What do people mean when they say that DC is a “high cost of living“ area?

[Anonymous]

Yes, obviously housing costs more. But let’s break that down a little bit. Let’s say that a house that costs $800,000 here in the suburbs would cost $400,000 somewhere in the Midwest. Assuming a 20% down payment, because the house costs $400,000 more, you’d have to come up with an extra $80,000 for the down payment, which could be hard when you’re just starting out.

But once you actually buy the house, if you assume 5% interest rates on a 30-year loan, the DC house costs $3,436 per month (principal and interest) versus the Midwest house at $1,718 per month. That’s an extra $1,718 per month or $20,600 per year (some of which is principal and is therefore really an investment and not an expense). Yes, we have to factor in taxes as well, but it still doesn’t seem like it would be *all that much cheaper* to live in other parts of the country.

As I understand it, housing, food and transportation comprise about 70% of household expenditures. We already talked about housing. Can food and transportation really be that much less expensive outside of major cities? If Pizza Hut sells a pizza here for $12, I doubt they’re selling it for $5 in Iowa. Same with cars – if a Toyota Corolla costs $25,000 here, I doubt they’re selling it for $10,000 in Montana.

Can you explain if you think I’m missing something?

[Anonymous]

The fact that you think halving the housing cost isn't "that much cheaper" just means you make enough to live in a HCOL city. I could live here or in a cheaper city on my salary. The same cannot be said of many people who live in LCOL areas - they can't just up stakes and hack it in a HCOL area because literally doubling their mortgage is not negligible. Housing is a much bigger slice (pun intended) of middle/lower income people's monthly budget than Pizza Hut.

HCOL doesn't mean no one can live here. It means it's very difficult for people with median and below HHIs to live here.

[Anonymous]

You are missing something OP.
Let's use your logic. Instead of buying the 800K house, why not just buy a 1.6M house? You would just have to come up with an extra 160K for the down payment.
The mortgage will cost you just an extra $3,436 per month (some of which is principal and is therefore an investment). It still doesn’t seem like it would be *all that much cheaper* to buy a 800K house than a 1.6M house. I wonder why everyone doesn't do it.

You are so out of touch with reality.

[Anonymous]

Just comparing Northern VA to Richmond, gas is atleast 50 cents cheaper per gallon in Richmond. Eggs, milk, bread are also cheaper. There are more options for cheaper daycare and camps. I have friends who pay less to get their hair done at comparable salons. These things add up.

[Anonymous]

Okay, Lucille Bluth. "How much could a banana cost? Ten dollars?"

[Anonymous]

I don't think you understand what it means to live on a statistically average income (anywhere!) if you think an extra $80,000 "might be hard when you're just starting out" and that almost doubling the monthly cost of housing "isn't that much more expensive." Like, on the scale of the average US income, $80,000 is more than a year's pay, and the DC mortgage is around an entire month's paycheck. These differences are pretty huge.

[Anonymous]

Anonymous wrote:Yes, obviously housing costs more. But let’s break that down a little bit. Let’s say that a house that costs $800,000 here in the suburbs would cost $400,000 somewhere in the Midwest. Assuming a 20% down payment, because the house costs $400,000 more, you’d have to come up with an extra $80,000 for the down payment, which could be hard when you’re just starting out.

But once you actually buy the house, if you assume 5% interest rates on a 30-year loan, the DC house costs $3,436 per month (principal and interest) versus the Midwest house at $1,718 per month. That’s an extra $1,718 per month or $20,600 per year (some of which is principal and is therefore really an investment and not an expense). Yes, we have to factor in taxes as well, but it still doesn’t seem like it would be *all that much cheaper* to live in other parts of the country.

As I understand it, housing, food and transportation comprise about 70% of household expenditures. We already talked about housing. Can food and transportation really be that much less expensive outside of major cities? If Pizza Hut sells a pizza here for $12, I doubt they’re selling it for $5 in Iowa. Same with cars – if a Toyota Corolla costs $25,000 here, I doubt they’re selling it for $10,000 in Montana.

Can you explain if you think I’m missing something?

I can explain it. If your budget for a house is $400,000 because that's what you can afford, you would not be able to find a decent house in the DC area.
The same budget would allow you to live in a nice house, in a nice neighborhood in the Midwest.
That's what people mean.
While prices for food and cars may not be that much different, the same isn't true for other big expenses like services (child care, etc..)

[Anonymous]

I’ll bite. I moved from NOVA to a LCOL area.

We ended up spending about the same amount on our house, but for a house that is twice as big. However, our property taxes are one quarter what they were in NOVA.

The private school my DC attends is 1/3 the cost.

Those two things alone reduce our COL by more than $40,000 a year.

Some things are not appreciably cheaper — nice restaurants, for example. Dry cleaning is about the same. Stuff you buy at places like Target or things like appliances. Air travel can be slightly more expensive since we don’t live near an airport hub.

Pretty much everything else is cheaper. Food, kid’s activities, summer camps, the slip fees where we dock our boat, etc. If a country club or yacht club would have a high five figure or six figure initiation fee in DC, it will be low five figures or even four figures here.

Anything service related is definitely cheaper — hair cuts, house cleaning, appliance repair, lawn service, car maintenance, etc.

And little things — I never pay to park, for example.

Part of the calculation involves what kind of lifestyle you lead in DC. If you have a less expensive house & lower taxes, use public schools, don’t have a house cleaner, keep your own yard, etc., — in other words, you don’t spend as much to begin with — you might not notice the change quite as much. It would still be there, though.

[Anonymous]

Most average people cannot afford an $800K house. We could not. But, we have a $400K house that is tiny (under 1000 square feet) and if we took that same money else where we'd have a great house.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Yes, obviously housing costs more. But let’s break that down a little bit. Let’s say that a house that costs $800,000 here in the suburbs would cost $400,000 somewhere in the Midwest. Assuming a 20% down payment, because the house costs $400,000 more, you’d have to come up with an extra $80,000 for the down payment, which could be hard when you’re just starting out.

But once you actually buy the house, if you assume 5% interest rates on a 30-year loan, the DC house costs $3,436 per month (principal and interest) versus the Midwest house at $1,718 per month. That’s an extra $1,718 per month or $20,600 per year (some of which is principal and is therefore really an investment and not an expense). Yes, we have to factor in taxes as well, but it still doesn’t seem like it would be *all that much cheaper* to live in other parts of the country.

As I understand it, housing, food and transportation comprise about 70% of household expenditures. We already talked about housing. Can food and transportation really be that much less expensive outside of major cities? If Pizza Hut sells a pizza here for $12, I doubt they’re selling it for $5 in Iowa. Same with cars – if a Toyota Corolla costs $25,000 here, I doubt they’re selling it for $10,000 in Montana.

Can you explain if you think I’m missing something?

I can explain it. If your budget for a house is $400,000 because that's what you can afford, you would not be able to find a decent house in the DC area.
The same budget would allow you to live in a nice house, in a nice neighborhood in the Midwest.
That's what people mean.
While prices for food and cars may not be that much different, the same isn't true for other big expenses like services (child care, etc..)

You can get a house but it will be tiny/run down or out really far. And, now those $400K houses are turning into $500-600K homes in some areas here.

[Anonymous]

That would be fine if you could get a decent house for $800k here, but it’s even tough to get one in a good suburb for double that.

[Anonymous]

We live in the midwest and our HHI is $100k. "An extra $80k" is more than an entire years net pay for us.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, obviously housing costs more. But let’s break that down a little bit. Let’s say that a house that costs $800,000 here in the suburbs would cost $400,000 somewhere in the Midwest. Assuming a 20% down payment, because the house costs $400,000 more, you’d have to come up with an extra $80,000 for the down payment, which could be hard when you’re just starting out.

But once you actually buy the house, if you assume 5% interest rates on a 30-year loan, the DC house costs $3,436 per month (principal and interest) versus the Midwest house at $1,718 per month. That’s an extra $1,718 per month or $20,600 per year (some of which is principal and is therefore really an investment and not an expense). Yes, we have to factor in taxes as well, but it still doesn’t seem like it would be *all that much cheaper* to live in other parts of the country.

As I understand it, housing, food and transportation comprise about 70% of household expenditures. We already talked about housing. Can food and transportation really be that much less expensive outside of major cities? If Pizza Hut sells a pizza here for $12, I doubt they’re selling it for $5 in Iowa. Same with cars – if a Toyota Corolla costs $25,000 here, I doubt they’re selling it for $10,000 in Montana.

Can you explain if you think I’m missing something?

I can explain it. If your budget for a house is $400,000 because that's what you can afford, you would not be able to find a decent house in the DC area.
The same budget would allow you to live in a nice house, in a nice neighborhood in the Midwest.
That's what people mean.
While prices for food and cars may not be that much different, the same isn't true for other big expenses like services (child care, etc..)

You can get a house but it will be tiny/run down or out really far. And, now those $400K houses are turning into $500-600K homes in some areas here.

Yep. My $400k budget brought me out to Frederick, and you can't get an SFH over 1000 sq ft for $400k even here. (A rowhouse or townhouse, yes.) In the town where i grew up $400k is the top of the market.

[Anonymous]

Anonymous wrote:That would be fine if you could get a decent house for $800k here, but it’s even tough to get one in a good suburb for double that.

+1, our friends just spent 850k on a 1400 sq ft row house in DC on a major thoroughfare (constant traffic) with poor IB schools. The house is at least cute and updated, but it's small. Neighborhood is very desirable and their commutes are very short and on foot.

A house with similar updates, but with a yard, better schools, on a better street, and 600-800 extra square footage, would cost around 600k in a close in suburbs, under 500k further out.

And that is what people mean when they say DC is a "high cost of living area". It costs more to live here than it does as you move further away from here. It's very straightforward.

[Anonymous]

It means if I sold my old, 3 bedroom, tiny, brick colonial house in the city and moved back to my home town, I'd pay cash for a sprawling estate with the post-mortgage pay off profit.