentials in housing prices can be relatively easily arbitraged. If A is overvalued and B is undervalued, then people will move from A to B. But I think that movement is the kind of thing that happens over decades, while housing prices can skyrocket in just a few years.

    It’s also worth noting that people get paid more in San Jose than they do in Austin. Even accounting for the fact that there are precious few high-tech jobs in Austin, I’m sure the average beautician, say, gets significantly more money in the more expensive city.

  8. David Sucher says:

    1. “… precious few high-tech jobs in Austin…”

    Huh? Isn’t Dell Computer et al there?

    2. As to the differential in housing values, I think that this pattern of cheap South/dear North has been the same for decades…ever since the seventies started a massive “recognition of value” in the north and west. Let me put it this way: if Bay Area housing was cheaper, even more people would live there because it is a superb place to live.

    3. Why “…cities in the north and west should be so much more highly valued than cities in the south…”

    They are by and large nicer? More interesting? More urbane? More “city-like?”

    I really have no idea and these facts are pregnant with questions.

    But facts are also facts. Northern/western cities seem to be valued more highly (and it is not all land use restrictions…which were themesleves, as I want to emphasize, a response to rapid growth.)

  9. Felix says:

    My bad — You’re quite right about Dell.

    As for the reasons why San Jose and Chicago are more highly valued than Austin and Houston, it’s easy to come up wit ex-post rationalisations, but on the other hand if it were the other way around one could come up with reasons for that as well. It does seem to me that there’s a broad North>South phenomenon in this country, at least when it comes to $. Maybe money moves a lot more slowly than one might think, and since it mostly started in the North, it mostly stayed in the North.

  10. 99 says:

    I’m make some broad generalizations about my time in the south: if there is a value equation in the N/W cities having to do with culture, there is a perhaps a concomitant value system in the south about tradition. Like it or lump it, the fading glow of the antebellum south still works its magic in many places. Those where it had faded, or never existed, such as Miami, correlate as outliers accordingly.

    This attachement to tradition leads to static living patterns, which, to my amatuer economist mind, leads to a depression of wages, since there is a irrational attachment to an underperforming area. That sacrifice probably also leads to stagnant housing prices (people hold onto property because of family tradition), etc.

    Plus, isn’t there a global correlation of warm weather climes in developed nations and lower levels of economic accomplishment? It’s warm and sunny all the time. Live as cheap as you can and spend as much time as possible at the beach. It’s what I did. Southern Italy, probably the oldest developed economy in this zone, correlates absolutely to this.

  11. Felix says:

    The weather thing hardly explains Southern California, or Australia, or Miami.

  12. Matthew says:

    Ok, all those points seem fair enough. I suppose houses in a way are a factor of production, they allow you to go to work. So areas where salaries are higher have higher house prices?

    Re: the US north/south economic divide, I thought it was much smaller (at least in income per head) than it was in say the 1950s, but even in the 1980s. Or is that Economist spin?

  13. Benjamin Hemric says:

    I wonder if people are looking at this “from the wrong end of the telescope,” so to speak.

    It seems to me that it costs more to live in high cost cities mostly because people can make more money in these high cost cities — and thus there is more money chasing after the various items in “the market basket” (e.g., the high cost of land, the high cost of constructing buildings [high labor costs], the high costs of buying food (high cost labor and higher rents), the high cost of medical care [physicians paying more rent for office space and having higher expenses themselves], etc.). (An ancilliary phenomenon is the higher cost of living in Manhattan as compared to the outer boroughs and nearby New Jersey.)

    I also think that such a phenomenon would be visible in “gold rush” areas, and believe it was illustrated relatively recently in Alaska when it became, I think, a high cost area during (and after) the completion of the trans-Alaska pipe line.

    And as David mentions this is not a new phenomenon (i.e., northern U.S. cities having a higher cost of living than southern U.S. cities) at all. Probably for virtually the entire history of the U.S., the cost of living has always been higher in the north (especially the Northeast) than it has been in the south (or most other places in the U.S.).

    City living generally just generates greater wealth, higher income — and higher costs.

    This also seems to be true in relation to other countries (e.g. highly developed industrialized countries seem to have higher incomes and a higher cost of living than less developed countries) and within those other countries themselves (e.g., northern Italy vs. Southern Italy, Brooklyn barbers retiring very comfortably to southern Italy, etc.).

    The real interesting question, so it seems to me, is whether (and how) the high cost areas remain competitive over time as jobs and people eventually move to the low cost areas and they start developing a sophisticated economy of their own.

    (One might also argue that southern cities have a lower cost of living because of various Federal subsidies [high highway subsidies vs. low mass transit subsidies]; lower Welfare/Medicaid-type benefits; lower school taxes; fewer public amenities [e.g., libraries]; a more modern infrastructure with cheaper operating expenses; etc.)

    – – – – –

    This may have little relevance to the conclusions of the study cited, but it seems that the authors of the study may have constructed their categories in a very weird way.

    I clicked on the link to “New York” that was next to “Queens” [New York] on the most expensive places to live list, and I noticed that all the tiny neighborhoods of Queens have their own listings (e.g., Astoria, Cambria Heights, etc.) while there is only one listing for the Bronx (no breakdown into, say, Riverdale or Woodlawn), one listing for Brooklyn (no breakdown into, say, Brooklyn Heights, Park Slope) and but one breakdown for entire cities like Schenectedy (sp?) etc.

    I wonder if this is because the researchers were mislead by the way the U.S. Postal Service treats Queens. Queens is the only part of NYC where someone’s neighborhood is part of the address (e.g., Jamaica, NY; Astoria, NY; Flushing, NY). All the other boroughs have just one designation. I assume cities like Schenectedy also have only one designation.

    I doubt this would have an affect on the overall study, but it does make one wonder if perhaps some of the low-cost cities were low cost because of the inclusion of low-cost poor areas, while some high cost cities were not similarly affected because the high cost areas may have been broken down into smaller constituents?

Comments are closed.