The False Promise of the Lower-Cost-of-Living State
No one likes taxes or paying more to live. Florida, Arizona, and other states sell you a low cost of living...but you need to consider your life context before calling U-Haul.
My first non-pandemic post!
NOTE: For the purpose of this post, I’m going to use Florida as an example. One could apply this lesson to any state making the same pitch, however.
From Oxford Languages:
The Allure of the Lower Cost of Living
This is one of my favorite topics, having lived in Florida for 12+ years of my adult life but moving to Oregon in early 2013. To hear some of our friends, co-workers, and family members react to our move, you’d think that we made a horrific mistake. I mean, the weather and the cost of living, #amirite?
It’s a tantalizing concept, but I’m not convinced in retrospect, having lived it.
Sun Belt States Use Warm Weather to Attract Retirees Tired of Shoveling Snow
We used to live in Northeast Florida, so that will be my low-cost-of-living context. My impression of this area prior to moving there was kind of like this:
Truthfully, northeast Florida is more like this…
Either way, nice for a kid from Minnesota. For those of you that have never lived there, here is the front half of the basic Florida real-estate-agent pitch, mainly to those visiting from the Northeast, Upper Midwest, and even Ontario (the Canadian version):
“Where you from? Buffalo/Toronto/Philly? What’s the temperature there today?”
I understand this. When people think of Florida, they think of sun, beaches, leather-skinned old men, golf, and Mickey Mouse. It’s hard not to when you’re cold, the sun sets at 4:30, and you’ve been looking at snow for the better part of 4 months. Of course, the picture in most people’s minds - including in mine (I moved there from Minnesota at age 23) - is from Spring Break, when many visit, or a trip to Walt DisneyWorld. Most aren’t there in January or July.
However, the dirty little secret about all parts of Florida north of I-4 (from Tampa-Orlando-Daytona Beach) is that it’s not reliably comfortable outside from around Thanksgiving through early March. It’s dry, windy, and even cold(-ish), as the weather in those parts of the state arrives from the Upper Midwest at that time of the year, so sunbathing, pools, golf, and beaches aren’t consistent options.
And don’t get me started on June through September. Trust me. I had to fly in that weather. My uniform shirts still haven’t recovered.
My wife coined three seasons for our area of Northeast Florida:
It’s colder here than up north (Jan-Feb)
You should be jealous I live here (Mar-Apr, Nov-Dec)
This must be what Hell feels like (Jun-Sep)
October and May? Depends on the year. Sometimes they’re extensions of the previous season, sometimes previews of the next.
Don’t believe me? Here were the temperatures when I collected the screenshot (8:40P Pacific Standard Time, 1/18/2022), courtesy of The Weather Channel. I live near Portland, OR (the 45 in Oregon). I used to live in between Daytona Beach and St. Augustine, FL (just south of the 40 in Florida):
I mean, it’s not Bismarck, ND (one of the zeros…), but it’s also not beach weather, even in the daytime (I learned this the hard way in 2000). In general, however, it’s probably warmer than where those receiving the sales pitch come from.
Enough about the weather, though, as that’s just the appetizer.
Expensive Houses and Taxes Do Actually Suck
If you’re from White Plains or Trenton, though, you’re getting the main course - back half of the sales pitch - which is a serenade to your wallet. An example exchange:
“Where you from? New Jersey/New York/Massachusetts? What’d your house run you?”
Or maybe:
“Enjoying paying those income taxes?”
The agent is appealing to your fear of loss (of money). But is s/he on a solid foundation about the cost of living? From BestPlaces:
“Cost of living” is the amount of money you need to sustain a certain lifestyle in a given place. Because the price of goods and services varies from one city to the next, calculating the cost of living will determine how affordable it is to live in a certain area.
In this narrow sense, probably so. Living in Florida does generally cost fewer dollars. However, before reading further, reacquaint yourself with the definition at the top of the post. I’ll address it again below.
For the purpose of this argument, I’ll compare a move from Palm Coast, FL, to Hillsboro, OR. Hillsboro has Intel factories in town and Nike World HQ nearby, so it’s a destination for a lot of out-of-towners that find work. I assumed a household income of $85,000 in Palm Coast, which was pretty standard for a pair of earners in the area, one or more of whom had college degrees. So, if all I do is look at BestPlaces, one’s cost of living went up by 25%, and that doesn’t even account for childcare or taxes (eeeeek!!!):
Palm Coast and Hillsboro are in roughly the same category of city in terms of size and urbanity (both are suburban in character) according to DataUSA, so we’re comparing apples to apples:
So, before accounting for taxes and childcare, I’m looking at a 25% increase in costs. OK, that sucks. Life is more expensive here.
Florida’s Taxes Target Young, Working People
Florida likes to boast “no state income tax”. And it’s true! They don’t have one. But if you look at the target audience of that pitch, it’s retirees. If you have a relatively-fixed flow of cash coming in, you want to hold onto as much as you can. Duh. But if you’re young, raising a family, etc. - i.e.: you’re buying lots of stuff - they get you, as holding onto that money really isn’t an option.
Oregon has a four-bracket, progressive state income tax where you pay between 4.75% and 9.9% of each marginal dollar to the state (the highest bracket hits very high earners). The money is taken up front. But here’s a list of taxes Florida has that Oregon doesn’t:
State sales and use tax (6%) - more below on the use tax - and there are few exemptions
County sales tax (ours in Flagler County was 0.5% at the time - it’s the same today)
School-board tax (ours in Flagler County was 0.5% at the time - it’s the same today)
“Remote sales” tax - you pay tax on items you buy on the Internet if they’re delivered to Florida
Telecommunications services tax (~13.3% in our county) - this applies to all telecommunication services, including internet, phone (land and mobile), and TV (cable, satellite, and streaming) services
Surcharges on your home and auto insurance (1.75%) to fund the Citizens Property Insurance Company (CPIC), which is a state-run insurance agency that insures commercially-uninsurable properties (i.e.: ones sitting in the path of a hurricane…or uninsurable homes of rich people on beaches)
Florida Hurricane Catastrophe Fund (FHCF) - This is an emergency assessment of 1-1.3% that only applies to some policies written after bad hurricane seasons (they’re temporary) but is a reimbursement fund that that state created to pay insurers to keep writing policies in the state (because they were going to leave if they didn’t get paid)
For the Use Tax, let’s say you bought a car in a state with no sales tax but then you bring it back to Florida and register it there. Prepare to pay the tax you tried to avoid (this happened to a friend of mine).
By comparison, Oregon has no sales tax and my telecommunications services and insurance lack surcharges or excise taxes. So, while my paycheck may come in lower than a comparable one in Florida, I’m not getting nickled & dimed on every bill and purchase. Given how much we spend on Amazon in a given year, this is probably a good thing. But this just means that Florida’s taxes are largely hidden and diffuse.
“But Just Spend Less, Jeff!”
Look at the list of taxed items above and tell me what I could cut out to avoid taxes if I’m a working parent of a couple of kids that consumes common goods and services. Here’s what’s exempt from the sales taxes:
Groceries and prescriptions. That’s it. Everything else - my home, home and car insurance, internet, vitamins, phone and TV - is taxed.
Gas tax? Yup, more in Florida than here in Oregon, too.
Flagler County, FL - 51.9 cents/gallon (from all entities)
Washington County, OR - 31 cents/gallon (from all entities)
Lower Tax Bills are Mainly Due to Cheaper Land
Flagler County, FL, assesses about $25 of property tax on every $1,000 of taxable property value:
The same rate in Washington County, OR, is about $17 of property tax on every $1,000 of taxable property value:
Total Costs Are Basically Lower
When you tally up the general expenses and taxes, Florida’s costs are lower on the average. So, if you’re a retiree - meaning you have no more promotions to look forward to, don’t need to find a better job, your kids are out of the house and likely married with their own kids, and being in a neighborhood within a good school district no longer matters - Florida’s siren song might very well be irresistible. No income tax is taken out of your monthly 401(k) disbursements, and you’re just not consuming what you used to consume in terms of goods, services, insurance, and fuel, so you pay a lot less in sales and excise taxes (and bills, in general). The costs really are going to be noticeably lower to you, though not in any life-changing way. However, if cost is the only true concern of yours (because your income is mostly fixed), it’s enough to matter.
But go back to the definition at the top of this post.
You Get What You Pay For
This is a typical home in the newer part of Palm Coast:
Similar-sized home in Hillsboro:
In general, the cost to build a dwelling on its own doesn’t vary unless you live in specific areas. If the area is suburban, light urban (close-in neighborhood), or rural, a dwelling is basically a dwelling. There are local labor prices that are higher or lower in certain areas that make some difference, of course, but they don’t make a huge difference. Don’t believe me? Check your homeowners’ insurance policy for your “dwelling” coverage. It’s considerably less than the resale value of your property. Why? They insure the building, not the land.
In short: Your physical home in the Portland area probably isn’t worth much more than a similar-sized one in Palm Coast.
So, if you find a cheap-ish house, it’s probably on a cheap-ish plot of land, there’s a reason it’s cheap-ish, and it probably isn’t the dwelling itself (though it could be). Here are some possible reasons:
Difficult to access or service (poor/nonexistent municipal infrastructure)
Long distance from amenities (required & desired)
Long distance from good & abundant employment opportunities
Substandard school district/zone
Little/no transit and/or not very walkable (must drive everywhere)
Hazardous/high-risk area (flood-prone, crime, natural disasters, pollution)
This is where the sales pitch for the cheap parts of Florida fall apart. That house in Palm Coast - ~1,800 square feet, 4 beds, garage, 10,000 square-foot lot - is plenty of space and the city is a lovely place. But it also hits criteria #2, #3, #5, and (sort of ) #6 above. It’s in a relatively hurricane-prone area (as compared to the USA, on the average), the municipal sewage system still used a tank-sewer hybrid system (but it worked, so it technically didn’t meet #1), there was zero transit, the nearest restaurant and grocery store are 4-5 miles from it, the neighborhood has no sidewalks or curbs (meaning the park 1/4-mile away actually isn’t easily accessible), and the nearest source of abundant, good-paying jobs is either Orlando (90 miles) or Jacksonville (60 miles). Daytona Beach is 35 miles south, which is OK, but there isn’t nearly the opportunity there, meaning your income potential would limited within a reasonable distance.
Housing, Transportation, & Income
Many cost-of-living calculations, however, don’t account for location and what that will do to your transportation costs. In Palm Coast, your monthly gas budget will be around $350-400 if you work in Daytona Beach or St. Augustine (common), as the commutes are pretty hefty (60-70 miles roundtrip). When we moved to Oregon, our gas budget dropped to about $80/month, as work was much closer for both of us. This difference made up about half of the increase in housing costs, too, so it wasn’t insignificant. In addition, as mentioned above, land is often cheap because good stuff isn’t close by. So, if you compare cities using a location-sensitive housing index such as the H&T Index - which adds housing & transportation, then divides them by income - you see the true impact, and this illustrates my point rather nicely. Here are the two cities:
So, even if you move to a location with higher costs, you’re better off. It’s really not all that close, either.
The Revenue of Living
This is generally the kicker and one that you don’t hear in the Florida sales pitch.
If you’ve ever created a family or work budget, you know that there are two sides to every ledger - income and expenditures. The difference between the two is your disposable income - your “fun money” - or your room for savings. Most people’s goal is to have the greatest difference between money coming in and money going out (duh). So, while your cost of living (money out) is certainly important, your revenue of living (money in) is also incredibly important.
Net Income = Revenue - Expenditures
There are only a handful of ways to make legitimate - heck, even illegitimate - revenue as an individual, and two of these are heavily dependent on location:
You work for someone and they pay you a wage or salary
You own a business and people pay you for goods or services your business provides, and the net income from that business is your personal revenue
You receive retirement disbursements (pension, annuity, Social Security, 401[k])
You receive disability payments (military, Social Security Disability, etc.)
You receive charity
You are a dependent
#1 and #2 are heavily dependent on location and the wealth/income of those that pay you. They also happen to be the most-common way that the vast majority of adults under 65 earn their revenue. So, if you’re 35, married with a couple of kids, and upwardly-mobile and looking for exciting new work, are you likely to find it in these cheaper places?
Nope.
Why? If you choose to live in a place with ample work, decent-to-good schools, low crime and hazards, etc., the land probably isn’t cheap. People want to live there. So, houses and apartments get bid up, raising your cost of living and negating the savings mentioned above regarding cheap land. This is common sense, and why you hear real-estate agents talk about “location, location, location”. If your property’s value is low, it could be that the ability to make significant income and/or have a choice of good employment nearby is constrained.
Key point: The Florida sales pitch is aiming at those in situation #3.
Net Income is a Thing
Let’s go back to my city comparisons above:
Notice the median household income difference? Our cost of living is estimated to be 25% higher here in Hillsboro than in Palm Coast but - assuming we make the median income - our income is estimated to be 51% higher. Again:
Revenue - Expenditures = Net Income
Revenue (+51%) - Expenditures (+25%) = Net Income (++)
Even though our costs have gone up, our income went up double the amount the costs did, making our net income higher in the higher-cost locale. Of course, taxes will eat some of that difference, but you’re not taxed at 100% of the additional revenue. We’re giving back probably 6 cents of each additional dollar in Oregon income tax, so we’re still ahead, but we’re not paying all those ridiculous sales & excise taxes anymore, which helps blunt that impact.
But why is housing - the biggest impact to the cost of living - so much higher in Hillsboro? Let’s look at those bullet points again:
Difficult to access (poor/nonexistent municipal infrastructure)
No better or worse, though the sewer system is less complex
Long distance from amenities (required & desired)
Hillsboro is generally walkable (not all parts) but, in most areas, one can walk to multiple parks, grocery stores, restaurants, and bars in <20 minutes; a major light-rail runs through the city
Long distance from adequate/abundant employment opportunities
There are thousands of good-paying jobs in town and nearby (choices!)
Substandard school district/zone
No better or worse
Little/no transit and/or not very walkable (must drive everywhere)
There are sidewalks everywhere, decent bus coverage, and a light-rail line that cuts through the city (and near to our house!)
Hazardous/high-risk area (flood-prone, crime, natural disasters, pollution)
Most of the city is elevated and hurricanes would be hard-pressed to make it to Oregon :)
Are there locations like this in Florida that also have some cheaper land? Probably, but I had a hard time finding a comparable city. Casselberry, FL, is probably the closest in terms of the H&T index. It’s about 10 miles north of Orlando.
It lacks transit and walking options, and there aren’t a ton of amenities around town (it’s basically a bedroom community), but the income-cost equation works out relatively well - partially because the houses are rather modest and older (I used to date a girl that lived there) - because it’s not far from the Orlando job centers, provided you can stand I-4 traffic. So, it’s boring but it works.
A Possible Sweet Spot
If you’re in a role that allows remote work (as mine does), you could always look for a job based out of a higher-cost state and then move to a lower-cost state. This might not always work in your favor - often human-resources departments have cost-of-living scales for their work forces to set salaries - but it’s an option to consider. I’ve seen co-workers do this.
However, if this isn’t an option, do your research.
So Should I Let the Siren Song Carry Me South?
Decreasing costs in your life is great - we should all regularly evaluate our family budgets and cost structures to see if we’re paying for stuff we don’t need or use, and we should always try to find ways to make more money without working many more hours. If you plan to move somewhere to save on expenses, you should make absolutely sure that your net income doesn’t drop.
As I’ve said before, just draw a picture.
Florida real-estate agents have decades of sales experience with northerners looking to escape the cold, and sometimes that cost-of-living argument is just the sweetener needed to seal the deal. But don’t let that warm sun melt your critical-thinking skills. Do the math and make sure you’re not sucked into the vortex :)
You’ll thank me later.