Arnold Kling asks an interesting question: How can New York real estate be so expensive when the median income is so low?
Here are four reasons he suggests:
1. By some more accurate measure, the cost of living is not so much higher in NY.
2. Living in NY is an expensive taste that occurs among many people, even those of modest means.
3. NY has jobs for lower-income people that are not available in the other cities.
4. NY’s rent controls and other housing regulations have created a lot of inframarginal winners whose housing costs are well below those of the marginal resident. (Think of those who are able to buy their apartments when they turn co-op at ridiculously below-market prices.)
You frequently see studies and articles pushing some version of No. 1: that when you account for the “true cost,” adding in things such as transportation, it’s surprisingly cheap to live in the city. I find these studies broadly implausible, because they leave out little things like “the cost of having to have everything delivered,” “the cost of taking taxis when you’re in a hurry” and “the cost of having to have a pet taxi to take the dog anywhere.” They also fail to account for the upward pressure that high real estate prices put on the cost of everything else and the time cost of mass-transit commutes. And let’s not get started on incidentals such as educating your children. Having lived in multiple cities, including New York, I feel pretty comfortable discarding answer No. 1.