Tuesday, April 23, 2013

Manhattan is a relative bargain if you make more than $100,000

New Yorkers assume that we live in the most expensive city in the country, and cost-of-living indexes tend to back up that assertion. But those measures are built around the typical American’s shopping habits, which don’t really apply to the typical New Yorker — especially not college-educated New Yorkers with annual household incomes in the top income quintile, or around $100,000. According to a recent study by Jessie Handbury, an economist at the University of Pennsylvania’s Wharton School, people in different income classes do indeed have markedly different purchasing habits. That may not be surprising, but once you account for these different preferences, it turns out that living in New York is actually a relative bargain for the wealthy.

... Remarkably, she found that for households earning above $100,000, grocery costs are 20 percent lower in cities with a high per-capita income (like New York) than in cities with a low per-capita income (like New Orleans). There’s evidence that the same forces hold true for other products that cater to upper-income people, from high-end retail to beauty services. The average manicure, for example, is about $3 cheaper in New York City than in each of the rest of the top 10 biggest cities in the United States, according to Centzy, a company that collects data on the prices of services. ...

Of course, not everything that wealthy New Yorkers spend money on is cheaper here. Housing, after all, is absurdly expensive, even for the rich. ... Still, it’s somewhat unfair to compare housing costs here to those in a place like Buffalo, or even Atlanta, since perks like access to amenities and unusually lucrative jobs are baked into the cost of New York real estate. ... Regardless, the rent burden isn’t actually as onerous as people assume: the typical resident here pays roughly the same share of her income in rent as does her counterpart in Los Angeles, Chicago, Philadelphia and Houston, according to N.Y.U.’s Furman Center for Real Estate and Urban Policy.

Professional-class workers who like to moan about the cost of living in New York — and I’m including myself in this group — don’t realize how spoiled we are by both variety and competitive pricing. Truthfully, things seem more expensive here because there’s just way more high-end stuff around to tempt us, and we don’t do the mental accounting to adjust sticker prices for the higher quality. We see a sensible shoe with a $480 price tag or an oatmeal cookie for $4 and sometimes don’t register that these are luxury versions of normal items available from Payless or Entenmann’s. The problem, in part, is that people tend to anchor their own expectations for what they should buy based on what their neighbors are buying, not what some abstract, median American buys. It’s a phenomenon known by some as affluenza...
--Catherine Rampell, NYT, on not crying poverty wolf in Manhattan