I have a friend at work who has a buddy who's moving from Michigan to San Francisco. The buddy was talking about how expensive housing was in San Francisco compared to here. After the two talked and compared notes, here's what the found to be the general housing cost rules between Michigan and San Francisco:
- You get half the square feet in San Francisco as you get in Michigan
- You pay four times as much for a place in San Francisco as in Michigan
In other words, housing is about eight times more expensive on a square foot basis in San Francisco versus Michigan.
A few thoughts on this:
1. Ok, let's get the obvious out of the way first. One is San Francisco and the other is Michigan -- OBVIOUSLY there's a bit difference in the two. One's got great weather, lots to do, urban setting, etc. The other is Michigan. Yes, it's cold five months of the year. Yes, it's more rural than SF (in fact, the whole state may have fewer people living in it than live in the entire SF area.) Yes, it's farther from many great places than SF is. This is a big deal for many people -- and they're willing to pay for it.
2. That said, I personally prefer a mid-sized city for both living and raising a family. You couldn't pay me enough to live in a huge, urban city again, especially now that I have kids. Too many cars, hassles, congestion, cement, commuting time, etc. for me. And the weather? If you like outdoors and/or sports, you simply shift when it gets cold. This year, we're looking at taking up cross country skiing in the winter. It's great exercise and will complement my summer cycling.
3. Eight times the cost. That means a $200,000 house in Michigan is $1,600,000 in SF. Yikes! This economic scenario would totally change the make up of my net worth from one that had real estate as a portion of the total to one where real estate dominated my net worth. No thanks.
4. A few reminders on the high costs of living in some areas of the country:
5. Of course, it's up to you where you live and what you spend your money on. I'm just pointing out that there's a higher cost to live in some places versus others. For many of you, it's worth the cost. For me, I'm thankful to live where I do and am glad my net worth benefits as a result.
and
I'm guessing that Michigan is pretty cheap. What size house would cost $200,000 in Michigan?
Over here, in the UK, there is less scope for decreasing housing costs - partly because housing is generically expensive everywhere (small, crowded island syndrome) and partly because there are fewer major urban centres that one could move to.
Posted by: plonkee | July 05, 2007 at 08:59 AM
Plonkee --
Like everything else, $200,000 will get a varying square foot space based on which city/area of Michigan it's in.
In our neighborhood (middle class, "average" area out side Grand Rapids), $200,000 will get about 2,500 square feet -- so that's pretty good, huh?
Posted by: FMF | July 05, 2007 at 09:32 AM
I've seen a number of people move in the OTHER direction - from California to Michigan. These people wind up in mansions - the largest and best home in the neighborhood - and often holding considerable remaining equity from their California sales.
Five years ago - before the insane real estate runup - homes over $250K were very rare outside of a few wealthy Detroit suburbs.
Posted by: Minimum Wage | July 05, 2007 at 11:06 AM
Grand Rapids had Founders Brewing - SF doesn't!
Posted by: Dave | July 05, 2007 at 12:59 PM
2,500 square feet. Wow, thats amazing..
In more expensive UK cities like Bristol that would be about £500K (approx $1m) and even in the cheapest areas (Carlisle) you're looking at £300K (approx $600K).
For $200K, in a provincial urban area (Birmingham / Manchester / Leeds) you could probably buy a 625 sq ft house.
Posted by: plonkee | July 05, 2007 at 01:05 PM
Wow. I should move to Michigan.
Posted by: DG | July 05, 2007 at 01:09 PM
DG --
If you do, I've got a house to sell you (we're looking at moving across town.) ;-)
Posted by: FMF | July 05, 2007 at 01:14 PM
I live in NYC, which clearly has high housing costs. So, yes, it is definately much harder to get that initial downpayment together.
On the other hand, I feel there are better oppty's to maximize income, which help offset the costs. Also, the oppty for capital appreciation is much much greater. The equity in my home is several times the cost of a house in Michigan.
So, worse case, if I sell my home and move to Michigan, I could pocket enough to retire (the scenario aptly described by Min Wage). However, I think I'd rather stay in NYC and keep working for the moment.
Posted by: Miguel | July 05, 2007 at 03:16 PM
FYI--The SF Bay Area does not have a population larger than the state of Michigan. The SF Bay Area has about 6.8 million and the state of Michigan has about 9.9 million. The Bay Area also covers a large area. It's a 2 hour drive from San Jose in the south to Santa Rosa in the north (and that's if there's no traffic).
Otherwise, you are right. The cost of real estate here is a rip off. If you plan on being childless (like me), then it may still be worth it to live here. But if you plan on having kids, plan on an income of at least 150K in order to live decently. Otherwise your life will be a total rat race (and might still be if that 150K requires both spouses to work high pressure jobs (which, in general, it would). In general, this is NOT a good place for people of average means (or even somewhat above average means) to raise kids.
As far as "shifting" to skiing when the weather gets cold.....I don't think so. I hate spending much time in an outdoor ice box. The weather here really does add to the quality of life. Although I will admit, the cost of living here is still a rip off, even with the good weather factored in. And you won't enjoy the weather much if you're working and/or commuting all the time to pay for your tiny and overpriced condo, apartment, or house.
And what kind of skiing do you really have in MI besides cross country?? If you are a skiier, CA has good skiing. MI doesn't.
Posted by: mysticaltyger | July 06, 2007 at 02:13 AM
Plonkee:
I'm suspicious about the UK's housing prices being high due to lack of land. They use the same BS excuse here in the SF Bay Area. The real reason housing is expensive in my area is because there are LOTS of hidden rules and regulations that work against the building of new housing stock. I suspect that it's a similar story in the UK. I know it's a crowded island, but it's not THAT crowded.
Posted by: mysticaltyger | July 06, 2007 at 02:16 AM
There are indeed many restrictions against the building of new houses in the UK. They aren't hidden though, they're pretty well known and most people don't want new houses built in their areas (a lot of not in my backyard types here). There is genuine concern that if we build too much there will not be a lot of green space left.
Posted by: plonkee | July 06, 2007 at 04:29 AM
Miguel -- you hit the nail on the head. I'm in LA,and I have tremendous equity in my home, as well as better income-maximizing opportunities here. It's definitely a choice people make -- cheap housing, lower salary in the "flyover country" (sorry -- just teasing everyone :) vs. more expensive housing and WAY better salaries (and greater opportunities) in the bigger cities.
Right now, I'm with Miguel -- but when I can make LA money and live somewhere else - I will take the opportunity. It's definitely something I am working towards...
Posted by: Kate | July 06, 2007 at 08:16 PM
One way to get the best of both worlds is to live in a smaller home. I live in Chicago in a 550-square foot condo that I absolutely love. I paid a lot on a square foot basis, but not on an absolute basis (especially compared to my salary, which wouldn't be nearly as high if I lived in a smaller city). Also, living in an urban area can bring economies elsewhere. Chicago's public transportation is so good (if frustrating at times) that I don't need a car, which saves me hundreds of dollars every month.
Of course 550 square feet is way too small for a family with kids, but the idea still applies--if you think you can enjoy living in a smaller home, it has amazing benefits. Along with being cheaper to buy upfront, it's cheaper to furnish, maintain, heat, and cool, and much easier to clean.
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Posted by: thehub | July 08, 2007 at 04:14 PM
Yes, it is true that living in SF costs more because, well, it is really nice in Hotel CA. You're neglecting to mention that people in the Bay Area typically earn more than people in Michigan. Even if you are a person of average means, when transferring within a company, it is not hard to get a cost of living increase and a raise. I know some that opted to buy a $200K house in upstate NY, rent it out via manager, and use the proceeds for a home in the Bay. Personally, I'm just finding the $200K for the down payment - could always sell if the kids need to be elsewhere. Besides, 300 days of sunshine and no snow is worth having my $1.6 million house in a "working class" neighborhood.
Posted by: stevie | July 18, 2007 at 02:10 AM