The Widening Cost-of-Living Gap
Expenses in different regions are diverging more now than in the recent past.
The Greater Boston region is thriving, attracting major corporations and workers lured by the prospect of high-paying job opportunities. With the growth has come much higher living costs. But an hour away from Boston, in Manchester, N.H., and Providence, R.I., the story is totally different. Neither of those metros has experienced anything like the economic growth Boston has; both remain sluggish but relatively affordable. Instead of becoming more like nearby Boston, they are growing further away from it.
Housing costs have grown much faster in Boston than in the rest of New England and in most nearby cities. “The differences in the trajectories of the regional economies has widened,” says Michael Goodman, who directs the Public Policy Center at the University of Massachusetts, Dartmouth.
In fact, the costs of living in different places throughout the United States are moving apart more now than at any time in the recent past. Local area cost-of-living data tracked by the Council for Community and Economic Research shows increasing divergence over the past few years as the economy has recovered. In 2007, the average cost-of-living composite index for the 20 most expensive urban areas in the nation was 50 percent greater than the average for all other areas. By Governing’s calculations, this gap had widened to 62 percent by the third quarter of last year.
Given current economic trends, it’s quite possible that these regional disparities will widen further. Alternatively, cost-of-living differences could reach a point where they level off or a correction takes place. Whether the gap continues to grow carries potential implications for inequality, migration, economic development and a host of other policy issues.
The increasing cost divergence is happening in part because much of the nation’s economic growth is occurring in a select group of larger, better-educated regions. Employment has climbed an average of about 10 percent in the 50 largest metro economies since the start of the Great Recession, compared to only 4 percent in all other metro areas. What’s more, increases in income haven’t nearly kept up with rising costs of living for poorer and many middle-class households.
Additionally, it is well known that housing in desirable sections of the most prosperous cities and regions is increasingly unaffordable to all except the affluent. The real estate firm Zillow calculated the dollar cost to renters spending a given percentage of their income for housing today compared to what they would have paid at the same income percentage prior to 2000. By this measure, rent now costs about $10,000 a year more in San Francisco and New York, with other coastal metro areas not far behind. Of the 35 largest markets Zillow assessed, rent costs more everywhere but Pittsburgh.
In Chicago, large numbers of low-income African-Americans have left the city’s South and West sides. “There are fewer options and fewer supports for low-income folks to handle the costs of living and housing costs,” says Alden Loury of the Metropolitan Planning Council. One of the more common destinations for those moving out of Chicago is northwest Indiana, just across the state border, where housing, taxes and other expenses are significantly less.
For decades, differences in per capita incomes between states gradually dwindled as workers relocated to wealthier states. In recent years, though, this convergence has slowed dramatically, according to research by Peter Ganong of the University of Chicago and Daniel Shoag of Harvard University. Ganong and Shoag argue that strict land-use regulations have increased housing prices so much in the more affluent areas that moving there is no longer viable for low-skill workers. Instead, they remain in places where the opportunities may be fewer but the costs are manageable.
Historically, most Americans tend not to migrate long distances, generally changing addresses within regions. There are some prominent exceptions. IRS migration data indicate one of the largest net migration flows each year is composed of Los Angeles residents moving to lower-cost Las Vegas and neighboring areas of Clark County, Nev.
Bruce Katz, an urban scholar at the Brookings Institution, believes a growing number of low-cost inland cities have the assets they need to attract talent. Many of them are home to large research universities and expanding tech sectors, with easily affordable housing. “There’s the potential for middleweight cities and metros to pull people into their regions,” Katz says.
For other economically depressed regions that began losing residents long before the recession, there’s less reason for optimism. While a low cost of living has its advantages, it is unlikely by itself to reverse population losses. Struggling regions, Katz says, must offer strong economic opportunities in addition to quality of life and lower living costs to compete.
In Boston, steep costs have yet to slow years of steady growth. But, as Goodman says, they’ve definitely exacerbated the dilemmas of inequality. “It’s a persistent problem,” he says, “with all sorts of social-economic implications.”