We’re in the midst of an unprecedented economic boom, but the benefits of that boom haven’t touched many parts of the country. In fact, a recent study by Clever Real Estate found that there are many American cities where the average worker doesn’t even earn enough to cover basic life expenses like rent, food, and health care.
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The remarkable thing about this list is that most of these cities aren’t ones you’d associate, off the top of your head, with an unsustainable cost of living. Sure, there’s a huge expensive east coast city (New York), but the rest of the top five include a sunny tourist boomtown (Orlando), a small moneyed enclave (New Haven, CT), and two modest blue-collar cities in Texas.
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What makes this diverse group of cities so unaffordable, and how does it affect the housing market? Before we get to that, let’s look at some of the study’s findings about the average American.
Earnings Are Way Less Than The Poverty Level In Middle America
The average American is doing okay— but just okay. The typical worker spends almost 60% of their income on basic living expenses, and that percentage goes way up if they live in a big city; of the 75 most populous U.S. metros, only 13 of them were affordable enough for the average citizen to spend less than 80% of their income on expenses.
After paying for necessities like rent, utilities, food, and transportation, the typical American has $140 left out of their biweekly paycheck. That doesn’t leave a lot of breathing room for saving, which partly explains why 60% of Americans don’t have enough money saved to cover an emergency $1,000 expense.
The study did uncover one interesting wrinkle; people in expensive cities tend to save more than average, and it’s not due entirely to higher incomes. What’s their secret? People in pricey cities like San Francisco are much more likely to live with roommates; according to Zillow, 30% of adults lived with at least one roommate in 2017, way up from 22% in 2000. Since housing is by far the largest expense for most people, that frees up a lot of cash.
Of course, higher incomes are part of the equation. The study found that people earned an additional $352 annually for each 1% increase in the local cost of living. To put it simply; the more it costs to live in a city, the more people make.
But that increase in earning power isn’t always enough to cover the basics. Let’s look at five cities where the cost of living has gotten out of control.
New York City, NY
The Big Apple is notoriously pricey, but it also has the highest per capita income of any city on this list, coming in at $76,681. Still, the average New Yorker, after paying their expenses, is left with a shortfall of -$109.44. So where’s all that money going?
As you might suspect, rent is a big culprit. In New York, the average worker spends $454.25 on housing every two weeks, the highest amount of any city on this list. But that’s just the start.
New York has the 7th highest health care costs of any US city, and the highest transportation costs of any U.S. city. While most New Yorkers take the train, transportation costs are likely being driven up by drivers being hit with tolls going in and out of the city. Any way you look at it, New Yorkers are getting squeezed.
The popular image of Orlando is of a booming resort town, but the data shows a more troubling portrait. The gross annual income in Orlando ($43,491) is actually much lower than the national average ($55,822), and 8th from last out of the 75 metro areas the study looked at. It’s no surprise, then, that a whopping 20% of the population earns less than 125% of the poverty level.
But while the typical income in Orlando is quite a bit below average, housing costs are right on par with the national average. The same goes for transportation costs— almost exactly at the national average. In Orlando, income is the problem, and an apartment or an Uber ride that would seem ludicrously cheap in a city like New York or San Francisco suddenly eats up a disproportionately large chunk of your money.
San Antonio, TX
Like the previous city on this list, this mid-sized Texas city has an average gross income that’s quite a bit below average, clocking in at an underwhelming $46,995, and 20% of the population earns less than 125% of the poverty level.
That’s unfortunate, because San Antonio is actually a relatively inexpensive city to live in, with housing, health care, and food costs that are lower than the national average. San Antonio is actually a very affordable city— unless you make San Antonio money.
New Haven, CT
New Haven is, in some ways, a mirror image of Orlando and San Antonio. Annual gross income here is slightly above average, coming in at $56,650, compared to the U.S. average of $55,822. But nearly everything in New Haven is quite a bit more expensive than average. Out of the 75 metros studied, it’s the 11th most expensive housing market, the 9th most expensive for groceries/food, the 14th most expensive for health care, and the 21st most expensive for transportation.
New Haven essentially has New York prices, but pays Connecticut wages.
All of the many problems in McAllen start with income. Annual gross income in McAllen is dead last out of the 75 metros studied, coming in at $26,410, or less than half the national average; a stunning 40% of the population makes less than 125% of the poverty level.
With income that low, it almost doesn’t matter that housing, transportation, food, and health care are less expensive than average in McAllen; nothing’s really cheap if you aren’t making any money.
High poverty levels income Instability and the Housing Market
For the most part, cities that are expensive are expensive because of high housing costs, or low local income— often a combination of the two. Either way, it puts a big squeeze on the locals’ ability to buy homes. Consider, for example, San Francisco, where the typical citizen makes four times as much money, on average, than the average person living in McAllen, TX. And yet housing is no more affordable there than in the cities on the list above; saving up a 20% down payment on an average Bay Area home, even on San Francisco wages, would take two decades.
Property values have simply outpaced wage growth in the past few decades, and for most Americans, the possibility of homeownership has receded from expensive markets like New York, and low-earning markets like McAllen, to be concentrated in a middle ground of mid-tier cities where costs are still somewhat in line with earnings.
Jacksonville, Florida, for example, has a median home value of only $227,269, which is right around the national average. While Jacksonville’s average gross income is below average, at $49,754, it’s still healthy enough that it would only take about 12 years to save up the 20% down payment necessary to buy a home. Low cost solutions can help the real estate market, but the traditional 20% down is harder to come by.
Right now, Americans accept that homeownership isn’t possible at the extreme ends of the poverty level spectrum. But if wages flatten, property values climb, and accessibility narrows even more, the U.S. housing market could be facing a crisis.