As anyone who has ever paid Manhattan rents swiftly learns, New York City’s relatively high salaries don’t go very far. In fact, when cost of living is taken into account, the New York metro posts the second lowest “real income” of any region with more than 500,000 people, according to an analysis commissioned by US News and World Report. New York’s median household income of $62,887 falls to an adjusted real income of just $35,370 when cost of living is taken into account. Only the McAllen-Edinburg-Mission metro in Texas, one of the very poorest in the nation with an actual income of just $30,460, fares worse with a real income of $34,931.
Des Moines takes the top spot on this real income measure: Its median income of $56,576 translates into $62,446 in spending power. Greater Washington DC takes second place: Its median income of $85,168, one of the highest in the nation, equals $61,449 when adjusted for cost of living. Two Texas metros – Houston and Dallas – also stand out, as well as leading college towns.
Top 10 Metros – with the highest real incomes
|Des Moines, Iowa||$56,576||$62,446|
|Houston-Sugar Land-Baytown, Texas||54,146||60,634|
|Colorado Springs, Colo.||55,176||59,779|
|Atlanta-Sandy Springs-Marietta, Ga.||55,464||58,879|
Bottom Ten Metros – with the lowest real incomes
|Median Income||Real Income|
|New York-White Plains-Wayne, N.Y.-N.J.||62,887||35,370|
|El Paso, Texas||36,146||40,297|
|Los Angeles-Long Beach-Glendale, Calif.||58,525||41,331|
|Miami-Miami Beach-Kendall, Fla.||45,946||41,845|
US News and World Report notes that these real income calculations are based on 2009 median household income figures from the American Community Survey as adjusted by the Council for Community and Economic Research’s quarterly Cost of Living Index, which takes into account factors such as the relative price of groceries, housing, utilities, healthcare and transportation, as well as such common incidental expenses as movie tickets and newspapers.
While you’re at it, you might also want to check out this this interactive map of metro wages adjusted for cost of living differences over at the Real Time Economics blog of The Wall Street Journal. But back to the main point.
The combination of higher incomes alongside higher housing prices in big cities like New York, Los Angeles, and the San Francisco Bay Area reflects the underlying economic power that comes from the clustering of leading businesses and highly talented people. The Nobel-prize winning University of Chicago economist Robert Lucas famously phrased this as a question: “What can people be paying Manhattan or downtown Chicago rents for, if not for being near other people?” Or as Paul Krugman, who his own Nobel prize for his work on economic geography, put it: “Where do you live if you work in the film industry? Probably in Los Angeles. Why? Because the other film industry people you need to work with are there. But they are there because they need to be near people like you.” The clustering force brings talented people together, leveraging their skills and generating higher rates of innovation and higher productivity. This in turn provides the basic economic force behind higher incomes, which in turn support higher housing prices. These metros also provide highly desired amenities—from great weather to arts and culture and an open-mined ethos—which command higher prices as well. Add to that the fact that they are increasingly centers of global trade and commerce and thus draw wealthy buyers from around the world.
And that’s where Greater Washington DC really stands out. It is a big diverse metro – the nation’s eighth largest. It is a human capital magnet, home to four of the five counties nationwide with the highest concentrations of college educated adults and the third largest creative class concentration in the nation. With an unemployment rate of just 5.4 percent, the second lowest of any metro with more than one million people, its economy has proven to be among the nation’s most resilient. Still, its housing prices and overall cost of living allow it to remain relatively affordable, providing great value for its residents. And it’s the only large metro in the country to see its housing values appreciate over the past year (more here). While most commentators and economic developers remain fixated on trying to build the next Silicon Valley, replicating aspects of LA’s film industry, or trying to generate New York-style entertainment clusters, it’s worth paying a good deal more attention to what’s behind greater Washington’s capacity to strike such a nice balance between clustering, and affordability, allowing its residents’ paychecks to stretch much further than most.