Why Must We Live Someplace So Damn Expensive?

(Author's note: Occasionally I like to deep dive into personal finance topics, and this is one of those.  I swear, it'll be less boring than you think, but if this isn't your cup of tea, feel free to not read what I've painstakenly written. ::sniff::)

The projects of West Baltimore. Not where I currently live.

Like most people with a mortgage, I often fantasize about how awesome life would be if I didn't have a mortgage payment.  To me, this is the epitome of wealth; I'd keep working, and saving, and investing, but to not have to pay for the privilege to live somewhere would be the ideal way to live.  I think with the extra money I would have, I'd buy lots of socks, but wear each pair only once.

This led me to think about the practicality of ever not having a mortgage.  You see, houses in the part of New Jersey where I live are expensive.  I think there are good reasons why they are expensive - and I'll explore a few of them later in this post - but we bought our house for $375,000 two years ago, thinking we purchased a bargain, but thinking about the sheer magnitude of my mortgage payment is enough to make me wish I were paying rent again, instead.

When a person decides to live somewhere, they're not only selecting a neighborhood, a school system, and a town or city.  They're also selecting a specific micro-economy; a place where certain goods and services cost a certain amount, which is definitely different from the price your old college roommate is paying for their goods and services.  Some things, like a gallon of milk or an electric bill, cost more or less the same amount no matter where you live (with rare exception).  Others, like real estate and taxes, show incredible variance.

How much variance, you ask?  Let's take a hypothetical family, who just happens to live in the same house that my wife and I share, but in some alternate universe.  They have a household income of exactly $100,000.  After some time, they elect to move, because their $2,000 monthly mortgage payment strikes them as highway robbery, and frankly they are just plain tired of living in New Jersey - too much fist-pumping and littering on the side of the road, maybe. 

But where to move?  Well, here are their hypothetical options, including how much money they'd need to make in order to match their household income in New Jersey (overall), and how much their mortgage payment would be (instead of $2,000 per month), assuming they wanted the exact same type of home in their new destination:

• Chapel Hill, NC: $86,626 annual income, $1,460 mortgage payment
• Jacksonville, FL: $71,352 annual income, $940 mortgage payment
• Austin, TX: $70,440 annual income, $940 mortgage payment
• Seattle, WA: $88,981 annual income, $1,480 mortgage payment

(All of the numbers above come from CNNMoney's Cost of Living Calculator - it's a fun tool to play around with.)

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The first thing I think when I see these numbers, to be completely honest, is: why the hell do I still live in New Jersey?  None of the locations in the above list strike me as horrible places to live.  Some of them, like Chapel Hill and especially Austin, are downright wonderful - they're not backwoodsy, or poorly-educated, and they do not lack for culture, entertainment, and the arts.  

But this brings me to my second thought: the economics of supply and demand, in a very meta sense, do not make huge mistakes very often.  That is, New Jersey is a more expensive place to live than Chapel Hill, Jacksonville, Austin, and Seattle precisely because more people want to live here (relative to supply) than the aforementioned locations.  Even when houses in New Jersey sometimes end up looking like this:

Someone's seven figure beach home, uprooted by Superstorm Sandy in 2012.  I hope they had flood insurance.

There are other valid reasons to want to live in New Jersey.  For instance, part of the high cost of living in New Jersey is the association with a high-tax infrastructure that provides essential services (e.g., police, education) at a high quality.  People can disagree until the cows come home about the goodness or badness of taxes.  Personally, I don't mind paying taxes, so long as I can see the result of paying them.  Students in the public school district in my town end up at Ivy League schools, like, all the time.  I grew up in a town kind of like the town where we currently live, and all of the best high school teachers in my school earned six figure incomes.  And you know what, high property taxes be damned, they all deserved to earn six figure incomes!  They had gone to fairly prestigious colleges and graduate schools, and instead of pursuing more practical careers with greater income potential, they instead climbed the most gradual income ladder in existence, dealt with all kinds of frustrations (in addition to dealing with most kids, who suck), and ended up giving me a damned solid public school education.

Rest assured that in the four cities listed in the above cost of living comparison, teachers are not earning six figures.  In fact, income inflation is a matter of fact in areas with higher cost of living, which brings me to my next point: if our hypothetical family decided not to move, but to stay in New Jersey, eventually they could move wherever they wanted (more or less) and live like kings.

Assuming their mortgage payment were not too much to handle, they'd pay it off eventually.  And once it was paid off, at least in theory, they'd be holding a fairly valuable asset in a very desirable location, and it would be 100% theirs.  They could sell it to someone else (again, in theory, there would be a line out the door to purchase the house) and buy a veritable mansion in Jacksonville, Florida.

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Later this week, I will visit my dad in Florida (Jacksonville, no less... ha!) and at some point soon after arrival, I will see a 5 bedroom, 4 bath house with 3,500 square feet, an in-ground inside pool, and a frigging bowling alley on the market for the same price as our current house.  And, like always, I'll get a little pissy and jealous inside about living where I live.  But, hopefully, I'll read the above and remember: hey, you can't beat the food, the diversity, and the educational opportunities for future generations in New Jersey.

Even if the weather here sucks ten months out of the year, the traffic is endless and interminable, and your property taxes would buy a gently used BMW sedan every single year.

Grr, Florida real estate prices piss me off...