November 14, 2025
Since we’re spending a fair amount of time on cost of living, thought we’d give a basic primer on the subject, a good set of facts and background.
The United States presents a paradox of prosperity. While it remains one of the world’s wealthiest nations, the actual purchasing power of a dollar varies so dramatically across its geography that two families earning identical incomes can experience vastly different standards of living depending solely on their zip code…this we know.
This cost-of-living differential has become one of the most consequential economic forces shaping American life, influencing everything from migration patterns to political attitudes, career decisions to retirement planning.
One size no longer fits all, especially in regard to Federal policies.
Cost of living differentials stem from variations in the prices of essential goods and services across regions. Housing typically represents the largest component, accounting for roughly 30-40% of household budgets, but transportation, healthcare, food, and taxes all contribute to the overall calculation. The Bureau of Labor Statistics tracks these variations.
The extremes are striking. Manhattan’s median rent for a one-bedroom apartment can exceed $4,000 monthly, while similar accommodations in cities like Cleveland or Memphis might cost a fair fraction of that. A software engineer earning $150,000 in San Francisco—where that salary places them near the regional median—would need only $75,000 in Austin to maintain an equivalent lifestyle. This isn’t merely about housing; restaurant meals, childcare, utilities, and even groceries can cost 50-100% more in high-cost metros.
Several forces conspire to create these differentials. Geography and climate play roles—coastal areas with temperate weather and natural beauty command premiums. Economic opportunity concentrations matter enormously; when technology companies cluster in Silicon Valley or financial firms concentrate in Manhattan, they create local demand that pushes up all prices, not just salaries in their industries.
Regulatory environments significantly impact costs. States and municipalities with strict zoning laws, lengthy permitting processes, and building restrictions constrict housing supply, inflating prices. California’s combination of environmental regulations, local control over development, and Proposition 13’s property tax structure has created a housing market where median home prices exceed $800,000. Meanwhile, Texas’s relatively permissive building environment and abundant land have kept housing more accessible despite rapid population growth.
Tax policies add another layer. States without income taxes—Florida, Texas, Nevada, Washington—appear attractive on paper but often compensate through higher property or sales taxes. High-tax states like New York and California offer more extensive public services, better infrastructure, and stronger social safety nets, but at considerable cost to residents. The total tax burden, when accounting for all state and local levies, can represent a 10-15% difference in take-home income between high and low-tax jurisdictions.
These differentials profoundly shape life choices and opportunities (and now…elections!) Young professionals face difficult calculations: accept lower nominal salaries in affordable cities, or pursue higher pay in expensive metros where much of the increase evaporates into housing costs? The decision ripples through decades.
Building wealth becomes dramatically easier when housing consumes 20% rather than 50% of income. The cities offering the most economic opportunity…New York, San Francisco, Boston, Seattle; are precisely where housing costs make raising children most financially daunting. It’s no coincidence that fertility rates tend to be lower in expensive coastal metros and higher in more affordable regions. Young couples routinely relocate from high-cost areas to start families, trading career advancement for financial breathing room.
Retirement planning grows more complex. A $2 million nest egg that seems comfortable for retirement in San Diego might prove barely adequate, while the same sum could fund a luxurious retirement in Tucson or Asheville. Retirees increasingly arbitrage these differences, spending careers in high-wage regions before relocating to low-cost areas where their savings stretch further, essentially extracting coastal premiums while avoiding coastal costs.
Cost of living differentials create policy headaches. Federal programs using national standards can be too generous in low-cost areas and inadequate in expensive ones. Social Security, Medicare, and federal employee salaries attempt geographic adjustments, but imperfectly. Minimum wage debates become fraught when $15 hourly represents a middle-class wage in rural Oklahoma but near-poverty in urban California.
Tax policy complications abound. The $10,000 cap on state and local tax deductions hit high-tax, high-cost states disproportionately hard, though whether this represents unfair targeting or elimination of a subsidy for wealthy areas remains politically contentious. Progressive taxation based on nominal income rather than purchasing power means identical lifestyles can face vastly different tax burdens depending on location.
These differentials seem likely to persist, though their specific geography may shift. Infrastructure investments, local policy choices, and economic development will continue creating winners and losers in the geography of affordability.
Understanding these differentials matters for individual decision-making and policy formation alike. Americans increasingly make explicit trade-offs between opportunity and affordability, between higher nominal incomes and greater real purchasing power.
Michael and I just returned from three weeks in California, helping usher in a new grandson. My wallet felt the effect at the gas pump and the food store so I looked up some facts.
A median home in San Francisco runs about $1.4 million, while in San Jose it’s $1.3 million. Los Angeles hovers around $900,000. Compare this to Texas: Dallas median homes cost approximately $350,000, Houston around $310,000, Austin (the most expensive Texas city) about $550,000, and San Antonio roughly $280,000.
A one-bedroom apartment in San Francisco averages $3,200 monthly, while Los Angeles runs about $2,400. In Texas, Dallas one-bedrooms average $1,400, Houston around $1,200, and even booming Austin, which has seen massive California migration, runs about $1,600.
California gas prices typically run $1.00-1.50 per gallon higher than Texas due to special fuel blends, higher taxes, and regulatory costs. At 12,000 miles annually and 25 mpg, that’s roughly $480-720 in annual savings for Texas drivers. California charges registrations based on vehicle value, making registration expensive for newer cars, often $300-600 annually. Texas registration runs significantly cheaper, typically $50-100 for most vehicles.
Grocery costs show more modest differences than housing or taxes, but California still runs 10-15% higher on average. Restaurant meals in major California cities cost approximately 20-30% more than comparable Texas establishments.
A family spending $800 monthly on groceries in Texas might pay $900-920 in California…perhaps $1,200-1,500 annually in added cost.
Childcare? Texas offers significant savings. Full-time daycare in California metros runs $1,500-2,500 monthly, while Texas ranges from $800-1,400. For families with two young children, this could mean $15,000-25,000 in annual savings.
Income taxes which we don’t have to chronicle.
But here’s the thing, IMO. No one requires anyone to live anywhere…excepting perhaps employer’s requirements. That is, people are free to live in a high-cost state and free to leave. That so many stay tells me they find the benefits of living in places like California outweigh the costs. Simple as that. One thing I think we’re doing right is we’re giving more power back to the States so they can spin life their own way, giving people 51 different and distinct choices.
So, this is by no means a trash talk on California or talking up Texas. But it does illustrate that when you may feel all worked up about what is going on in your State, there are alternatives. You want high tax high touch with an emphasis on climate change? California. You want to maximize your income and don’t need a lot of government to help you…Florida. Everyone should roll their own, and there is no right/wrong answer.
I’m so very fine with all of that.
Free to stay or move, free to do what you think best for your family.
I use the word “free” a lot which is what I think we should be.
Thoughts, questions, or reflections? I’d love to hear them. You can reach me anytime at anthony@workingprofit.com
