Rising demand for rentals combined with falling vacancy rates in the larger US cities mean tight rental markets. HR and mobility professionals need to closely monitor rental prices for relocating employees since housing is a major component of cost-of-living differentials.The desire of many Millennials to live in more urban settings and retain locational flexibility (rent rather than become homeowners) makes accurate rental data even more critical to analyzing and providing competitive relocation packages. The importance of precise cost-of-living data is magnified to organizations in attracting top talent in competitive industries.
Below we outline the cost-of-living differentials by expenditure category for major cities in the US with strong job growth in 2014. Each city is compared to the US national average using data as of October 2014. The illustration uses data for an individual making $80,000 annually who is married and renting a two bedroom, two bath apartment (900 square feet). We include comparisons by expenditure category to illustrate housing as the most important contributor to differentials.
Consumables compare a market basket of typically purchased goods and services. Both Houston and Columbus are below the US average of $18,018, while Boston, San Francisco and Seattle are above. The range is from $16,076 (Houston) to $21,949 (San Francisco).
The range of transportation costs varies between $11,624 (Seattle) and $9,379 (Columbus), with the US average at $9,490.
Health services have the smallest range around the national average of $2,266.
In the cities of Houston and Seattle (in states with no state income taxes), the tax differentials are significantly lower than the national average. Effective federal tax rates (including payroll taxes) for a married couple is 17.7% ($14,136), while effective federal taxes plus average state income taxes are 21.7% ($17,392). The city of Denver has a local income tax on wages which contributes to its differential from the US average.
As expected, housing costs in all the cities are higher than the US average of $11,678 in annual cost of Rent/Utilities/Insurance. San Francisco is almost four times higher at $45,825, while Boston is slightly more than three times higher at $37,661. The city closest to the US average is Columbus at $18,085.
The take away: Housing costs clearly dominate cost-of-living differentials among cities. It is essential for HR and mobility professionals to use reliable, robust, and timely data cost-of-living data in analysis and evaluations for management decisions and individual relocation reports.