I live in one of the most expensive areas in the US – always has been, probably always will. What I still don’t understand is why. Is it as basic as supply and demand, as in the more desirable an area is, the more people wish to move there, thereby driving up prices? Is it because this area traditionally has more industry? Or are there other factors of which I’m not aware?
IANA Economist, but I think your first guess is probably the most accurate. The more people WANT to live in a certain area, the more merchants can charge for their products. If you don’t buy it, someone else will, and there’s lots of "someone else"s in LA, SF, or NYC, for example. What incentive does the merchant have to sell things at small-town prices? None. Plus, the merchant is paying more for his rent because it’s worth more since lots of people want to live there. So he has to charge more to stay in business. It’s a vicious cycle.
I don’t have any clue as to how to answer your overall question but as a commercial real estate agent I can possibly address one aspect. If a lot of people want to be in or close to a specific location that is attractive (for whatever reason) the price of land in that location, and in surrounding areas, increases simply by the rules of supply and demand.
Major cities often have limited land area and real estate which will normally price itself to what the market will bear. At this point it sort of becomes a self generating process (so long as the element of attraction persists) with wealthier people locating in more desirable areas and bringing with them (and generating) a supply and demand infrastructure that caters to those tastes. This infrastructure has to pay more for real estate and labor to most efficiently service these tastes and etc etc. In the end you have an attractive area where it costs a lot to simply live and do business mainly as function of simply “being there”.
A real economist will probably chime in shortly and slap my assumptions around 
You’re probably talking about California or NYC.
In either case, it’s because it’s the immigration point.
In California’s case, it’s illegal immigration, but the same thing applies.
It causes a housing shortage, because there are more poor people arriving all the time. Yet, precisely because they are poor no-one is building for them.
As astro said, it’s 'cause your dirt costs more.
That was exactly my first thought, ski. But on the other hand…
Why is the cost of living so low (compared to my area) in other heavily populated areas, like FL and TX? I’ve got cousins who live in the Ft. Lauderdale area…when my cousin married a few years ago, she and her husband bought a spanking-new 3BR house on a canal off the Intercoastal for $70K. They thought the price was exorbitant. I just shook my head in utter shock. An ex-friend living near DFW paid $500 for a furnished 1BR apartment, likewise in spanking new condition. My SO lives in similar, and his rent is $1600 per month…
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*Originally posted by astro *
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So, in other words…we have “yuppies” to thank for this? :rolleyes: What you said makes sense, astro. But see what I posted to ski…any thoughts?
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*Originally posted by barflyer *
You’re probably talking about California or NYC.
Nope. But I do live in the Northeast Corridor, and the major city was an immigration point, but nowhere near as big as Ellis Island.
In either case, it’s because it’s the immigration point.
Hmmm…any immigrant is going to have trouble finding a decent job AND affordable housing. Multiple families crowded into coldwater flats when they arrived in Lower East Side for that very reason. Perpetuating their national pride/religion/language is another, but I’m not concerned with that aspect in dealing with my original question.
In California’s case, it’s illegal immigration, but the same thing applies.
I’ve never lived in CA, so I’m automatically disqualifying myself to give an opinion, although I do know it’s a big issue there.
**…causes a housing shortage, because there are more poor people arriving all the time. Yet, precisely because they are poor no-one is building for them. **
Immigrants generally gravitate toward cities nowadays because that’s where the jobs are (I know German/Scandiavian immigrants settled a huge part of the Midwest, but it made sense because most of them had agricultural backgrounds). And it is true that there is a severe housing shortage, especially in my area – not just concerning THEM, but also concerning US born-and-bred individuals who, for one reason or another, don’t have the $ and/or education to compete with the (and I dislike using this term) “upper class”.
Point well taken, though.
Wow…and to think that I never knew I lived on such expensive dirt…:rolleyes:
I ask myself this same question each month when I write out my $1567 a month rent for a one bedroom one bathroom apartment here in Arlington, VA. Imagine my sticker shock when I went to look for apartments here— my roommates and I had a 3 bedroom 3 bath furnished apartment in college for $1200 a month total. When I looked here the realtor was like “This is one of our more reasonable apartments. It is a bargain at $1567.” I was like “Surely you mean $1567 a year.” The realtor couldn’t stop laughing.
The simple answer is “supply and demand.” That’s bound to be correct since that’s how prices are usually set in the U.S. I guess that doesn’t really help much, though.
Ski seems to be assuming that you’re referring to prices in general. However, based on subsequent posts, the OP seems to be be referring mostly to housing prices. I think that’s a key distinction. High-cost areas often have relatively low prices for basic necessities like food whereas poor urban areas and rural areas tend to be more expensive. This is a painful irony in that poor people in South-Central Los Angeles can end up paying more for food than rich people living in Beverly Hills. The reason is that the distribution system is more efficient in rich areas than it is in poor or low-density areas. This was how Walmart got started. They’d put one, huge store in a rural area. Their distribution system was much more efficient than that of the local merchants so they could charge lower prices and put the locals out of business. The downside was that rural folks might now have to drive 60 miles to buy toilet paper, but it sure was cheap!
The point here is that areas with high housing prices often have a lower cost-of-living for other things.
High housing prices are higher because there’s more demand than there is supply. There are, of course, lots of factors that may increase demand or limit supply. At least in theory, there should be a trade-off between the relative desirability of living in a particular area (I mean, of course, desirable for you) and the price you’re willing to pay. For example, housing prices are high in Arlington, VA. They’re (probably) lower in Baltimore, but you’d have to commute. So you make a decision as to whether the savings in rent (minus the additional cost of commuting) is worth the extra time in the car.
So the answer to your question is, it’s your fault. You’re paying a lot for housing because you decided it was worth it!
kiz Of course you know how expensive your dirt is. I didn’t mean to denigrate your cognative skills.
I guess I should have only echoed your suggestion that it is the supply and demand for dirt that causes prices to be high or low.
I agree that it comes down to real estate.
In the NYC area, there is a very limited supply of undeveloped land. At the same time, the entire world comes here for access to capital markets; banks; courts; performance arts; other kinds of art; schools; etc. etc. So there’s lots of demand for real estate.
Combine a big demand with a limited supply, and you get . . . high real estate prices. Since businesses must pay rent too, the cost of many goods & services goes up. Interestingly, as someone else pointed out, not all goods go up in price, perhaps because distribution is easier, and perhaps because some things are more competitive.
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- Two reasons: heavy union membership, and high taxes & regulation.
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-I see those two as heavily interlinked, but that’s just me. - DougC
- Two reasons: heavy union membership, and high taxes & regulation.
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Thanks everyone! My SO and I have been talking about this thread in reference to possibly moving out of state as soon as we have enough $. Since moving back here, he has no savings per se, nor anything to save because of the costs.
Tramp, I sympathize with you. When my SO first came up here, he rented a house for $1800/month – a house which not only needed a lot of work, but also had periodic mouse infestations (luckily we didn’t see most of 'em, but we witnessed their damage). The only redeeming feature was that the house was a mere leap from a mass transit station. The family who rented the house after SO moved out now pays $2200/month! shudder
Truth Seeker, I never thought about the lower prices/higher rents theory. I’ve seen lower prices elsewhere for necessities such as shampoo, food, etc. than we have here, but on the other hand, our prices are probably much lower compared to other urban areas (don’t know which, but I could give an educated guess). Plus, you’re correct in prices being higher in low-income areas. The supermarket chain I used to work for has a store in a relatively middle-to-low income area, and their prices were, on the average, a nickel to a dime higher than the next closest store, which is in a middle-to-upper income area. Both stores are within the same chain –
I’m not angry or upset, samclem…guess we were both trying to be smarta**es!
Well, I know space is at a premium, especially in my area, lucwarm. Consequently, we don’t have the suburban sprawl that seems to pervade other areas, thank heavens! The first time I visited FL as an adult, I was shocked at the endless strip malls…actually, I still am! :eek:
DougC, I’m not sure what you mean about taxes and heavy union membership being interlinked…
Anyway, thanks again, everybody!
But I still would like to know why it’s cheaper to live in certain heavily-populated areas like FL or TX…if there’s more people, that alone would drive up prices. But that doesn’t explain WHY most things there are so much cheaper…
It is as simple as supply and demand, plus the population (which is really supply). To those of you that say immigrants, I say psthhhhtththththhtht (and will self-censor additional commments). unless you have rent control, where those late to the party subsidize the early birds.
Stores that are in lower income area usually charge more because of higher operating expenses such as insurance, security and shrinkage. These add up to outweigh the savings on real estate.
I think the poster who mentioned union membership, high taxes and regulations meant that these are added expenses for the businesses in your area which is then passed on to you. Because the average voter in these areas is wealthy enough to absorb these things it is more likely to be politically viable in these areas. Unfortunately the young and poor get squeezed.
As it relates to real estate prices, states like Florida, Texas and Georgia have a geological advantage in that there are few natural barriers to growth near major cities. For instance, where San Francisco is hemmed in by mountains and ocean Atlanta is relatively open on all sides for hundreds of miles (metropolitan Alanta now extends well over 50 miles in all directions). Since Atlanta has more usable room to expand there is more land available for building, making land prices and houses are cheaper. For the opposite reason Savannah, Georgia has higher land and housing prices than Atlanta even though there are fewer people. Savannah is on the coast. It has an ocean border and a large amount of unbuildable marsh land (not to mention land set aside as historic areas). Usable land is more difficult to find and therefor more expensive.
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- What I meant was, unions usually completely support Democrats, who usually favor increasing taxes and regulation more than Republicans. It’s fairly difficult to find somewhere (in the US) that has only one of those qualities without the other.
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- I don’t know that what some are describing as “real estate scarcity” has much to do with it. There’s a fashion involving living in trendy areas, but the cause of real estate scarcity usually goes back to regulation. You can’t know what any piece of land is “worth” if laws say that nobody’s allowed to make any money off it.
- Also, state taxation rates have become significantly different. Businesses doing interstate relocating tend to leave the northeast US (with the highest taxes and reglation) for the south and southwest (lowest). - DougC
Again, thanks everyone for responding. Everything that’s been said has given my not-very-economically-minded brain a lot to ponder! 
Puddleglum, I know exactly what you’re talking about. The store in the lower-economic bracket area I spoke of not only has 24-hour security, but also guards posted in both the parking lot and the employee parking lot. I never worked there at night, but the stories I’ve heard…shudder. I confess that I’m also somewhat ignorant about how politics and taxes play into this, as I’m not poor nor rich, but I manage. I just never realized what the ramifications are.
I had a feeling geography was a major part of price fluctuations, Doctor Jackson, in that the more land, the more can be built. When I first visited TX, my friend wanted to take a drive “across town” to Plano – 40 or so miles away. He nearly went into shock when I told him that if I drove 40 miles north or south from where I live, I’d be in another state…in other words, what you says makes absolute sense. It just never occurred to me…
DougC, as a resident of a heavily Democrat state as well as probably having the highest tax rate in the US, it’s a wonder why more people don’t follow businesses’ example and relocate, including myself. We’re also hideously traditionally-minded…hmmm…