Sunday, July 15, 2012

Does Houston have the highest standard of living in the world?

Last week New Geography/Forbes ranked Houston the #1 city where paychecks stretch the farthest, based on cost-of-living adjusted average wages.
In first place is Houston, where the average annual wage in 2011 was $59,838, eighth highest in the nation. What puts Houston at the top of the list is the region’s relatively low cost of living, which includes such things as consumer prices and services, utilities and transportation costs and, most importantly, housing prices: The ratio of the median home price to median annual household income in Houston is only 2.9, remarkably low for such a dynamic urban region; in San Francisco a house goes for 6.7 times the median local household income. Adjusted for cost of living, the average Houston wage of $59,838 is worth $66,933, tops in the nation.
Furthermore, #2 Silicon Valley, even with all those high-paying high-tech jobs, was a pretty distant second at $61,581.  Nobody else on the list cracked $57k, a whopping $10k below us.  We didn't just barely win - we crushed it.  If that doesn't speak to the incredible power of no-zoning to minimize the cost of living, I don't know what will.  It's also a major endorsement for the city philosophy of Opportunity Urbanism (TEDx video), where we had similar data (see chart).

Based on that ranking table, I think Houston has a pretty strong case for the highest standard of living in the United States, at least among major metros (we're not looking at Greenwich or Malibu here folks).  In turn, I think that makes a pretty strong case for the highest big city standard of living in the world, given that most other countries/cities have similar or lower GDP/capita and much higher costs of living, especially housing.  If you can think of one that might best us, I'd love to hear about it in the comments along with any data you might have.  Without comparative hard data, it's impossible to make an airtight case, but I think it's pretty solid.

Given this new accolade, I'm thinking we might have to add another nickname to Houston's list:
"Middle Class Mecca"
UPDATE: more evidence/data at the bottom of this post.
UPDATE 2: New graph:

UPDATE 3, 1/31/22

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At 1:37 PM, July 16, 2012, Anonymous awp said...

The analysis in that article is a major urban economics fail from one of our "leading" urban "thinkers". In static analysis, which is what he performed, high wage to cost ratio implies the presence of major negative amenities. For example, if one wants really high wages and really low costs, then one should move to the south Texas, west Texas, or Dakota oilfields.

Luckily the dynamic analysis has much better implications for Texas. The presence of high growth in a city/region implies that the income/cost/amenities ratios are such that your city is relatively attractive. To re-summarize the article, Austin, Dallas, and Houston still rock (Viva La Republica), Detroit* sucks.

*The Presence of Detroit(3)(ten year population decline of 3.5% -wikipedia) and the Texas cities on the top of that list illustrate the dangers of performing static analysis without measuring amenities(next to impossible).

At 8:41 PM, July 16, 2012, Anonymous Brian said...

awp does a pretty good job of showing the problems with this analysis- standard of living is a complex concept, and to simplify it to a wage/prices ratio is a tremendous oversimplification.

The thing I'm most concerned with, as a non-American, is in the second paragraph. Essentially, you seem say that since Houston is the best in America, and America is the best in the world, then Houston is the best in the world. With one wave of the hand and no justification whatsoever you write off the rest of the world.

I don't want to come down on you too hard. Really, I just think that the question of what city has the best standard of living in the world is way too complex a subject to fit into a three paragraph blog post.

At 8:56 PM, July 16, 2012, Blogger Tory Gattis said...

I was not quite using the logic you state. It's just that the data I've seen in the past for world cities with similar GDP/capita (which would get their wages in the same ballpark) have had much higher costs of living, including Western Europe, Canada, Japan, and Australia. When writing the post, I thought maybe Calgary or Oslo might have a case, but a little Google searching revealed they have very high costs of living. If you can think of a major city that might match, I'm all ears.

I do admit standard of living is a complex and ill-defined thing. But if you're going to use hard metrics for it, I think cost-of-living adjusted average wage is as good as any. Anything else is likely to be some sort of arbitrarily weighted index.

At 1:02 PM, July 17, 2012, Anonymous awp said...

Do you have an argument with my first post? Without being able to measure amenities, cost of living adjusted wages tell us nothing, and actually are more likely to point to your city/region being crappy. You can't keep your measure just because you like what it is telling you.

You can keep your measure if you stay more precise on what it is telling you. Cost of living adjusted wage tells you how much consumer goods you can afford in any given city/region(if they can be gotten). As we all know that is not equivalent to standard of living. No amount of extra money takes away the swamp, or gives us better weather in the summer.

Luckily the growth of the Texas cities tells us that, within the U.S., free people are deciding that our cities do have the best combination of wages/costs/amenities.

At 2:21 PM, July 17, 2012, Blogger Tory Gattis said...

awp: of course it's hard to consider amenities since peoples' values are so different. Some people like cold/snow (think Denver), or 4 distinct seasons (NE), or just nice year-round (CA). Some people are big outdoors people, and some are not. Some people can't live without Broadway and high art, others are indifferent.

What is pretty universal is that people like to have a high income and low costs of living, especially housing. People clearly give up those things to get other amenities (including career), but, as a baseline, it's pretty universal. Thus it seems a fair way to compare the basic standard of living across cities.

I agree that the ultimate indicator is migration. People weigh up the tradeoffs and make a decision.

At 2:44 PM, July 17, 2012, Blogger Tory Gattis said...

In fact, part of what makes this ranking list so great is that it makes the tradeoffs very explicit. Is SoCal weather worth $25k/year? Are the unique features of NYC worth $22k/year?

At 11:53 AM, July 18, 2012, Anonymous awp said...

If you are trying to measure standard of living your statistic should not have the Houston metro and the oil patches in close competition. I bet the oil patches actually beat out Houston on your measure.

Also another problem with the median house price/median wage.

median house price to median wage favors low cost low wage cities.

Would you rather1) make $40,000 and have to spend $20,000/year on housing, or make 2)$60,000 and have to spend $35,000/year. Example 1 will have a lower ratio of housing/wage, but example 2 leaves you with more after housing disposable income.

On the other hand the median house in Houston is not only cheaper than in other cities, but (generally) objectively better in a lot of measures. I remember what shocked me the most about the stories when L.A.s median house price hit half a million, was how shitty that median house was.

At 2:21 PM, July 18, 2012, Blogger Tory Gattis said...

Limiting it to major metros. Not comparing to small oil patch towns, or elite small cities either (Malibu, Greenwich, Santa Barbara, West U, etc.).

I don't believe they do the stats as a ratio (at least not the way you describe). They create a standard "lifestyle" and look at the cost of that lifestyle across metros.

Total agreement on housing quality. CA really blew me away with how little house you get for so much money.

At 4:40 PM, July 22, 2012, Blogger dentext said...

I just returned to Houston after decade from Silicon Valley to care for my folks. I'll tell you on a purely subjective basis, the claim that Houston has the highest standard of living is absurd. It feels as thought I've moved back to Poland. The poor quality of streets, libraries, schools and business diversity shocked me. Clearly,what Houston Strategies is smoking has been decriminalized in California.

At 8:57 PM, July 22, 2012, Blogger Tory Gattis said...

Remember, this is not based on public amenities. Check the article and table. It's based on what the average income can afford.

I've spent some time in Silicon Valley myself, and I have to say the restaurant scene was surprisingly bland compared to Houston.

At 12:31 PM, July 23, 2012, Anonymous awp said...

"Remember, this is not based on public amenities."

Which is why we can't call it a measure of standard of living.

Sorry, last time.

At 1:08 PM, July 23, 2012, Blogger Tory Gattis said...

stand·ard of liv·ing
The degree of wealth and material comfort available to a person or community.

That sounds pretty close to cost-of-living adjusted average income. I think what you guys are arguing is "quality of life" - a different and more subjective concept.

At 5:02 PM, July 25, 2012, Anonymous Brian said...

Tory, I would be interested in seeing some of the data you have regarding international standard of living, I was merely frustrated to see the rest of the world dismissed with one general sentence. If you're going to write a post declaring (or supposing) Houston's status as most livable city in the world, you have to give the world a few more column inches.

I think that the definition you post for standard of living does not necessarily mean wage/price ratio. Public amenities can easily be seen as wealth and material comfort available to its community. I think that the wage/price ratio is a valid and significant measure, but is only a component of standard of living, not standard of living itself.

At 6:29 PM, July 25, 2012, Blogger Tory Gattis said...

Ah, I wish the data was there. I have seen various cost of living indexes for intl cities (mainly in The Economist), but not combined with average incomes. Generally speaking, from what I've seen, all major cities in developed countries with GDP/capita in the same range as the U.S. are much more expensive than the average U.S. city (traveled to Europe much lately?), which, in turn, is higher than Houston.

Standard of living, not "most livable" - which I'd assume includes "quality of life", as I discussed above. Cost of living adjusted average wages are not perfect, but they're the most quantitative option we're going to have.

At 11:47 PM, July 25, 2012, Anonymous Kevin said...

To my way of thinking, standard of living is roughly equal in any area where there is reasonably free migration. Everything people say they love about San Fransisco is priced in and is extracted in the form of high prices. Everything people say they hate about Houston is priced in the form of the relatively high wage and low cost of living. Of course, personal preferences will diverge from the average, which IMO accounts for the fact that people in Houston prefer Houston and people in NYC prefer NYC... that's why they're where they are.

And +1 for watching migration as an indicator of short-run noise here.

At 7:36 AM, July 26, 2012, Blogger Tory Gattis said...

Again, I think you might be talking about overall quality of life balancing out rather than standard of living. I think people will sacrifice standard of living for other amenities or jobs (or demand a higher standard of living for places with weaker amenities), but that does mean standard of living does vary across cities.

At 3:54 PM, January 09, 2014, Anonymous econberkeley said...

I totally agree with Tory on this. Houston has clearly the highest standard living in the world (in monetary terms). You can pretty much have the same salary for a similar position compared to other major cities. However, cost of living here is extremely low. You can park in one of the largest centrally located malls in the world without paying any parking. I can also park for free when I go to downtown for theatre or opera. Grocery stores are dirt cheap, especially the ethnic stores. When I lived in Bay Area, there were only 2 or 3 grocery stores. Here there are so many. Also ,people bring up the issue with driving long distances and not having any public transportation. Public transportation is never a cure. Please try to carry your groceries or furniture from Ikea using public transportation. It does not make sense. Public transportation is a supplementary in my view. People also bring up the issue with Houston being very spread out. If you live in inner loop or very close to it, you do not have to drive much. Interestingly enough, I drove more in Bay Area compared to Houston because I could not afford to live in the city. Also, I lost so much time in traffic. Just my 2 cents.


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