Have you ever looked at your pay stubs from work and seen the Year-To-Date and how much money you’ve made and then looked at how much is in your actual bank account and just wondered who the little elf was to come and take away all your money?
Good, me too.
It happened a few months ago, I was sitting with a friend and telling them how much I wanted to get my own place but I didn’t know how long I was going to be in Indiana nor what I was going to be doing for the next few months, so it kind of seemed like a mute point. But as luck would have it, I decided to just check out my finances and see if was even possible to move out on my own.
Spoiler alert, it’s so not.
I broke down what I make every month, took out all my expenses (car insurance, phone bill, groceries, medical bills, student loans, gas money etc) and was left with a whopping $300. $300 wouldn’t even pay for the most basic month’s rent in a shady part of town.
I was dumbstruck and in awe of my friends who currently live on their own.
It got me thinking though, why is it that it is so expensive to live in certain places? Sure, Indianapolis isn’t the most expensive city, but if I can’t live on my own in Indy, how will I in London, or LA or DC?
I think it boils down to a few specific points: location, amenities and supply and demand.
If you live in Iowa, you’re not going to be paying the same rate for a high-rise apartment building as you would in New York City because well it’s Iowa. Now, if you’re living in New York City, your pay may reflect the cost of living where as in Iowa, your pay may also reflect the cost of living in a different manner because it doesn’t cost as much to live there.
The United States has an official minimum wage, but each state is able add to it if their economies are able to support the increase. Take for instance California. California is a gorgeous place to live, seriously I would love to go back to the west coast and stay for a while. But it’s expensive to live there (which also makes me wonder, why?) The minimum wage as of January 2017 was increased to $10.50 from the federal amount of $7.25. An entire $3.25 increase! It sounds absurd but that’s actually really helpful. Because in a state where bare necessities cost roughly the same as elsewhere, but housing, gas and other amenities cost more, the increase encourages those that are already in California to stay, and makes it look very enticing to those wanting to come.
The only real bottom line that seems to be consistent with how each city varies on how expensive it is to live there is based on the prospect of prices being set by supply and demand.
But here is another thought: This past summer The Guardian decided to take some of the most Googled questions and try and find the answers that we were all searching. One of which, Why is it so expensive to live in London? Here’s their response: it’s a herd mentality. When you go to a café in London and dish out anywhere between £10-20 on a coffee and sandwich, the likelihood of you complaining to the waiter just how expensive your meal was is really quite slim. You’re even less likely to complain, refuse to pay and walk out. So you most likely pay up, pat your wallet as you slide in back into your pants and mutter, “Bloody London.” Because that is what you have come to expect.
Now if you were in a small town in Iowa and paid $10-20 for a coffee and sandwich, you would most likely be eating at one of the finest establishments there, a real high-end place.
Back to London though, a café or a pub wouldn’t be able to serve food for less than what their competitors are serving. Sure, they could drop the prices slightly, but when everywhere on the block is having customers paying the same amount, the customers aren’t going to be checking to see how much a pint is at each location, they’re going to go to a pub or café for different reasons. Such as, their friends work there, they know the staff, they like the environment, it’s closer to where they work or live, there are more variables than the mere thought of price.
The Atlantic brings up the idea though of “Why aren’t they all trying to out-compete each other on driving the prices downward?” Because we’ll pay it, and even if you do refuse, it’s not going to change a pubs’ mind to make their rates less, others will still pay for it. Another reason: the cost to make it. Sure the ingredients of your favorite coffee and sandwich can probably be bought at the local grocery for the same amount of money that you’ll pay for it at the restaurant but you’ll get more of it but you are having to make it. The final reason: the cost of living is just higher. A pub has to pay rent, pay for supplies and pay employees which all goes into the price of how much your pint and sandwich are going to cost.
Now, who actually decides why it costs so much to live in certain places? This I still have no idea, for Google has failed to give me a direct answer. Aside from the prospect of prices being set by supply and demand there is one thing for sure; we can look at the history of the world and scientists expectations for how the human population will increase and where.
Way back in the day, when cities were first booming, the cities that were easy to reach by foot and later located on or near easy water access points were the ones that thrived. This was because of the trades that happened there. As industry continued to grow, the cities that boomed were those that were easy to reach on land through cars and trains and later planes. When we look at history and see these cities, the most prominent ones are London, New York, Los Angeles, Paris, Rome, Rio, Bali, Hong Kong and Sydney. These, coincidentally, are also some of the major cities that hold immense amounts of history, gorgeous architecture, and beautiful views and are some of the most traveled to places in the world.
Perhaps, now this is my complete speculation, but because many of these historical cities were so popular in the past and have continued to be popular, the price to live in these areas will always be high. Simply because it always has been. Just as more young people are opting not to have children, for many reasons, one of which is the price of living, I predict that more people will opt out of some not-so-basic but have become basic necessities, like living on their own.