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.
Transportation
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.
Monthly Budget
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.
Pay Bump
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.
I bought a home, didn’t sell a car, and have a job that can be done in a cheaper city, but living in downtown Toronto is still 100% worth it to me for the quality of life factors you mentioned near the end of the video lol. Still, this video does a great job of showing the potential cost benefits of moving to an expensive city, such as transit and work opportunity.
In big cities, salary is a big difference but so is opportunity. The verdict may not be out on this yet, but I believe even in the remote work era, you could still be missing out on a lot of potential opportunities by living in a city with little job market in your sector. So, not only does your salary tend to increase for the same career level, you may find yourself actually advancing faster in your career as well which makes an even bigger difference in salary.
I was looking into purchasing in Toronto and this article saves my sanity a bit. The mortgages that wouldn’t go anywhere near buying a home I could afford had a higher monthly payment on 30 years than the house i’m renting out of (converted apartment). Even though we are only renting out half a house half the property value on mortgage is a lot more than our rent it would seem.
The reason rent is less crazy in these cities is that housing is appreciating in value all on its own. If the structure is a depreciating asset like a single family home in dallas rent has to amortize the cost of construction, pay running costs, and provide a profit for the owner. Versus an apartment in SF where the value is going to accrue tremendously and the rent just functions as a form of tax abatement on the appreciating asset.
I live in the Pittsburgh area, I do own a car but only drive it 1x a week to visit family in a neighboring county. Cost of living is low, Wages are decent, and much of the metro area is walkable, and there are frequent enough busses if I want to leave my town to visit another or visit the Metropolis. Our airport used to be a hub, but has shrunk alot so almost all flights especially international ones will require flying to a bigger airport, and flights are usually pretty cheap from here.