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Forbes
The 10 most overpriced cities
Do you think where you live is overpriced? You may be in for a shock. No matter how bad you think you may have it, it's a good bet that plenty of other Americans have it worse.
By Betsy Schiffman, Forbes
One of the inalienable rights of American citizenship, although not one expressly cited in the Declaration of Independence, is the ability to complain about how much things cost. Whether it's a gallon of milk, a tank of gas, the price of a Broadway show or real estate prices, we find solace for the damage to our wallets with a little healthy griping.
That griping becomes even more heartfelt when the cost of living isn't keeping pace with people's incomes.
When the U.S. Commerce Department reported a 0.7% dip in spending for June (a much steeper drop than the 0.1% drop economists were expecting), the decline was attributed to the fact that job growth hasn't come back in yet, and personal income growth had been slight. That means residents of major metro areas such as New York or Chicago may rightfully grumble that they're paying boom economy prices for real estate in a non-booming economy.
Although residents of Boston, New York or San Francisco are obviously willing to pay dearly for housing, the financial blow is usually softened by the promise that they will be earning a decent living and may have the opportunity to advance their careers. When the economy hits a bump, however, it becomes more difficult for big city residents to justify the premiums they pay to live in areas that aren't quite as rich in opportunity as they'd hoped.
Where the payoff isn't there
This is the third time we've compiled our list of the Most Overpriced Places. We determine our findings by looking at the cost of living, housing affordability and job and income growth of the 150 places ranked on Forbes' Best Places For Business. The places with the highest cost of living, least affordable housing and most modest job and income growth are the cities that make it to our list.
There are a few places that have made it here each year -- including San Jose, Calif., and Bergen-Passaic, N.J. -- but we have a few newcomers this year, too. Portland, Ore., for example, has a diverse business base, but it's been saddled with high unemployment numbers and meager job growth; and while the cost of living isn't as exorbitant as places like San Francisco, the median home price there is a good $25,000 above the national median.
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A surprising newcomer is Jersey City, N.J., where the cost of living is high, partly as a result of all the New Yorkers who moved across the Hudson River in search of lower tax and housing costs. There has been a great deal of development over the past decade, with new residential and commercial buildings dotting Jersey City's waterfront overlooking lower Manhattan. The city is still mostly a commuter town, however, thanks to an improved ferry system, but there isn't much local job growth yet despite the fact that many Wall Street firms such as PNC and American Express are opening offices here.
The rankings in Forbes' Best Places To Do Business are based on a 1 to 150 scale, where 1 is the best and 150 is the worst. A city that ranks 150 for its cost of living, for example, is the absolute worst of all 150 places in the list. (The rankings we used in this list were based on data from Economy.com and Sperling's Best Places.) The median home prices were taken from the National Association of Realtors' fourth-quarter report on existing family home sales, where the national average was $170,800. (The median home price in Jersey City was not available, however, and the median home price in San Jose came from the Santa Clara County Association of Realtors.) The cities are ranked in the order of the most overpriced to the least overpriced.
| The 10 most overpriced cities | | Rank | City | Job growth | Income growth | Cost of living | Housing affordability | | 1 | Seattle | 122 | 149 | 132 | 122 | | 2 | Bergen-Passaic, N.J. | 110 | 102 | 141 | 131 | | 3 | Miami | 79 | 132 | 127 | 137 | | 4 | Portland, Ore. | 118 | 133 | 114 | 105 | | 5 | Middlesex, N.J. | 85 | 131 | 138 | 116 | | 6 | San Jose, Calif. | 150 | 28 | 149 | 142 | | 7 | San Francisco | 145 | 27 | 150 | 146 | | 8 | Chicago | 119 | 98 | 123 | 120 | | 9 | New York | 103 | 63 | 146 | 143 | | 10 | Jersey City, N.J. | 98 | 101 | 119 | 135 |
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Source: Economy.com; Sperling's Best Places
The details
1. Seattle. The Seattle metro area is home to some of the largest American corporations (such as Boeing and Microsoft), but that doesn't mean that the cost of living and housing are proportionate to the job and income growth in the area. The Economic Development Council of Seattle and King County argues that there's a reason for the high housing costs -- mainly because roughly 25% of local residents are in either professional or managerial positions.
2. Bergen-Passaic, N.J. To be fair, few people move to the Bergen-Passaic area in hopes of finding a job in town. The area is full of professionals who commute to and from New York. Still, local residents are almost paying big city prices to live outside the big city. In terms of job growth, the area ranked 110 out of 150, and income growth was 102 out of 150 places ranked.
3. Miami. Florida may have led the nation in adding new jobs last year, but Miami-Dade County's unemployment is still higher than the national average (above 7%). In a Miami Herald report, Gov. Jeb Bush said Miami's lagging unemployment rate was due to the fact that Miami was "unique" because of its high costs. He got that right. The city ranked 137 out of 150 places for housing affordability and 127 out of 150 for cost of living. Living in the sand and sun isn't cheap, apparently.
4. Portland, Ore. "We need to improve the business climate of the Portland area, because we are racked with some of the highest unemployment rates and the lowest job-creation rates in the country. Those are unacceptable." Those were the words of Jonathan Schlueter in an Oregonian interview after he was named the executive director of the non-profit Westside Economic Alliance in Portland. During the tech boom, Oregon became a desirable destination for professionals hoping to find an affordable alternative to the Bay Area, but it ended up driving up the cost of living, and the job market hasn't quite caught up.
5. Middlesex, N.J. Some of the largest employers in Middlesex include large companies such as Bristol-Myers Squibb and Merrill Lynch, and the area's unemployment rate has been below the national average (last year it was 5.4% while the national unemployment rate was 6%), but it's not clear how many people are employed locally since Middlesex County, roughly 40 miles away from New York City, is also a major bedroom community for New York professionals.
6. San Jose. San Jose, the largest city in the Bay Area, wasn't really considered a desirable place to live prior to the tech boom. During the late 1990s, however, as housing prices rocketed along with the stock market, it became just as expensive as its northern neighbor, San Francisco. Now the city is left with a 6.8% unemployment rate hangover, and housing costs are still among the highest in the country.
7. San Francisco. The median home price in San Francisco is $597,300, and the city ranked 145 out of 150 for job growth, making it a difficult place for Americans who haven't already made their millions in the technology industry to settle down and raise a family, or find a new job. Still, for anyone pursuing a career in the technology industry, the Bay Area is the best option.
8. Chicago. While the Chicago economy is showing modest improvements -- the unemployment rate declined by 0.9% according to the most recent statistics released by the Illinois Department of Employment Security -- its job growth ranking leaves much room for improvement, and its 6.2% unemployment rate is still above the national average (currently at 5.5%). Still, the $228,100 median home price is significantly less expensive than places like San Francisco, where the median is above $500,000.
9. New York. New York expensive? Fuggedaboudit! As of June 2004, the unemployment rate in New York City was a steep 7.4%, according to the Bureau of Labor Statistics. Meanwhile, New York still remains one of the most expensive cities in terms of the cost of living and housing affordability. But as they say, if you can make it there, you'll make it anywhere.
10. Jersey City, N.J. Although Jersey City is showing some economic promise, the cost of living is still high in relation to the local job growth. The city is trying to sell itself as its own economic hub, and even managed to persuade Wall Street financial firm Goldman Sachs to move into a new office tower on the waterfront, which is estimated to have added 1,100 jobs to Jersey City's local economy. Still, the city has a bit more growing to do before its job market catches up to the local cost of living.
Copyright 2004 Forbes.com. All rights reserved.
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