Cities like New York, Toronto, London, and Sydney have gained a reputation for having extremely expensive housing. While it is certainly true that many people want to live in these cities, it is also true that dysfunctional housing policies limit the amount of housing that can be built. In the face of this unfortunate reality, the question remains: is it ever financially sensible to live in these cities, or are you crazy for trying to make it work?
Renting vs. Buying
The first question to ask when considering whether it is worth living in a high cost of living city is whether you want to rent or buy your home. These cities often have an interesting dynamic where rent is high, but the price of buying a home is even higher. For example, moving from Ottawa to Toronto would result in a 40% increase in rent, but an 80% increase in the price of a home. If you are content with renting, moving to a high cost of living city may be feasible with some lifestyle deflation. However, if you are intent on buying a home, it is much more of a stretch. The same pattern can be seen when moving from Salt Lake City to Los Angeles, or from Chicago to New York. In general, high cost of living cities are closer to being practical if you are renting, but if you want to own, you may want to look elsewhere.
Cities with expensive housing, such as New York, London, Sydney, and Toronto, often have better-than-average public transit and walkability. The higher costs of housing in these cities can often be offset by savings on transportation. For example, if living in one of these cities allows you to own fewer cars or no cars at all, you can save a substantial amount of money. The cost of a car depends on many factors, but a recent estimate in Canada put a used 2017 Honda Civic at about $1000 a month. If you own a car in a more car-centric city and sell it when moving to one of these high cost of living cities, that could cover an extra $1000 a month in rent. However, if you do not own a car and are not going to need one regardless of where you live, you may be better off seeking a city with cheaper housing.
When deciding whether you can handle living in a city with expensive housing, it is important to consider how much housing dominates your monthly budget. People on the lower end of the income spectrum tend to spend most of their money on basic necessities like food and shelter, so housing differences between cities can make or break their budget. On the other hand, higher income people whose budgets are not dominated by basic needs are less sensitive to housing costs. Additionally, a single person renting an apartment is more sensitive to housing costs than a couple splitting an apartment, and having children makes you more sensitive to housing costs because kids need more space but don’t bring in any money.
Finally, it is important to consider whether living in a more expensive city gives you a pay bump. If moving from Buffalo to Boston results in a $1500 increase in rent per month, that is easier to handle when split between two people. On the other hand, if you are already making a high income, a pay bump may not be necessary.
In conclusion, living in a city with expensive housing like New York, Toronto, London, or Sydney comes with its pros and cons. On one hand, you may be able to save on transportation costs by utilizing public transit or walking more. On the other hand, housing costs can dominate your monthly budget, making it difficult to make ends meet. When considering a move to a high cost of living city, it’s important to take into account the factors that affect your own financial situation, such as whether you’re buying or renting, your personal transportation needs, your income level, and the size of your household.
Ultimately, the decision to live in a city with expensive housing will depend on your individual circumstances and priorities. Some people might find that the trade-off between higher housing costs and other benefits such as better public transit and a bustling urban lifestyle is worth it. For others, the financial burden may be too much to bear, and they might opt to look for more affordable options elsewhere. Regardless of your choice, it’s always important to weigh the pros and cons carefully and make a well-informed decision that best suits your individual needs.