July 20, 2008

Example of how relocating can save you money

I've often wondered how people in California can afford housing there. Housing in California costs significantly more than surrounding states and the income levels there doesn't make up for the difference.


I'll compare the affordability of living in 4 major cities Los Angeles, Seattle, Denver and Las Vegas. We'll do the comparison for three example professions: real estate appraiser, middle school teacher and electrician. For the sake of example lets assume that you have the option of working in 4 different cities and a job is readily available in each.

Here are the pay rates for 3 example professions in 4 different metro areas in the West:


Real Estate appraiser Middle school teacher Electrician
Los Angeles $78,200 $58,200 $49,360
Las Vegas $67,710 $42,740 $56,100
Seattle $56,500 $53,780 $55,740
Denver $48,480 $49,620 $46,460

The pay data is from the Bureau of Labor Statistics

The cost of living (COL) and median home values for each city are:


COL median home
Los Angeles 156 $459,400
Las Vegas 104 $247,600
Seattle 132 $372,300
Denver 105 $223,500

The COL is from Sperlings Bestplaces and the home costs are Q1, 2008 figures from Realtor.org


So now we know how much money people make for these jobs in the cities and we know how expensive the cities in question are to live and buy homes. This gives us basic data to compare income versus expenses.

One simple way to compare the affordability for each profession between cities would be to simply divide the income by the COL. Another way is to estimate how much home people can afford given their salary and compare it as a % of median home costs. I'll use both of these methods to compare the 4 cities for each profession.

Real Estate appraisers:


pay / COL % of home
Los Angeles $ 50,128 74%
Las Vegas $ 65,106 119%
Seattle $ 42,803 66%
Denver $ 46,171 94%

By either measure a real estate appraiser would have more spending power if they lived in Las Vegas. Seattle is less affordable for this profession given their income there. I'm a little surprised that for this specific profession if you were just comparing living in Seattle or Los Angeles then L.A would be the cheaper option!

Middle school teachers:


pay / COL % of home
Los Angeles $ 37,308 55%
Las Vegas $ 41,096 75%
Seattle $ 40,742 63%
Denver $ 47,257 96%

Middle school teachers fare best in Denver by either measure. Then the most affordable are Vegas, Seattle and L.A. in order.

Electricians


pay / COL % of home
Los Angeles $ 31,641 47%
Las Vegas $ 53,942 98%
Seattle $ 42,227 65%
Denver $ 44,248 90%

Electricians do best in Vegas and then Denver, Seattle and L.A.


Overall we can make some general conclusions. L.A. is usually the most expensive place to live among these four cities. This should be no surprise given the high cost of housing there. Las Vegas and Denver are both reasonably affordable. Seattle falls somewhere in the middle of affordability.

If I expanded the comparison to other parts of the country and other cities of varying sizes then we would see a variety of results. Depending on the profession in question you might do best in Fargo, Austin, Atlanta or Boise.

Of course there is more to choosing your place of residence than the pay levels and the affordability of housing. I'd rather share a studio apartment in Los Vegas than own a mansion in Siberia. Each of us has our own set of priorities that determine where we'd want to live. Proximity to family, climate and availability of entertainment options are all factors that would typically play a part in choosing where we might want to live.

So how can you use this? Here are the basic steps that you can use to make a similar comparison for your profession:
1. Determine which cities are potential options for you to live based on your preferences
2. Use the BLS site to look up salary levels for your profession in those cities.
3. Find the COL and median home prices from sources such as Sperling or Realtor.org as linked to above.
4. Compare income versus costs for each city and find the cities that give you the best pay versus costs.

Moving is not something that I'd do on a whim of course. I'm not suggesting that people should crunch some numbers and then pack up the family tomorrow and drive across country because you might have 5% more income or purchasing power. Moving is a major change in your life. For those of us who own homes and have roots in a community it can be a difficult thing. But it is worth comparing the options in different locations over the long term. You might find that simply moving 100 or 200 miles from one city to another in your own state might save you significant amount and/ or increase your income considerably.

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