Can You Live Where You Work?

Cost of Living vs. Income

Americans often complain about their long commutes as traveling 45 minutes or more to and from work each day has become the norm. The natural response to this is to suggest moving closer to work. It is certainly true that moving closer to work would alleviate some of the stresses of commuting, but often times it is not economically possible to do so. 

To give a quick example, this graph shows the change in income and rent prices in the New York City area. As you can see, rents have risen while incomes have fallen slightly. For the "average" person in this circumstance, they have had less and less money available to pay their ever increasing rent payment. At some point, this "average" person will experience a drop in lifestyle if they remain in New York City or they will have to move away from the city to live in a cheaper apartment while maintaining their lifestyle. 

According to a study by the Manhattan Rental Market, the average price to rent an apartment in Manhattan is now $3,822 per month, or  $45,864 per year. The common rule is that you should not spent more than 30% of your annual income on housing. So in order to afford living in Manhattan, you would need an average of $152,880 per year in income. Most professions averages do not make the cut. For example, the average Manager makes about $108,000, Professors make around $73,000 and Judges make an average of $126,000. We think of all of these occupations as high-wealth and respected, but you need to be better than average in order to make it in Manhattan. One of the only people who could live comfortably here is an anesthesiologist who makes an average of $232,000. 

Interestingly enough, 1.6 million people actually live in Manhattan. These people must either be quite wealthy, work several jobs or live in more dangerous sections of the city. 

Cities for the Ultra-Rich

When Money Doesn't Matter

If you have ever been to New York or London you know that it is dangerous to stay for more than a day or two. Not dangerous in the sense of physical danger, but financially. These cities will suck away all of your money and fast. To get by in Manhattan, you need an income of close to $100,000 per year for a modest lifestyle. For the average person, living in an area like this is a real struggle.

Despite the day-to-day struggles for most people, cities like New York attract the world's richest people. For the purpose of this post we will define the "richest" people as those worth over 100 million US Dollars. For people in this income range, luxury is most important. But where do these people actually go? 

Top Five Cities for UltraRich

1. London

2. New York

3. Hong Kong

4. Paris 

5. Singapore

The richest people flock to these metros in droves. In fact, more billionaires live in these places than everywhere else in the world combined! This is because these cities are safe. If you are extremely rich, the thing that you care most about is your own personal safety and stability. At this level of wealth, your only real concerns are death and loss of money! These cities offer political stability and luxury amenities designed to keep you safe. Extreme net worth households care less about education and affordability because neither of these things will help them to become any more rich.

Maybe someday we will all be able to afford to live in London, but for now it will remain a playground for the world's elite. 

Urban Rent Crisis

As I have moved closer to the end of my college career, I have spent a lot of time reading about life after college and trying to get a feel for what comes next for graduates. One thing that I have discovered is the high cost of living in many large cities where jobs are located. In larger cities, residents pay huge percentages of their income towards rent and it appears that the cost increases of housing outpace the overall cost of living increase between rural and urban areas.

Tiny apartments such as this one are becoming more standard in densely packed cities such as Boston, New York and San Francisco, but they still can cost upwards of $2,000 per month. Many of these small apartments are between 250-300 square feet. This is a high price to pay for living downtown. 

For people who cannot imagine themselves crammed into microapartments, costs can run even higher. In Manhattan for example, the average price of a one bedroom "regular" sized apartment runs about $3,000 per month. Most financial advisors will recommend that a person spend no more than about 25% of their gross income on housing. In order to afford a $3,000 per month one bedroom apartment, a person would need to earn around $145,000 per year. 

The situation in Boston is a bit less crazy. This map shows the distribution of rent prices around the city. Notice that darker red colors are located close to subway stops. In the heart of the downtown area, prices are approximately $2,000 per bedroom. 

Personally I wonder how anyone can afford to live in these cities without making huge financial sacrifices. It seems to me that it would be nearly impossible for college graduates to practice financial responsibility while trying to live in one of these expensive cities. Unfortunately, these areas are extremely appealing for college graduates and tend to have the best job markets as well. 

Worcester or Boston: Space vs. Appeal

It seems that for every major city, people struggle with a major decision. Should I live in an expensive tiny apartment so that I can experience all of the great things about the city, or should I move to a cheaper area that has less to offer? Rather than discuss this problem in a broad sense, I prefer to focus on the Massachusetts version: Worcester vs. Boston.

I started thinking about this idea yesterday as I was climbing Mount Wachusett. It was a clear day and at the top of the mountain I looked and in the foreground I could see Worcester but in the same view further towards the horizon I could see the skyscrapers of Boston. These two cities are less than an hour apart, but they feel like two different worlds.

Boston:

Worcester:

Both are nice pictures, but even from these shots, it is easy to see that Boston is much larger. Worcester has about 175,000 people and Boston swells above 1,000,000 during the workday. Boston is a city with a strong history, great opportunities and a European flair not found in most American cities. Worcester also has a great history, but it is a city that is an emblem of the industrial working class.

For decades Worcester was a city in decay. Businesses and restaurants would routinely close and grand old houses would fall into disrepair. Recently the city has begun to make a comeback, but it is still a long way from a world class city. Boston on the other hand is a city known for being a pioneer of innovation and modern living, offering organic markets, upscale boutiques and modern high-rise apartments.

For these reasons, many people, particularly those in their 20's, choose Boston. This may seem a simple decision, but consider cost-of-living.

As a college student living in a nice three bedroom apartment in Worcester, my roommates and I paid a total of $1,160 per month. In many parts of Boston, it is difficult to find a tiny studio apartment for the same price. It may cost upwards of a million dollars for a two bedroom condo in a nice building in downtown Boston, but many large four bedroom homes in nicer neighborhoods of Worcester sell for $200,000. Unless you have enough money that money is not a discussion point, this earns Worcester a lot of value. In Worcester you may not have immediate access to the finer things in Boston, but if you live in Boston you probably cannot afford those luxuries. People living in Worcester can enjoy a higher standard of living for a lower price.

Personally I cannot decide what is more important. Affordability or Amenities?

How Worcester is Keeping College Graduates

I have lived in and around Worcester for most of my life and I used to think that when given a choice, most people would choose to relocate. However, Worcester has been undergoing a lot of changes over the past several years and I have begun to notice a new trend. As many of my friends who go to college in Worcester are graduating, I have noticed that many of them are choosing to stay put. I am about to enter my senior year and I am starting to think that I may want to as well because I have begun to see a lot of things that are actually attractive about living in Worcester.

Worcester is Cheap: Despite the fact that Worcester is the second largest city in both Massachusetts and New England, it has an overall cost of living about 15% below the state average. In particular, the cost of owning or renting a home is significantly less than in other areas. In contrast, Boston has a cost of living about 20% above the state average. Realistically, this means that the price of a three bedroom apartment in Worcester can equate to the price of a studio apartment in Boston.

Worcester Pays Well: I have always thought that many Massachusetts graduates move to Boston after college to find good paying jobs. I was wrong. I did some research and to my surprise, I found that starting salaries for college graduates in Boston are only about 2% higher than salaries for equivalent jobs in Worcester. When considering salary and cost-of-living, college graduates living and working in Worcester end up with between $5,000 - $10,000 more in disposable income on average per year. This is enough to feel significant for many college graduates.

Worcester Residents Work Everywhere: Even when graduates decide that they want to live in Worcester but would rather work elsewhere, they can. Worcester is approximately located between Boston, Providence and Springfield. This places four medium to large cities within commuting distance from Worcester, which greatly increases job opportunities. Worcester itself has begun to develop a base of biotech companies that tend to hire many graduates.

Worcester is a City in Transition: Worcester's importance as an industrial city peaked in the 1950's and then underwent a long period of decay. However, Worcester is starting to show new signs of life. Downtown is being completely redesigned through a long-term project called City Square. The project is a public-private partnership that is seeking to bring residential and commercial activity downtown by creating a new shopping district, better highway access and improved services. For a long time the project seemed to be going nowhere, but recently the speed has picked up and downtown is beginning to come to life. New businesses and restaurants are moving downtown and I have begun to feel an urban pulse for the first time while walking through the city. It seems now that Worcester is moving in a great direction and will continue to develop into a first-class city over the next several years.

As I begin my job search for after graduation, I think that I will strongly consider remaining put in Worcester.