Cost of Living, Review of Real Estate in Five Metro Areas

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There was a time in the United States when the cost of living for family of four was about $5 a day -- which included all family expenses plus a mortgage on a three-bedroom house with yard. The salary necessary to afford a life of typical middle class pre-WWII came from one member of the household, overwhelmingly it was the male.

In 2006, based upon the average price of a home in the United States that daily rate --at a minimum-- is about $70 for the house payment alone. Add the cost of living, which includes income taxes, property taxes, food expenses, utilities, automobile costs, clothing, schooling, furnishings, and daily living expenses. Depending upon which area of the United States one family lives, the salary necessary to make the cost of living (and own a home) ranges from the low-to-mid $70,000s to $120,000 per year.

While charitable organizations often quote most people in the world living on less than $1 per day...they fail to mention that the United States is the most expensive country for which to live and buy real estate. So, there was a time in the United States when $1 per day was sufficient as well.

The chance is also high in 2006 that for 'a couple' in the states, both work out of financial necessity, which was not the case in $5-per-day cost of living circa 1940.

A poll of residents of Massachusetts (taken by MassINC) showed 1 in 4 residents said they would relocate given the opportunity -- simply to afford a home. Nearly half the residents polled from Hawaii felt the cost of living and housing was not worth the price of living in year-round fair weather. They would move too.

Economy.com said that California residents are leaving, by about 100,000 per year, simply in order to find affordable housing. The American Homebuilders Association says for example that New York City suburban residents could sell their current home and "move up" in home size to northeastern Florida for less than half of what they would pay in New York -- of course some would say moving to Florida is a big step down from the lifestyle in New York. One realtor in the Hudson Valley told Think & Ask that she makes more commissions selling homes back to New Yorkers returning from Florida than she does selling their homes in the first place.

But if you do have $500,000 cash sitting around and would like to buy a home...what would half-a-million buy should you simply throw a dart on a map and relocate?

Our fictitious couple, The Smiths, reside in Boston and have decided the dart method is the way to go. They sold their house and cleared $510,000. Their jobs afford them the ability to work from anywhere at anytime, so location is purely up to them. They plan to spend a few thousand dollars traveling the world to investigate the housing market.

What a great idea!

While the trend at the beginning of the current (but waning) housing boom in the United States was for a couple to plunk down "full cash" for a home. Where the cash came from is anyone's guess, but for the long run, paying cash for a home saves hundreds of thousands of dollars from 30 years of accrued interest. Property taxes and regular upkeep are the only extra payments the couple must meet.

The Smiths have thrown darts at five cities to visit for buying a new home: Paris (France,) London, Singapore, New York, Dallas, TX, and Los Angeles.

Property tax was not figured into all cities, as an accurate rate was not found for France, England, or China. Property taxes in the United States ranked No.1 for Dallas, No.2 for Los Angeles, No.3 for New York City for the three cities The Smiths chose.

The Smiths, have a combined annual salary of $111,000. That amount in euro is about 94,000, or 63,000 in British pounds, and 189,000 in Singapore dollars. The Smiths have no children, which hurts them most for living in Paris, France, due to income tax incentives for families.

John and Mary Smith learn of an apartment for sale in Paris...they hop on a plane from Boston to check it out.

Real Estate in Paris:

The Smiths arrived in Paris and took the train into Paris from the airport (about 40 minutes) and arrived at the apartment up for sale in November.

This apartment has two rooms, 61 square meters, one bedroom, bath, hallway, fireplace, terrace, and it needs some work (but that is a matter of opinion.) The listing price is 389,000 euro, a little less than our average target of $500,000 or 420,000 euro. This apartment was located in north-central Paris, so The Smiths need not worry about transportation -- a monthly Metro pass is about $60 each.

Income taxes for Paris vary widely, depending upon income, and the more you make, the more you pay. However, The Smith's will pay less in income taxes than they do in Massachusetts. If you are non-resident, which is true for The Smiths, with assets in excess of 732,000 euro, you are subjected to up to 1.8 percent wealth tax each 1 January. Most all earned income is charged 8 percent in tax, and income is assessed by household, based upon the number of people (hence, the more the merrier.)

John Smith makes the equivalent to 42,000 euro, and Mary Smith makes 53,000 euro, the tax would be on 47,500 euro (or nearly at the top of the tax scale of 48,747 euro.) Dividing household income by its occupants, and reapplying the number of occupants to the minimum tax due on that split figure, tax computes at 27,546 euro -- roughly 29 percent of the gross.

It is assumed you'd need to apply another 7,600 euro for healthcare tax, bringing the total tax paid to 37 percent. (All told, The Smiths pay 46 percent in state, county, and federal income taxes in Boston, and health care is not included.) VAT is between 16-19 percent of consumable goods and only payable when you purchase goods.

The Smiths are going to think this over...meanwhile, they have found a home in London to view.

• Paris Climate: Full four seasons. Heating costs are a necessity and depending upon your need to stay warm, artificial heat may be required at anytime beginning in September and ending the following May. Paris is in the northern latitudes and thus the amount of daylight in winter is short (from about 8:00 a.m. to 4:00 p.m.,) which requires more indoor lighting. But daylight in summer runs from about 5:30 a.m. to 10:30 p.m.
• Paris Culture: Culture in Paris is whatever you make it. From a walk along the Seine, to visiting a local florist, whatever you choose can create your own event. Paris generally goes shuts down at midnight.

Real Estate in London:

The Smiths target 286,000 pounds to buy a home in London. The one they view is 285,000 pounds and is located southeast of Westminster and is near a golf course --which pleases John Smith to no end-- and the home is walking distance from The Tube, so, as was the case in Paris, The Smiths do not require an automobile.

This home has 2 bedrooms, it is a multi-family building bloc, with extra yard (not pictured) available for rent...incase The Smiths wish to take-up the Good Life (after the popular British sitcom named the same.) This home has a 97-year lease for the price...which doesn't really matter to The Smiths who are in their mid-40s.

In the style of the house is Edwardian, it was refurbished/updated, and it has a wood burning stove. Walls include exposed brickwork, the floors are wood and it has a receiving room for guests. The perennial garden is facing southwest, which means when the sun shines The Smiths can enjoy some rays at any time of the year.

Income taxes for The Smiths are equivalent to about 25,000 pounds or about 40 percent. The VAT tax in United Kingdom is 17.5 percent, which is a consumption tax. They'd pay more income taxes in England, but no additional fees for health care. It is a wash from living in the United States. Oh, John Smith just heard about a place in Singapore...a ten-minute taxi ride to the airport would put them on a plane to Asia.

• Climate: London has four seasons, but it is cooler than Paris and indoor heating could be used at almost anytime of year. Like Paris, indoor lighting is needed for longer nighttime hours during wintertime.
• Culture: London keeps it reign as the capital of theater arts. Socializing remains a large part of life. While living in London does not require an automobile, rent one from time to time for a drive to the shore or to the European continent.

Real Estate in Singapore:

The Smiths can spend about 850,000 Singapore dollars for a home. They found a two-bedroom condominium for 1,000 square feet with air conditioning and a balcony for 788,000 Singapore dollars. The condominium is only three years old, so it is quite modern and updated with the latest technology.

Singapore's real estate market is booming, so The Smiths are not alone in viewing this pad. Only a few residents list selling prices, because bidding wars are driving up asking prices fast. Almost all the condominiums for sale are in new buildings or towers.

Income tax in Singapore appears to be quite low, compared with other cities and countries. However, there is a graduated range from 15 percent to 26 percent depending upon your company rank and income. No matter which rate, the income tax in Singapore is lower than any of the cities The Smiths reviewed.

The cost of living is on the high side however, with food expenses topping out around $800; newspaper, cable TV, Internet connection and telephone about $400 a month. Utilities (air condition is required) run about $280 per month. Public transportation would run about $70 per month. The Smiths are going back to the states to look at an apartment in New York and two single-family residences, one in Dallas, Texas, and one in Los Angeles.

• Climate: One season in Singapore. Mostly warm to hot, and humid throughout the year. Air cooling and dehumidifying is required.
• Culture: Singapore boasts a growing art community and traditional cultural art events regularly. The only problem is deciding which event to choose from on any given night and navigating through crowds.

Real Estate in New York:

The Smiths hear about a 435 square foot apartment for sale in New York's Chelsea district. The one bedroom condominium was built in 1987 and is on the market for $479,000. Due to the small size, Mary Smith is already concerned with how their furniture will fit into this very small apartment, but as The Smith's employers both have offices in New York they would consider not working from home, which means they don't need separate office gigs.

In addition to living expenses, The Smiths will have to pay monthly property taxes of about $272, plus monthly apartment maintenance fees about $279. The neighborhood ranks above average for crime in Manhattan. These expenses add $6,612 per year to their budget, although a percentage can be deducted on income tax.

The building has a doorman, laundry room, a gym and a garage -- although The Smiths do not need an automobile, which pleases them both. In their view for the size of this apartment the couple is not so sure New York is the place for them...unless they have a country house to escape to on weekends, which they cannot afford. Their next stop is Dallas.

• Climate: New York City has four distinct seasons, requiring both heat and air-cooling. Some buildings may regulate heat less than you wish, so additional space heaters may be necessary. Most units in the city have either wall or window air cooling systems.
• Culture: This is New York City...anything goes and anything is available 24 hours, seven days a week.

Real Estate in Dallas:

Mary Smith is immediately pleased with what she sees in this prairie style home not far from downtown Dallas. It is a three-story home, built in 1913, with four bedrooms, three bathrooms, one washroom, one game room, and an office. It has two fireplaces for chilly winter nights. The owners have kept the home in beautiful condition and are asking $484,000, but even within The Smith's price range there were more than one dozen homes from which to choose in Dallas on the market in November 2005, but this old Victorian held the most amount of charm.

Dallas is the first city The Smiths have visited, which if they chose, would require owning an automobile. The additional costs of living in Dallas; food, utilities, etc., are actually more comparable with New York City. Overall however, The Smith's combined annual salary of $111,000 goes further in Dallas than in either New York City or in Los Angeles. Texas does not have a state income tax, but the property taxes on this home would equal state income taxes in New York.

The Smiths learn of one more place to visit -- an older home in Los Angeles, which just went on the market.

• Climate: Dallas has two seasons primarily -- hot and cold. While air conditioning is a mainstay of life between the start of June and end of September, heat is just as necessary between late November and early March. Of all the cities reviewed, Dallas has the most amount of sunshine on average, which could require less indoor lighting overall.
• Culture: Residents have to seek-out culture in Dallas. Between several universities, and in nearby Fort Worth, there are usually cultural events of some kind happening each week to fit any taste. Crime remains a major concern in Dallas.

Real Estate in Los Angeles:

John and Mary Smith land at LAX and rent an automobile to visit their final stop in searching for a home. They were stuck in traffic for more than hour, which is just a part of daily life in Los Angeles. Should they chose Los Angeles, they would definitely work from home to avoid traffic delays, so it is important to them the house has office space.

Nonetheless, owning an automobile will be even more expensive in California than it would be in Dallas, so The Smiths must figure into their budget an additional: $812 per year per person for auto-insurance, another $1,500 per year on average for gasoline, and another $250 per year for auto-tax and drivers license fees or about $3,000 extra in the plan compared with Texas.

While overall cost of living in Los Angeles is about 20 percent less than New York City, the extra automobile expenses and taxes make it a wash.

The Smiths arrive at their appointment to see a home built in 1925, northeast of downtown or just shy of the valley life. Asking price is $499,999, for two bedrooms, one bathroom and 936 square feet. The property has a detached garage and the neighborhood is mostly rentals, so The Smiths would be one of only a few owners on the street. Mary Smith is concerned about crime, and the realtor avoided the issue, but suggested she investigate crime statistics for the area.

• Climate: While weather in southern California can change from mile to mile, plan on needing both heating and air-cooling at some point during the year. Extreme heat and humidity and very cold weather do not usually last more than a week at a time. If you are lucky enough to have a fireplace in your home, you'll put it to use from December through March.
• Culture: There is much culture in the Los Angeles area, all of which requires driving your automobile. Pasadena, downtown Los Angeles, and Orange County all boast substantial theater art centers. Its location related to the Pacific Ocean, mountains, and desert regions, allow commuters to enjoy various nature-related activities as well. Crime remains a major concern in Los Angeles, although it varies by neighborhood.

After two weeks on the road searching for a new home, The Smiths return home to Boston before making their decision. Which home would you chose? e-mail Think & Ask at editor--at-sign--thinkandask.com.

[Editor's note: T&A heard from many 'Smith' surnames for some reason, can only assume they found this story using their family name.]

John (Larry) Smith (not the Smith referenced in the story)
New York

"How did you know that is exactly what I and Mary (my wife) did? :)
I'm only kidding. I'd be torn between Paris and that great mansion in
Dallas. We like both."