For most locations, housing is the largest and most variable expenditure component for calculating cost of living (COL).  It is important for HR and mobility professionals to understand the differences and nuances in housing data.  Many sources provide valuable aggregate housing data for Metropolitan Statistical Area (MSA) level housing prices; however, more granular data are often required for accurate COL analyses.

Whether you are calculating relocation costs for a specific individual or developing your organization’s relocation policies, only using MSA-level housing data may not provide the most accurate COL differentials.

For this reason, ERI collects and analyzes data at the city and neighborhood level. Our Relocation Assessor dataset of single-family home sales price is refined further to compare homes of similar size and amenities in specific areas within the city (typically desirable to management/professional households).

To highlight the importance of local data, we examine COL differentials among multiple aggregations of data for Seattle, using ERI’s dataset (January 2014), compared to the National Housing Trend Report for October 2013 (median list price).

The National Housing Trend Report provides median list prices from the combined areas of Seattle-Bellevue-Everett and includes data for all sizes of single-family homes. ERI collects data from within the city limits of Seattle, which includes neighborhoods and areas of the city that appeal to management/professional households. The Relocation Assessor tool also allows users to define customized locations (such as a radius around the city center or several specific neighborhoods within a city) to include (or exclude) from the average of estimated home prices.

For an employee who is being relocated to Seattle, home prices in desirable locations within city limits are estimated at $507,160.  If the employee is considering the more prestigious Capitol Hill neighborhood of Seattle, the estimated price is $829,426.  Home prices in Bellevue (across Lake Washington) are estimated at $602,018.  In Everett (28 miles north of Seattle), the estimated home price is $323,350.  Using the more aggregated, the Seattle-Bellevue-Everett estimate of $375,000 leaves the relocated employee facing an uncompensated COL differential if he chooses any of the above locations other than Everett.  HR and mobility professionals realize that attracting and retaining top talent takes resources, and using an accurate home price can make a dramatic difference.

Further considerations for defensible cost-of-living data include differences in state income taxes, local property tax, home maintenance, insurance, and utility costs. With a higher mortgage, the homeowner is entitled to a mortgage interest deduction, which can be substantial in locations with higher home prices, such as the Capitol Hill neighborhood of Seattle and Bellevue, WA.

The take away: It is important to use credible housing price data related to the specific type of home in the particular locations of interest to calculate relevant cost-of-living differentials.