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A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.

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The Poorest Place in America
Welcome to New York!
6 August 2009

According to the self-help adage, you can’t fix a problem until you first admit that you have it. So it should be of interest to New York policymakers that if you adjust census data for cost of living, Gotham is the poorest big city in America, though Detroit could gain that unwanted distinction when new data become available. And New York State, at least by one reckoning, is the poorest state, substantially worse off than the runner-up, Mississippi. Seriously.

Let’s begin with the city. Based on data from C2ER, a company that has been producing cost-of-living estimates for years, someone earning $50,798 in Chicago or $62,741 in Washington, D.C. enjoys the same standard of living as someone earning $100,000 in New York City. Not surprisingly, housing is the biggest factor. In Chicago, the cost of housing is 69 percent lower than in New York. In Washington, D.C., it’s 46 percent lower. Utility costs are also lower—29 percent in Chicago and 39 percent in Washington. So are groceries, by 28 percent in both cities. The result is that New York City residents have far less purchasing power than anyone seems to realize. (What applies to New York City also applies to its suburbs. A person earning $76,256 in Chicago has the same standard of living as someone earning $100,000 in New York’s Nassau County. Once again, housing is the main reason: its cost is 42 percent lower in Chicago than in Nassau.)

The next step is to apply these cost-of-living differentials to the most recent census estimates for per-capita income. This calculation yields a measurement of each city’s average standard of living. Once you crunch the numbers, you find that the real standard of living in Washington, D.C. is 118 percent higher than in New York City. In Chicago, it’s 75 percent higher.

In order to compare purchasing power at the state level, it’s necessary to turn to other cost-of-living estimates. One somewhat older estimate was produced by the Taubman Center at Harvard University in 2000. It calculated that based on 1999 data, the cost of living in New York State was the fourth-highest in the nation. But the state ranked 28th in terms of per-capita income as measured by purchasing power. And if you use median household income instead of per-capita income—a fair statistical maneuver, since New York has a disproportionate number of extraordinarily rich people—you find that New York ranked 38th in the U.S. in 1999 in purchasing power.

The Taubman data help corroborate more recent estimates by Bettina Aten, a leading expert on purchasing power at the Bureau of Economic Analysis in Washington, D.C. According to her estimates, the cost of living in New York State in 2006 was 31.8 percent above the national average, second only to Hawaii, which, of course, is an island in the middle of the ocean. Once you apply that cost of living to 2006 estimates of median household income, you realize that New York State ranked last in the nation in purchasing power. The adjusted figure for New York was $38,986; for Mississippi, it was $42,984. Aten herself doesn’t include certain items, such as government transfer payments, and that raises New York’s adjusted income to $42,743 and lowers Mississippi’s to $39,649. But either way, it’s a dismal performance for the Empire State.

It’s clear that New York has a big problem. On a comparative basis, we’re poor, thanks to a stratospheric cost of living—which itself is the result, I believe, of excessive and poorly designed regulation, most notably in the area of land use. With this in mind, I have started the Cost of Living Project to bring attention to the exorbitant cost of living in New York. Ultimately, the project’s purpose is to create a library of information that will make it easier to put price tags on different regulations, thus determining which serve a genuine public interest and which should be changed or abolished. Reform won’t come easily or quickly. But come it must, because right now, New York is simply too expensive.

Eamon Moynihan is director of the Cost of Living Project.

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