Monthly Archives: January 2011

Regional Exchange Rates: The Cost of Living in US Metropolitan Areas

International travelers and expatriates have long known that currency exchange rates are not reliable indicators of purchasing power. For example, a traveler to France or Germany will notice that the dollar equivalent in Euros cannot buy as much as at home. Conversely, the traveler to China will note that the dollar equivalent in Yuan will buy more.

Economists have attempted to solve this problem by developing "purchasing power parities," which are used to estimate currency conversion rates that equalize values based upon prices (Note 1). This helps establish the real value of money in a particular place.

The cost of living adjusted income data includes surprises. New York, commonly considered a particularly affluent metropolitan area, ranked 17th in cost-of-living adjusted income, and below such seemingly unlikely metropolitan areas as Pittsburgh, Kansas City, Cleveland, St. Louis and Milwaukee. These metropolitan areas also ranked above San Jose, which ranked first in unadjusted income in 2000, but now ranks 16th in cost of living adjusted income (Table 2).


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High-Speed Rail, Budget Buster; The Litmus Test

If the nation is going to reduce its out-of-control spending, the first step is to stop spending money on things we do not need. Despite President Obama’s call in his State of the Union speech for linking 80 percent of the nation by high-speed rail, it is hard to imagine a more unnecessary program.


Voters gave the new Republican House of Representatives a mandate to cut spending. Zeroing high-speed rail out of the federal budget may be the litmus test. If Congress fails to stop this costly and unnecessary program, it would call into question the commitment to spending reduction.

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Double Digit Ridership Increase Leaves London-Paris-Brussels High Speed Rail Behind Projections

The Eurostar, the high speed rail service that links London with Paris and Brussels remains more than 60 percent below its ridership projections as of 2010, according to recently released ridership information. This is despite a double digit (12 percent increase in ridership between 2009 and 2010.

According to a Parliamentary inquiry, consultants projected that Eurostar ridership would reach nearly 25 million passengers by 2006. As of 2010, ridership still languishes below 10 million, at 9.5 million. Rosy ridership and revenue estimates have often occurred with major infrastructure projects, especially rail projects, as has been documented in research by Flyvbjerg et al.

In 2009, the government of the United Kingdom has assumed £5.2 billion in debts of the builder/operator of the high-speed rail Channel Tunnel link to St. Pancras Station. This is in addition to the £1.7 billion that had been granted by the government to the builder/operator to extend the line.

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Taxpayers not Play Money will Pay for Florida High Speed Rail Cost Overruns

The bottom line thus comes down to three propositions.

1. It is naïve to believe that the Florida taxpayer obligation can be held to $280 million.

2. No rational private builder/operator will be prepared to guarantee the level of cost escalation that could occur on the project. Extraordinary cost escalation would be the responsibility of Florida taxpayers and Florida taxpayers alone.

3. Operating subsidies could be necessary. Again no rational private builder/operator will be prepared to continue operations for 20 years if ongoing operating losses are encountered. This would again mean that the bill must be passed to the funders of last resort, the taxpayers of Florida.

The open-ended risk that Florida taxpayers could face beyond the $280 million, is the fundamental issue Governor Rick Scott should consider as he decides the fate of this expensive project.

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Personal Income in the 2000s: Top and Bottom Ten Metropolitan Areas

The Top Ten: The strongest per capita personal income growth between 2000 and 2009 was in Baltimore, which had an inflation adjusted increase of 9.7 percent. This strong performance is not surprising due to Baltimore’s proximity to Washington and the federal government’s high paying jobs. It also receives spillover lucrative employment from federal contracts to health, defense and security companies. In fact, Baltimore did better than Washington. Washington, which extends from the District of Columbia and into Maryland, Virginia and West Virginia. Not that DC did badly; it boasted the third highest income growth, and 5.0 percent.

However, perhaps the biggest surprise is the metropolitan area that slipped into the number two position between Baltimore and Washington. The Pittsburgh metropolitan area, which may have faced the most severe economic challenges of any major metropolitan area over the past 40 years, achieved per capita personal income growth of 8.2 percent. The Pittsburgh gain is all the more significant in view of the local financing difficulties which placed the city of Pittsburgh in the near equivalent of bankruptcy under Pennsylvania’s Act 47. However, as is the case in on number of metropolitan areas, the central city has become much less dominant and no longer seals the fate of the larger metropolitan area. Today, the city of Pittsburgh accounts for only 15 percent of the metropolitan area population.

Overall, the South and the West captured nine of the bottom ten positions, while only one Midwestern metropolitan area, Detroit, broke into the bottom ten.

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Shrinking City, Flourishing Region: St. Louis Region

the city of Paris (as opposed to the metropolitan area or urban area, see Note) lost a quarter of its population between 1954 and 1999, while the loss in some core districts (arrondissements) was 75 percent. Copenhagen, which is often considered one of Europe’s most vibrant municipalities lost more than one-third of its population between 1950 and 2000. Other core municipalities have lost more than one-half million people, such as, London, Seoul, Glasgow, Berlin, Osaka, Chicago, Detroit, Philadelphia and St. Louis.

City of St. Louis Population Loss: Yet no city which achieved the scale of a half million residents has lost a larger percentage of its population in peacetime than St. Louis. To some extent, this is a very old problem for a city that was once the largest in the Midwest but was passed in 1880 by Chicago.

Metropolitan Population Gain: But as is the case for many “shrinking cities,” the region outside the municipal boundaries has continued to grow. In1950, the population of the metropolitan region (as currently defined) was 1,940,000. By 2009, the metropolitan region had grown to 2,890,000, for a population increase of nearly 1,000,000 (more than a 50 percent increase).

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Toward a Rental Society? The Costs of Smart Growth (Urban Consolidation/Compact Development): The 7th Annual Demographia International Housing Affordability Survey

Toward a Rental Society? The Costs of Smart Growth (Urban Consolidation/Compact Development): The 7th Annual Demographia International Housing Affordability Survey

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The just released 7th Annual Demographia International Housing Affordability Survey rates Hong Kong as the most unaffordable market out of 7 covered nations, with a Median Multiple of 11.4 (defined below). This year’s edition covers 325 metropolitan markets, up from 272 last year.

Summary of Introduction by Joel Kotkin

Renown author Joel Kotkin notes that "Over the past decade, even after the housing bubble implosion, the ratio of incomes to housing prices has shown a steady increase" in his introduction to the 7th edition. Kotkin cites markets such as Los Angeles, San Francisco, New York Boston and in Florida, and adds that: "perhaps most remarkable has been the shift in Australia, once the exemplar of modestly priced, high quality middle class housing, to now the most unaffordable housing market in the English speaking world."

He disputes "progressives" who "not only "claim the dense urbanism is the vast preference of the next generation – a claim he notes is not supported by objective research – but also embrace the notion of renting over owning. He calls this "a very dangerous concept, essentially promoting a form of neo-feudalism which reverses the great social achievement of dispersing property ownership."

Kotkin concludes that: "The ideal … Should not … be affordability alone but affordability coupled with economic growth" and that "broad based middle class prosperity depends in large part on housing affordability, and may do even more so in the future."

Summary of Results

Again, Australia was the most unaffordable nation (with complete data), which a Median Multiple of 6.1 (a "severely unaffordable" rating). This is double the historic affordability norm of 3.0 that continues to apply in the United States and applied broadly throughout Australia before adoption of land use policies that prohibit development of low-priced housing on the urban fringe and related land and housing rationing policies (these policies are referred to by a number of names, such as "compact development," "smart growth," "growth management," and more recently, "livability"). Sydney passed Vancouver to become the second most unaffordable metropolitan area with a Median Multiple of 9.6. Melbourne placed fourth most unaffordable internationally, at 9.0. All other major Australian markets were "severely unaffordable," including Brisbane (6.6), Perth (6.3) and Adelaide (7.1).

New Zealand and the United Kingdom were also severely unaffordable, with Median Multiples of 5.3 and 5.2 respectively, more than two-thirds above the historic affordability norm that had applied in these nations as well. Both nations, like Australia, have seen their housing prices inflate as land use policies have increasingly rationed urban area land for development, which naturally raises its price and the price of housing. The most unaffordable market in the United Kingdom was Plymouth & Devon, at a "severely unaffordable" 7.5. Other severely unaffordable markets included London (GLA) at 7.1 the London Exurbs (East and Southeast England) at 6.5, Liverpool & Merseyside at 5.5, Newcastle & Tyneside at 5.5, Stoke on Trent & Staffordshire at 5.1 and Blackpool and Lancashire at 5.1.

Ireland had a "moderately unaffordable" Median Multiple of 4.0, with house prices still well above pre-housing bubble levels, but well below the peak.

Canada achieved a "moderately unaffordable" Median Multiple of 3.4. Vancouver ranked as the third most unaffordable metropolitan area out of the 325 markets, with a severely unaffordable Median Multiple of 9.5. Montreal (5.2) and Toronto (5.1) were also severely unafforable.

The United States had an "affordable" Median Multiple of 3.0, despite the fact that housing prices still remain above pre-housing bubble levels in markets that have more restrictive land use regulations (such as Honolulu at, San Francisco at 7.2, San Jose at 6.7, San Diego at 6.2, and New York at 6.0. Prices also remain well above pre-bubble levels in seriously unaffordable Seattle at 6.2 and Portland at 6.2, metropolitan areas that essentially ban urban fringe development.

Dr. Donald Brash, former Governor of the Reserve Bank of New Zealand put the issue succinctly in his introduction to the 4th Annual Demographia International Affordability Survey in 2008:

The one factor which clearly separates all of the urban areas with high Median Multiples from all those with low Median Multiples is the severity of the artificial restraints on the availability of land for residential building.


The Median Multiple is the median house price divided by the median household income, perhaps the most widely used measure of housing affordability.

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