The Cost of Living in the United States

The Composite Cost of Living results for the states across the United States for the 4th Quarter of 2010 are now available:

The cost of living is influenced by the cost of doing business, the cost of land, the cost of housing, and the cost of government, among many other factors.  Crowded areas or those in which the federal and state governments own too much of the land will tend to have high land costs.  Housing costs are a function of land costs, building codes which may be designed to force the hiring of local labor or to use expensive materials, zoning restrictions limiting home development, and building permit restrictions designed to slow growth.  The cost of doing business varies greatly due to differing government policies on taxes and regulations, as well as Workmen's Compensation costs.  Then government spending varies greatly and the more the government's spend, the higher the taxes.

Examining the map above, we find the Northeast and the Pacific Coast to be the highest cost of living areas.  The lowest cost of living states tend to be between the Appalachian Mountains and the Rocky Mountains minus the northern tier of states.  Illinois and Louisiana are also excluded.  The heroically inexpensive states with their composite cost of living indices are:

Kentucky, 89.2
Tennessee, 89.5
Oklahoma, 90.1
Arkansas, 90.6
Texas, 91.0
Nebraska, 91.1
Kansas, 91.3
Missouri, 91.7
Georgia, 92.2
Mississippi, 92.3

The worst states are:

Hawaii, 165.6
DC, 139.9
California, 132.6
Alaska, 132.6
Connecticut, 130.2
New Jersey, 128.5
New York, 128.3
Maryland, 124.8
Rhode Island, 123.2
Vermont, 120.4

My state of Maryland is expensive, but then what do you expect of a Democrat state.  On the other hand, I have family members living in Oklahoma and Kansas and they really do live much better on much less there than one can in Maryland.  If you want Nanny State, all intrusive government, you must pay through the nose for it.

Pelosi's Money-Saving Calculation for House Cafeteria Lighting

Nancy Pelosi called a press conference on 21 April 2010 to announce that the government had just spent $140,000 to put a new LED (light-emitting diode) lighting system into the House cafeteria in the Rayburn Building.  This new lighting system is supposed to pay for itself in a bit less than 10 years with energy use savings.  Great fanfare with all the politically correct words of energy-saving, sustainability, environment-friendly, Mother Earth, and green were used at the press conference.  It is hardly surprising to see the government spend $140,000 on something that gives it such a fine opportunity to look so green and earth-loving. 

Now, other things being equal, saving money on energy is a good thing.  However, we have to remember that the federal government is running huge deficits, which clearly are not sustainable.  We can look a little closer at this as well.  If the $140,000 lighting system pays for itself in 10 years, then the LED lights are saving about $14,000 per year.  It was noted that about 1 year ago, the light fixtures installed cost about $800 each and they cost just over $300 when the upgrade of the House cafeteria lighting system was performed.  So, in one year, the cost dropped to about 3/8 ths of what it was.  If in the next year it dropped as much, the cost per fixture would fall to about $112.50.  Perhaps the rate of the drop in price will not be as much, but it is reasonable to think it might fall to, say, $200/fixture.  If it did, the payback time would then be only about 6.67 years, or about 3.33 years less.  Since they said the payback was a bit less than 10 years, let us say the difference in payback is 3 years.

Thus, delaying the installation of the LED lighting system for one year would mean the government would pay out $14,000 more in electric bills.  Installing the $200 fixture LED system 1 year later, would save three times $14,000 in installation cost, however.  Subtracting the $14,000 not saved for 1 year in energy, means that delaying the installation for a year would have saved the taxpayer $28,000 more than installing the system will when it was installed!  Now, admittedly, I have assumed the cost of installation of each fixture is either minimal or included in the cost per fixture as given.  Perhaps this assumption is not justified and some other cost calculations need to be performed to determine the rational time at which the installation should be performed.  But, I have no confidence whatsoever that Congress performed any such rational calculations before they decided to spend $140,000 of taxpayer easy-come, easy-go money on this project.

Such rational calculations are much more likely to be performed in the private sector than they are in the public sector.  The lame media, many of the academics, and most politicians and bureaucrats are forever pointing at some failure in the private sector with harm coming to some relatively small numbers of people usually in some voluntary association with the persons or company causing the harm and claiming that if only the judgment of the government were brought into these associations and trades, events would turn out better.  This argument keeps foundering on one very important observation:  the assumption that the government will act rationally, more often than the private sector does, is demonstrably wrong.  It is very clear that the government acts less rationally and when it does, that the consequences fall upon many who have not made any voluntary choices based upon their own evaluations at all.  Government increases the number of irrational decisions and lays the sad consequences on many more people, many of them innocent of any irrational decision themselves.

The government has too little invested in other people's lives and fortunes and the money it spends comes too easily to it, for it to bother to make rational decisions even when it has adequate information at hand as we have seen from the House cafeteria lighting system decision.  In most cases in which the government wants a hand, it lacks the necessary and adequate information, which is either not available to it or takes more effort to find than it is willing and able to do.  After all, its SEC employees are too busy at Internet sex sites to have the time to gather the knowledge they need to do their job!  Frankly, even much more conscientious government employees will commonly fall short here as well.  Finally, what really matters is the press conference at which all the politically correct words can be spewed and the politicians can pretend to be paragons of virtue.  The reality is that they are commonly buffoons and wastrels.

Comments on California's Plight

We have heard a great deal about California's budget and revenue problems at the state government level recently. Government spending is clearly out of control. But there are other problems as well. The 29 August - 4 September issue of the Economist, notes that

Byzantine regulations, high and complex taxes and legislative gridlock are driving out businesses, while high personal taxes are driving out the rich and a disintegrating social safety net is pushing away the poor.

The Milken Institute reports that California is losing its manufacturing industries to such states as Arizona, Nevada, Indiana, Kansas, Minnesota, Oregon, Texas, and Washington. It says that California would have had to create another 1.2 million jobs between 2000 and 2007 than it did to have maintained its population relative to that of the rest of the United States. Total migration to California has been positive since 1996 due to foreign immigrants, but the state has a net outward migration of U.S. citizens.

The biggest single reason for this is housing affordability, but housing costs are so high because the same socialist/environmentalist cabal that is causing California's other problems is causing the limited land available for housing to rise in cost to unholy heights. The poorer citizens are the most likely to leave the state. 1.73 households paying little in taxes are leaving for each such new low income household entering the state. Among the richest state citizens, 1.09 households are leaving for each household arriving.

Is the real socialist/environmentalist aim to cause the poor to leave your state and move to another state? Environmentalists do seem to be very fond of wishing for population reduction! If so, they are apparently succeeding in California.

Growth Management Laws Created Housing Bubble

For some time, I have been pointing out that the rapid increases in home costs are limited to some areas of the country and that these rapid increases have been largely determined by local governments, or in some cases by state governments. Even the Federal government has contributed in some areas out west where the Federal government owns a large fraction of the land. Where growth management planning by governments is not practiced or has been very newly implemented, the cost of housing has simply increased at about the inflation rate. Home sales are still brisk in areas without such growth management and people have little need to resort to subprime home mortgages in such places. The story is catastrophically different in California, Oregon, Washington, Arizona, Florida, Hawaii, Maryland, New Jersey, Rhode Island, and Vermont, where the states have mandated growth management laws. The Denver and Minneapolis-St. Paul areas have also been hit due to local government restrictions. Randal O'Toole, a senior fellow at the Cato Institute, has written an excellent article on this called Big Burdens from Growth Management.

He points out that a four-bedroom, two-and-a-half bath home in San Jose, CA costs $1,100,000, while the same home costs $550,000 in Seattle, WA and only $250,000 in Raleigh, NC. San Jose has practiced growth management since 1970, Seattle since 1985, and Raleigh has the wisdom not to interfere. Housing costs in urban areas depend heavily upon how long growth management policies have been followed. O'Toole points out that several fast-growing states such as Texas and North Carolina have home price to buyer income ratios of less than 2.5. In comparison, the average ratio is more than 9 in San Jose! In Dallas, this ratio is slightly more than 2 and the area growth rate is 40% since 1990, compared to San Jose's growth of only 10% in that time. The average home price to buyer income ratio in all of California is more than 8. If more than 30% of your income goes to making your mortgage payment, you will most likely have to take a subprime mortgage. Consequently, it is most in the growth-managed areas that subprime mortgage loans have become a major problem.

The difference in home price brought on by government growth management requirements is such that in 2006, home buyers paid more than $250 billion in planning taxes, the cost of this government meddling in the home and land markets for that single year. Needless to say, these costs keep many families from owning the homes of their dreams, which is exactly what they are supposed to do. From 1940 to 1960, homeownership grew from 44% to 62%, but has grown to only 69% since. Homeownship has grown better in most states with no growth-management laws. This is important, because a home is the biggest investment most families have. It also provides the most common means for people to finance a new small business.

It is commonly said that growth management prevents the "urban sprawl" that planners hate, but that most people's dream of a single-family home with a yard requires. Yet, all urban areas now account for less than 3% of the land in the U.S. California requires 95% of its people to live in 5.1% of that state's land, but with no growth management, only about 8.5% of the state would be urban. In order to keep 3.4% of the state's land unoccupied, the state has tripled the cost of a home. Oregon requires its people to live in 1.25% of the state, but with no requirement and assuming the same densities of people in urban areas as in the rest of the country, they would occupy less than 1.7% of the land in Oregon.

O'Toole points out:

"Of course, when we say a particular law has 'protected' open space from development, we usually mean that the law has denied rural landowners the right to use their property as they see fit. Because landowners receive no compensation for this taking of their property rights, it should be viewed with even greater outrage than the Supreme Court recent decision allowing cities to take people's land by eminent domain -- with compensation -- and give that land to private developers."

"Russians say that Americans do not have any real problems, so they have to make them up. Urban sprawl is one of those made-up problems. Unfortunately for U. S. citizens, efforts to control sprawl have led to very real difficulties: unaffordable housing, higher land costs for business and industry, housing bubbles and busts, and increasing barriers to homeownership for low- and moderate-income families."

In an effort to address some of these problems, local governments create subsidized housing, which adds to the tax burden. They sometimes require builders to build money-losing housing so they will be allowed to build other single-family and townhouse homes, to which they shift the costs. This makes them more expensive. The federal government uses Fannie Mae and Freddy Mac to help insure a market for subprime home mortgage loans. Fanny Mae and Freddy Mac fed the bubble in the securities based on these unstable loans to the max, while greasing the palms of many Congressmen with heavy donations to keep them onboard with the program. It also used the Community Reinvestment Act to force lenders to make subprime loans to many of the riskiest borrowers. Critical error was piled upon critical error has governments wrecked havoc on the free market and addressed every problem with more government mandated havoc. Without the government interference, no one would have been interested in loaning out their money in so many risky subprime loans.

The financial problem we are facing today was not caused by Capitalism or by the free market, as the socialists in government and in the Democrat Party are claiming. They have been clamoring mightily to try to prevent the people from understanding what did cause the problem. It was caused by socialist governments all the way from the local to the federal levels.

This is not the first housing bubble that has burst. A bubble occurred in the 1970s in the few states with growth management then, while a worse bubble erupted in the 1980s with more homes involved as urban planning spread. O'Toole says this present bubble affects about 40% of the nation's housing. The bubbles are becoming worse as more and more areas turn to urban planning.

Obama's Affordable Housing Record

Obama coauthored an Illinois law making new tax credits available to developers for affordable housing. He has labored for federal subsidies for such programs and he advocates an Affordable Housing Trust Fund as presidential candidate. What was his record of associations with affordable housing developers in Chicago? An article published in the Boston Globe by Binyamin Applebaum paints a very grim picture of his developer friends.

Their record of producing shoddy and unlivable housing was remarkable. Many of the buildings renovated deteriated so fast that they were renovated many times, each time with further infusions of tax money. You have probably already heard of Tony Rezko and his shenanigans, but have you heard about Valerie Jarrett, who serves as Obama's senior advisor on the presidential campaign and a member of his finance committee? How about Allison Davis who was a major fund-raiser for his US Senate campaign and a former lead partner at Obama's former law firm? How about Cecil Butler who controlled the Lawndale Restoration, the largest subsidized housing complex in Chicago?

Grove Parc Plaza was opened in 1990 as a redevelopment of an older housing complex. The owner was Woodlawn Preservation, which was headed by Obama associates Brazier and Finney, both local ministers. William Moorehead, who headed a private management firm, was hired to manage Grove Parc Plaza, but was replaced in 2001 and subsequently convicted of embezzling almost $1 million in management fees. He was replaced by Habitat Co. to manage Woodlawn. Its founder, Daniel Levin, headed it and contributed heavily to Obama's campaigns. Valerie Jarrett was executive vice president of Habitat. Grove Parc Plaza deteriorated rapidly under management by both Moorehead and Habitat and was seized from Woodlawn Preservation due to massive building inspection code violations. An even larger subsidized complex in Chicago co-managed by Habitat was seized after Valerie Jarrett became the chief executive of Habitat.

Allison Davis, Obama's former law firm boss, went into the affordable housing development business full-time in 1996, after having participated in the development earlier of Grove Parc Plaza. Over the last 10 years, Davis's companies have renovated or built more than 1500 apartments. Davis partnered with Tony Rezko a number of times, supported in some cases in their efforts to obtain loans by Obama. In 2001, Davis created a partnership to do a $10.7 million renovation of five buildings in a gentrifying neighborhood. Almost $6 million of state and federal subsidies went into the project before it deteriorated so badly that the city sued the owners and a judge imposed a $5,500 fine. Cullen Davis, Allison Davis's son and also an Obama contributor, now manages the firm that manages this project.

Cecil Butler controlled Lawndale Restoration, the largest Chicago subsidized housing complex. It was seized in 2006 after 1,800 building code inspection violations were found.

One would be naive not to be very wary of what Obama is really interested in when he advocates federal subsidies for affordable housing.