Ten Pricey Cities that Pay Off

I've gone on record saying that one great money-saving tip is to consider moving to a less expensive city (and I've documented that the reduction in costs more than outweighs the usual loss in salary). Most people hate this advice, but that doesn't stop me since I'm a glutton for punishment. ;-)

But today we're covering the other side of the issue and listing the ten cities, though they are expensive, that are "worth it" (at least according to this US News piece) because they offer "amenity value." The details:

Economists look at every asset as having an "amenity value," which measures the amount of satisfaction the asset brings to its owner. For example, your home has an asset value that is worth much more than the roof it puts over your head. The land where you live brings with it a certain quality of life: How nice is the weather where you live? How close are you to the coast? How many cultural and recreational opportunities are nearby? These quality-of-life factors contribute heavily to the amenity value of a city, and they help explain why housing costs are so high in some places.

Another big component of a city's amenity value—trade productivity—is essentially, how many goods does the city produce that other people value? The San Francisco area has Silicon Valley. New York has Wall Street. But productivity boosters can come in other forms, such as universities that produce an educated workforce, easy access to water or other transportation, or proximity to natural resources. How do these factors create amenities? Residents of highly trade-productive cities tend to enjoy higher wages. What's more, businesses flock to these cities to enjoy the advantages. As incomes and employment go up, so do housing costs.

Given this, here are the top ten pricey but worth the price cities from US News (in alphabetical order -- they didn't rank them):

• Boston
• Honolulu
• Los Angeles
• Naples, Fla.
• New York
• Salinas, Calif.
• San Diego
• San Francisco
• San Luis Obispo, Calif.
• Santa Barbara, Calif.

A few comments from me on this info:

1. For those of you advocating living in an expensive city, this piece does a good job of detailing what many of you have already said.

2. Good weather seems to count for a lot in this analysis.

3. They often cite "higher incomes", but we've already shown that the costs of living in these cities is much more than the income increase versus other alternatives, so on purely economic terms there isn't a rationale for more expensive cities. What they're saying here is this equation makes these places worth the price: Higher incomes + amenity value > cost of living.  

4. To me, amenity value as they define it isn't worth much. As long as I have either access to the things a big city brings or something that's "good enough", I'm fine with it. We have Chicago three hours away and Detroit two hours away, plus we have decent enough museums, botanical gardens, etc. No, they're not the Met, but they are good enough for what we want. As such, the equation for me now shifts to this: Higher incomes < cost of living. Now you get a sense of why my point-of-view is what it is. That, and I'm cheap.

5. Different people value different things. For instance, I prefer wide open spaces such as green fields, gardens, etc. over concrete and metal, places where your neighbors aren't on top of you, areas where your kids can run the neighborhood without the fear that they'll get lost or kidnapped, spots where the pace of life is slower, etc. This moves my equation even more away from larger cities.

6. Just because you live in a less expensive city doesn't meant you HAVE to earn a lower salary. I'm sure I couldn't make much (if any) more than I make now even if I lived in New York City, San Francisco, or any other costly place. And I've done pretty well despite living in less expensive cities all my life.

7. One thing the analysis doesn't take into account is the value of having family nearby. This is one of the most-cited reasons for living in an expensive city by the commenters here. Having family around not only contributes to the quality of life, but can save you money as well (by providing daycare, for instance.)

8. Of course you can spend your money however you like, so don't take these thoughts as condemning anyone for their lifestyle decisions. I'm simply pointing out an alternative way of thinking about decisions we make that impact our finances in a big way.

Comments

[Sarah]

Something I think which is often overlooked in these analyses but which is very valuable to me is being surrounded by people who are extremely good at what they do and who are always bringing their A game. Don't get me wrong, there are morons and slackers anywhere you look, and there are also certain categorical exceptions, but if you want people who are the best at what they do, most often you will find them in a city like mine, rather than in Dubuque. Not only does this mean that I have access to the best surgeon, the best French chef, the most exquisite ancient art (and the smartest people to curate it for me), I find it stimulates *me* to do *my* best. When the people I interact with at work bring a certain level of performance to their work, I can't help but respond with the same. Even if I had kids, which I recognize changes the equation in certain ways (a two-year-old isn't going to value the rarest orchid over a bunch of more common flowers at the garden), I'd want them to be around the smartest people and have the biggest possible dreams, rather than the limited horizons and blunted expectations of people who grew up where I did.

[Jordan]

Sarah,

While that is certainly true, I'm not sure you need to be in an expensive city to get all of those things. The things you seem to value are things that you will find in a large multicultural city, not necessarily a city that is expensive to live in. For instance, Houston has all of the things you list and is not nearly as expensive as any of the cities on that list.

[guinness416]

Well, it all comes doen to your point number five "what you value". I mean, those cities on that list are about as different from each other as from your small town (?) location. All they have in common is high house prices and salaries. I lived in and loved apartment life in NYC but can't get away from LA quick enough when I attend meetings there. My brother in law has lived in Honolulu and now a big house in Santa Barbara but turned down a bigger money move to Boston because he has no interest in the place.

Also, stats tell us that your kid is most likely to be kidnapped by a family member, so they're probably just as much at risk of that wherever it is you live right now. Plus the 2007 violent crime stats by city are topped by (small?) cities like Henderson, NV and Plano, TX so be careful what you wish for!

[Meg Prior]

I would have to add Washington, DC (and its burbs) to this list.

Yeah,cost of living is high, but we have great ammenities; lots of culture - and many things are free like the Smithsonian and the Millenium Stage at the Kennedy Center - great food, music, mild weather, and highly educated and motivated workforce, and you can be in the wilderness and beaches of MD and VA within an hours drive.

Plus we have some ressession buffer in that the government always is in operation.

[JimL]

Sarah,

I agree with Jordan. Spend time in areas like Indianapolis, Charlotte, etc where it is much more affordable than Boston or New York and I think you will find that people have great access to top physicians, culture, etc.

[someone]

I live in Boston - what's so good about the houses here? They're old, tiny, on busy roads, and generally lack cheap/easy transportation. If you have a lot of money, then there are some nice houses but for that you need real money. The boost you get from moving to Boston won't be enough. I think the typical middle or upper middle class person actually gets less for their money in Boston than elsewhere.

[aa]

I'm cheap, too. I chose to live in a Midwestern city instead of NYC. I could afford to buy a nice house just 2 years after college. Now I'm saving 70% of my after-tax income. Also, I've been maximizing my 401k and IRA. With all the money saved, I can travel to the METs all I want with my 20+ days of PTO.

Looking at my friends living in LA and NYC... They don't do well and are either still renting or living with their parents...

Big cities are fun only if you have money to spend, right?

[UH2L]

Great post. I've been arguing that the Midwest, (except Chicago), is amongst best for cost-of-living reasons. Any big expensive city is great to live in if you're rich, but salaries in bigger, more expensive cities aren't always sufficiently higher to make up for the difference in living expenses. I understand that in certain fields, you are restricted to living in specific big cities like investment bankers or actors. Along the lines of what aa mentions, after having lived in the Detroit area and now the Minneapolis area, I have lots of money saved in my retirement accounts, have a good time and a high quality of life, amongst other things.

[Sarah]

I really hate to sound ultra-snobby, but if you think the cultural and professional offerings in Indianapolis, etc. even begin to compare, overall, to those in one of the major coastal cities, that only shows that you haven't really been exposed to the very best that the major coastal cities have to offer. I grew up in the Midwest. My family still lives there. I know what's out there. When a big company has a huge, complex litigation, they don't call Indianapolis-based law firms. If you want to hear the best opera, you don't go to Houston. You want the expert on Proust, he's not in Charlotte.

This may not be of value to you. There are other things that are very important to other people that are not of value to me. Luckily, it's a big country with room for all of us to find a place that suits us. But you don't have any Vermeers in Indianapolis and people don't come to Houston to try to climb to the top of their profession (oil excluded, I suppose). That happens to be important to me, because I find it a stimulating environment. (Other people find it exhausting and ultimately depressing.)

[meredith]

If I moved to a less expensive city, could I afford a dog? : )

[meredith]

It's obvious that Sarah has never seen the Houston Grand Opera.

[JimL]

Sarah,

Yes, you are coming off as ultra-snobby. I have used high caliber legal firms with offices in Indianapolis, Atlanta, Houston, etc. Last I checked, those cities were not on any coast and they are all very affordable compared to the overpriced markets.

Name the industry, and you can find experts all over the U.S.

[Jane]

Sarah, I too have lived in both, NYC and the West Michigan area, just like FMF. While it's comparing apples to oranges, I'll take West Michigan. In NYC I was a member of the MET, in Gand Rapid's my parent are members of the Meijer Botanical Gardens, which I was excited to see was named one of the top 30 museums to see in Delta's sky magazine a few months ago, (along with the goughime in NYC; they did not list famous places like the louve or the MET) Yes in NYC I could see the New York city Ballet, back in GR I watched two of their dancers in their early career. In NYC I could take in a Yankee's or Mets game, I liked sitting on the law at the local West Michigan White Caps game, it was a lot cheaper and I never would have seen 100 women with plastic beach shovles between inning "digging" in the field during the Fox Jewelers dig for diamonds. In NYC, if I wanted to get back to nature I had to travel either upstate or far out into NJ or PA about and 1 1/2 hours at least. (With this I define being in a park and not hearing the highway) In GR if I want the Big city Chicago's 3 hours away. In NYC if I wanted fresh local/organic food I went to Whole Foods, in GR I went to the Farmer's Market.

I will admit when I was growing up, I thought NYC was so much better, Having lived there for nearly 8 years I know now I'd take GR. I discovered what I disliked about my smaller Mid-western city was greatly outweighed by what I disliked about the Big City. Why, because what I did like I could find a substitute for.

[Jordan]

"But you don't have any Vermeers in Indianapolis and people don't come to Houston to try to climb to the top of their profession (oil excluded, I suppose). That happens to be important to me, because I find it a stimulating environment. (Other people find it exhausting and ultimately depressing.)

Oil, medical care, aerospace... all industries where the best of the field are likely to reside in Houston.

[jj]

I'm surprised no one mentioned diversity. I am Asian and live in Los Angeles. It makes a huge difference to have access to a large Asian community. Due to high cost of living in L.A., many of my white friends have moved to lower-cost small towns throughout the U.S. but Asian friends have stayed put. There may be a few smaller cities with Asian populations but not many.

[mysticaltyger]

I live in one of those overpriced cities on the list, but I definitely think the income assumptions used in the article are not enough to raise a family decently here.

[Kendall]

JJ-
Houston also has a large Asian population.

[U. Tony]

Sarah: I just hope you'll never need a heart surgeon, but if you do, you'll come to Houston for sure.

[Jane]

It's funny there seems to be a size of city that those of us that argue for the smaller size. They really arn't that small. For the most part all of the areas we're talking about have a metropolitan area of at least 500,000 people. I currently live in a pretty low cost of living area in the south but the city really is too small in my opinion. The city is about 70,000 and the MET area is about 200,000. Heck we don't have a PETCO or any of the like - nearest one is about an hour away. (just FYI this is what I use as my I live in a small town as I have to get the brand cat food I want over the internet. The equalvilant brand -same type of ingrediants-at walmart is twice as expensive)

[Jordan]

Jane,

That's pretty much what I was trying to say. Those people that are arguing for these expensive cities are using arguments for big cities as opposed to small cities. But this list isn't a list of big cities. There are plenty of big cities that are cheaper to live in and provide similar situations as the cities on the list, they just aren't in the North-East or California.