Rhode Islanders pay a significant premium to live here.
The cost of living in the Providence metropolitan area was 23% higher than the national average last year, according to the latest index from the Center for Regional Economic Competitiveness. That made Providence the 25th-most expensive U.S. jurisdiction out of about 300 examined by the Virginia-based research group, data provided to WPRI.com shows.
The country’s most expensive places were Manhattan (125% above average), Brooklyn (79%), Honolulu (67%), San Francisco (63%) and San Jose (57%); the cheapest were Harlingen, Texas, and Norman, Okla. The costliest metropolitan area in New England was Bridgeport (46% above average), followed by Boston (40%), New Haven (28%), Hartford (24%) and Providence.
Here’s how the Center’s Dean Frutiger describes its methodology:
The composite index numbers is composed of the six individual component categories, groceries, housing, utilities, transportation, medical care, and miscellaneous. Each of the categories has a weight attached to it, respectively, 13.56, 27.02, 10.30, 12.35, 4.60, and 32.17. These numbers represent the percent of average annual income spent in those categories by a professional/managerial household. The composite index number therefore, is composed of 13.56% of the grocery index, 27.02% of the housing index, etc.
Housing is the category where Providence-area residents pay the biggest premium, 32% more than the national average. They also pay 29% more for miscellaneous goods, 27% more for utilities and 17% more for health care, but only 5% more for transportation.
Metro Providence’s high costs were a big topic recently on Executive Suite with urban expert Aaron Renn.
“This region is far poorer, I think, than most people realize,” Renn said. “We look at stats like median income, and we actually look OK. But we have a high cost of living.” Out of the 51 U.S. metro areas with more than 1 million residents, Providence’s cost-adjusted median income ranks 48th out of the 49 that have data.
“It’s actually poorer than New Orleans, poorer than Cleveland, poorer than Detroit – I mean, really at the bottom when you consider the high cost of living,” Renn said, and high housing costs are a key reason.
“The average family buying the average home – that’s the so-called ‘median multiple’ – has to spend four times their annual income in order to buy a house here,” even though the rule-of-thumb says the multiple should be no more than three, Renn said. “So housing is either unaffordable, it’s a high percentage of income, or it’s simply out of reach.”
The root cause, Renn argues, is limits on new housing construction.
“It’s very hard to build here,” he said. “But it’s a big challenge, because you could easily say, ‘Let’s take off the restrictions, bring in new supply, prices will come down.’ Unfortunately, that really would hurt everyone who owns a home here if prices came down, and it also means that probably the people who already own homes are not very interested in the area becoming more affordable.”
• Related: Watch Executive Suite with Urbanophile.com’s Aaron Renn (Jan. 24)