Is Cost of Living overstated?
New York City is high cost-of-living, and I have absolutely no clue why people live there.  It's a tough place, and the taxes are oppressive.  People buy a studio apartment for $150,000 that has 175 square feet (that's not a typo) plus a $700/month maintenance fee that continues after the mortgage is paid off.  And that's just what the fee is now. Our rental house (which used to be our primary residence) at 1,300 square feet has a (15-year) mortgage payment of about $800, and $1,000 per year in property taxes.  And my area isn't particularly low cost-of-living. High cost-of-living is just that.  More money flies out the door just for the privilege of living there.  You make good investments with real estate by buying property at a good price in a good location.  Those deals are everywhere, but in high CoL locations you're probably more susceptible to price fluctuations which will trap you in your property if your mortgage goes underwater. Anyway, that's a long way of saying that I don't buy your recommendation to get property in high CoL areas.  There are desirable low CoL places to live, too. "I do not believe there is a strong correlation between CPI (Consumer Price Index) and housing value appreciation. Take, for example, New York City which has the highest CPI in the US.  A great deal of the CPI number is skewed by Manhattan.  One can live in Brooklyn or Queens and avoid some of NYC's high CPI.  I would say that housing appreciation occurs because of the human activity in the area.  That same human activity is what drives the CPI.  There are other contributing factors, like limits on economies of scale.  You simply cannot set down a Super Walmart in much of NYC, so goods are distributed over a larger number of stores.  (Sure, NYC is a port city, but the goods are distributed within the city by trucks.) The San Francisco Bay Area is another high CPI area in the US.  Here, as well, it is the location that draws people.  While NYC is mostly about economic activity, the SF Bay Area is a mix of the draw of a great location and the economic activity that occurs due to the large number of people living there.  I know of a house in Oakland that sold for approximately $350k, in 2004/05.  It was located not too far from the ""Killing Fields,"" as they were known locally.  It was not the worst neighborhood in Oakland, but it was not very far from it.  This was for a shabby, single-story unit which I believe had 5 (maybe 6) rooms.  That is a lot of money for a house that required a lot of attention and was in a bad neighborhood.  I have no idea how the housing market is after the housing bubble, but the higher value areas had the most room to fall and many of them fell hard. Ultimately, it is supply and demand that determines the CPI and housing values.  This supply and demand is determined by the human activity in the area and some practical considerations regarding the area. A final note: If we are talking about a primary residence, it should not necessarily be looked at as an investment.  First and foremost, it is a necessity.  Second, if you need to hire people for the maintenance and/or upgrades, that will eat into your gains.  Contractors are not cheap, especially where they are in high demand.  Finally, the tax incentive is actually not that great.  Sure, you take what you can get, but its impact is relatively marginal." I live in Upstate NY. It's a great, reasonable cost place to live -- provided that you have a job.  In NYC, there are probably a few hundred jobs with duties similar to mine in a 45-minute radius. Upstate, there may be 5-6. "after 30 years, you'd have a million dollar house vs a quarter million dollar house. You've captured three quarters of a million dollars in rent, given my napkin math hypothetical. As I figure the math, a 250,000 house appreciating to a million dollar house in 30 years requires a sustained ~4.9% appreciation every year--seems unrealistic. The historical rate of inflation, on average, has been closer to 3-3.5%; a 3% appreciation would give a final value of $589k.  This also doesn't taken into account the idea that you may have bought a property during a housing bubble, and so then you wouldn't get 3% year-over-year returns. But also, in terms of ""capturing rent"", you are not factoring in necessary or possible costs that renting doesn't have:  mortgage interest and insurance, maintenance, property tax, insurance, buying and selling associated fees, and, importantly, opportunity costs (in that the money not tied up in the house could be invested elsewhere).   So it is not such a slam dunk as you make it out.  Many use the NY Times buy/rent calculator to compare renting vs. buying." I'm not convinced that cost of living is related to ensuring greater appreciation of assets over time, especially over a 30 year window. The importance of regional differences in cost of living to anyone's decision-making should be weighted by the percentage of their income spent on indexed items.  That is, for people who spend 35%, or even 50% of their salary on indexed items, regional variances in cost of living are far more important than for people who spend 10% of their salaries on these items.  Essentially, as income goes up, the significance of cost of living goes down. See http://macromon.wordpress.com/2011/02/02/how-u-s-income-groups-get-squeezed-by-food-prices/ for a pretty picture of the relevance of cost of living across income groups (for food & gas, which are often not included in indexes due to volatility).  So, if you are wondering whether cost of living is overstated, perhaps it's because you are in an income group that doesn't need to worry about it as much.  Whether it's overstated or not will depend on how much one makes and spends. "You mention: High rent places are usually also high   property value places. Given the tax   incentives, it seems like a good long   term idea to grab a house, so if we   assume you have the option of working   and buying a house in a high CoL or a   low CoL city, I think you'd prefer the   high cost. Because essentially, after   30 years, you'd have a million dollar   house vs a quarter million dollar   house. You've captured three quarters   of a million dollars in rent, given my   napkin math hypothetical. I think you're forgetting about some of the associated costs with ""owning"" a home, including:"
"I have a client who is a janitor, makes over 100k. This is a fact. NYC not being ""typical"" is the whole point. Cost of living is much higher but still get lumped in with everyone else when they make these arbitrary income cutoffs for things." "Without factoring in cost of living that's a pretty ignorant statement. 100k a year in SF really isn't that much. Similar situation in NYC. Most other places in the country that statement might be true but when your average 1200 sq ft 3 bedroom house costs north of 800,000. 100,000 a year stops feeling like a ""fuckton""" "The actual increase in the cost of living for one month over the previous month cannot be calculated from the annualized increase in cost over the entire previous year. Consider the hypothetical case of a very stable economy, where prices stay constant for decades.  Nevertheless, the authorities issue monthly statements, reporting that the change in the cost of living, for the last month, year over year, is 0.00%.  Then they go back to sleep for another month. Then, something happens, say in August, 2001.  It causes a permanent large increase in the cost of many parts of the cost of living components. So, in September, the authorities announce that the cost of living for the end of August, 2001, compared to August a year ago, was up 10%. Great consternation results.  Politicians pontificate, unions agitate on behalf of their members, etc... The economy returns to its customary behavior, except for that one-time permanent increase from August, 2001.  So for the next eleven months, each month, the authorities compare the previous months prices to the prices from exactly a year ago, and announce that inflation, year over year, is still 10%.   Finally, we reach September, 2002.  The authorities look at prices for the end of August, 2002, and compare them to the prices from the end of August, 2001 (post ""event"").  Wonder of wonders, the inflation rate is back to 0.00%!!  Absolutely nothing happened in August 2002, yet the rate of inflation dropped from 10% to 0%." "This is the best tl;dr I could make, [original](https://www.aier.org/blog/social-security-cost-living-adjustment-likely-largest-2011) reduced by 81%. (I'm a bot) ***** &gt; With inflation ticking upward in 2017, retirees are likely to see the largest cost-of-living adjustment in their Social Security benefits since 2011.  &gt; Our forecasted increase for the cost-of-living adjustment would add between $23 and $29 to the average Social Security beneficiary&amp;#039;s monthly check, higher than any adjustment since 2011 but still below the average annual adjustment since 2011 of 2.3 percent.  &gt; The Social Security Administration calculates the cost-of-living adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/75k0hx/social_security_cost_of_living_adjustment_likely/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~225800 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **adjustment**^#1 **percent**^#2 **year**^#3 **CPI-W**^#4 **average**^#5" See thats just plain wrong.  Minimum wage increases will not increase the total costs of living that puts it on par with the minimum wage.  So many studies have been done on this exact question.  This mentality is like saying in china that people should only make cents an hour because if they make anymore the cost of living will go up as well.  Here are some good reads for you :)  http://letjusticeroll.org/news/001185-raising-minimum-wage-does-not-increase-unemployment  http://therealnews.com/t2/index.php?option=com_content&amp;task=view&amp;id=31&amp;Itemid=74&amp;jumival=5650&amp;updaterx=2010-10-08+11:40:17  http://www.dadychery.org/fr/2012/01/03/eight-states-raise-minimum-wage/  So many studies prove your statement wrong. "Everyone buys different kinds of goods. For example I don't smoke tobacco so I'm not affected by increased tobacco prices. I also don't have a car so I'm not affected by the reduced oil prices either. But my landlord increased the monthly fee of the apartment so my cost of living per month suddenly increased more than 10% relative to the same month a year before.  This is well known, also by the statistical offices. As you say, the niveau of the rent is not only time- but also location specific, so there are separate rent indices (German: Mietspiegel). But also for the general consumer price indices at least in my country (Germany) statistics are kept for different categories of things as well.  So, the German Federal Statistical Office (Statistisches Bundesamt) not only publishes ""the"" consumer price index for the standard consumer basket, but also consumer price indices  for oil, gas, rents, food, public transport, ... Nowadays, they even have a web site where you can put in your personal weighting for these topics and look at ""your"" inflation:  https://www.destatis.de/DE/Service/InteraktiveAnwendungen/InflationsrechnerSVG.svg Maybe something similar is available for your country?" All my computers have come through bartering in some form or another. I now own 2, and the only thing ever purchased was certain limited parts.  It's not very appropriate to the cost of electronics as a proxy for the affordability of the cost of living. If that proxy was even mildly valid you could rent a decent apartment for $200 bucks or less, and furniture, food, etc., would be nearly free. The electronics cost proxy is absurd.  Basically, 35 years ago almost nobody owned a computer. While the cost of living has skyrocketed what sense does it make to claim that the cost of something that people didn't even own then is a valid proxy of the cost of the things they require to live? No, it actually is very real.     You pay $340 for a single room and are talking about 2-bedroom rents.    At Nebraska's minimum wage of $9/hr or $18k/year, $700 for two bedrooms is just barely affordable if you take a standard rule of keeping monthly rent less than 1/40th of your annual gross salary.    It is unaffordable at the Federal minimum wage which was the point of the article. "I wasn't on minimum wage.  I was finding that housing in the Boston area was increasing in price faster than my $80k/year salary.  And yes, it *is* a fallacy because your statement is essentially tautological: ""if you want a lower price for housing, go to where prices on housing are lower (and don't mind the additional costs of time or money spent commuting).""" "http://www.nytimes.com/2010/09/12/jobs/12search.html  ""Where you live and the cost of living there has only a small influence on that number, he added. (That may be a revelation to some Manhattanites.)""  I can't find the source I was talking about, but that's close. There's also what kewidogg said, people gravitate to places that make them happy." "No, virtually ever item in the CPI is adjusted using hedonics, which by definition can only be used to lower inflation, not adjust it up.  Hedonics is not necessarily bad, but it doesn't actually reflect inflation, it reflects standard of living vs. purchasing power, which is not useful for a purely monetary measure.  It also does not correctly reflect that despite the fact that a 1970's 20"" TV cannot from an economic standpoint be directly compared to a 2012 20"" TV, if the price is the same (adjusted for inflation), inflation represents how the value of the dollar has accrued vs the value of a 20"" TV, which is what the definition of inflation is.  So, no, I don't think you're correct on this. This is also kind of glossing over the fact that the CPI essentially makes the bold argument that energy and transportation prices never affect inflation." "But when you focus just on taxes on work, as the OECD does in a new report out this morning, the U.S. starts looking a little less like a low-tax paradise. The total ""tax wedge"" -- which measures ""the difference between labour costs to the employer and the corresponding net take-home pay of the employee"" -- was 31.7 percent of labor costs for the average single U.S. worker with no children in 2016, higher than in 10 other OECD countries.  https://www.bloomberg.com/view/articles/2017-04-11/why-the-u-s-overtaxes-labor   https://www.ssa.gov/oact/progdata/taxRates.html" The long-run goal is to eliminate poverty through wealth creation. If that makes for some weird new social interactions, I'd say that's a reasonable cost.  I mention comparing to earlier periods simply as a measure of progress to determine whether or not there is a problem that needs correction, such as a specific group in society experiencing real wage stagnation, or truly anemic growth rates relative to earlier periods. It's the slope of the trend line for each group that I'd be worried about, where linear or exponential is good, and logarithmic should indicate a potential crisis.  Ultimately, I believe that it's not a persons absolute circumstances that matter, but the rate at which those circumstances are improving throughout their lives that most strongly affects their subjective well-being (but that's just my theory).  As for real estate costs, you're absolutely correct that this is a problem, but it's as easily explainable problem. Supply is artificially constrained in most of the US due to the need for explicit government permission (in the form of building permits and zoning laws) in order to build new units. Basic economics says that when supply is artificially restricted, prices will rise.  In areas where government is restrictive, such as San Francisco, prices rise sharply. In places where government is more permissive, like Houston, prices remain much more reasonable. Studies suggest people aren't comfortable around others who are way poorer or richer than they. You sound like a rational adult. You would be surprised how weird people associate with money.   Also, if we compare to earlier period it can only account as far as the same people in question were alive e.g not a generation before. Why? Because people can't understand how it was to live differently without actual experience.   Yes, the majority of the world lives better today but we also have much higher expectations, that needs to be accounted for.   Another matter is the rising cost of living expenses. Real estate doesn't seem to be dropping and that easily adds to financial anxiety when due to globalisation and technology the job markets become unstable. "This is only a concern if the payments can be realistically controlled by a central authority. What you're asking is only relevant when dealing with a centrally planned economy. I'm also not sure why you're talking about high payments surrounding basic living. What is ""basic living""? What is considered high? You're presupposing information into the question, which is a form of leading and taints the discussion."