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> Compensation isn't nearly as elastic as housing prices though. Because there is usually room to give. If people were on the brink of actually having to leave

> Compensation isn't nearly as elastic as housing prices though. Because there is usually room to give. If people were on the brink of actually having to leave due to rising costs, incomes would lose their inelasticity pretty quickly, insofar as the need for labour is required. There is always superfluous work that is useful at a low price, but fine to give up completely if costs grow too high. > Not only that, the demand side for housing is also the supply side for the job market, so prices are squeezed on both sides. Squeezing is necessary to a point. After all, the economy eventually seeks equilibrium. It has been the case – at least before housing costs grew out of control – that one could make a fortune by moving to the Bay Area, where average incomes are significantly higher than most of the rest of the country. Now the costs are rising to close the gap with lower-income areas. If someone in a low-cost area has a gross income of $30,000, and expenses of $25,000, then someone in a high-cost area with a gross income of $150,000 can take on expenses of $145,000 without being any worse off. While housing isn't the only cost one has, it is usually among the largest (with taxes being the other major expense). Having $145k to spend on expenses each year can go a long way.

Hydraulix989 9y ago
"If someone in a low-cost area has a gross income of $30,000, and expenses of $25,000, then someone in a high-cost area with a gross income of $150,000 can take on expenses of $145,000 without being any worse off." I disagree: $5,000 has a lot more buying power in the low income area than the high-cost area.
- randomdata 9y ago
  I guess that ultimately depends on what you want to do with your discretionary money. The day-to-day costs are already accounted for in our hypothetical examples. Someone in a low-cost area may want to travel to the city to take in the entertainment and amenities available in the big flashy city, in which case that money is being spent in a high-cost area. Similarly, someone in a high-cost area may want to travel to a low-cost area to take in what it has to offer and thus will spend it in a low-cost area. In that case, the person with $5k in a high-cost area is actually still better off. If you're going buy an iPhone with that money, the price isn't going to vary much in either place. If the $5k is saved in both cases, there is no real difference either.
  - Hydraulix989 9y ago
    I claim that there only has to be at least one so-called discretionary thing priced differentially based on housing/CoL to make living in the lower cost area more financially optimal. It's easy to show there exists at least one; in fact, there are many.
    - randomdata 9y ago
      Why's that? And why doesn't the reverse hold true? I can think of many things that are usually more expensive in lower-cost areas than in higher-cost areas.
closeparen 9y ago
Almost, except that progressive taxation significantly advantages low-income-low-COL. The $145k earner will pay more than proportional taxes, so will need lower than $145k expenses to achieve that $5k surplus. Lenders also don't seem wild about letting you commit 80% of your take-home to a mortgage, even if your discretionary cash after the mortgage would be the same as in a cheaper place with a mortgage at 25% of your take-home.

Hydraulix989 9y ago

"If someone in a low-cost area has a gross income of $30,000, and expenses of $25,000, then someone in a high-cost area with a gross income of $150,000 can take on expenses of $145,000 without being any worse off." I disagree: $5,000 has a lot more buying power in the low income area than the high-cost area.

randomdata 9y ago
I guess that ultimately depends on what you want to do with your discretionary money. The day-to-day costs are already accounted for in our hypothetical examples. Someone in a low-cost area may want to travel to the city to take in the entertainment and amenities available in the big flashy city, in which case that money is being spent in a high-cost area. Similarly, someone in a high-cost area may want to travel to a low-cost area to take in what it has to offer and thus will spend it in a low-cost area. In that case, the person with $5k in a high-cost area is actually still better off. If you're going buy an iPhone with that money, the price isn't going to vary much in either place. If the $5k is saved in both cases, there is no real difference either.
- Hydraulix989 9y ago
  I claim that there only has to be at least one so-called discretionary thing priced differentially based on housing/CoL to make living in the lower cost area more financially optimal. It's easy to show there exists at least one; in fact, there are many.
  - randomdata 9y ago
    Why's that? And why doesn't the reverse hold true? I can think of many things that are usually more expensive in lower-cost areas than in higher-cost areas.

closeparen 9y ago

Almost, except that progressive taxation significantly advantages low-income-low-COL. The $145k earner will pay more than proportional taxes, so will need lower than $145k expenses to achieve that $5k surplus. Lenders also don't seem wild about letting you commit 80% of your take-home to a mortgage, even if your discretionary cash after the mortgage would be the same as in a cheaper place with a mortgage at 25% of your take-home.