By Dr. Mike Walden
With the inflation rate at forty-year highs, coping with a higher cost-of-living is on our minds. Both households and businesses are considering strategies for dealing with higher prices. Cutting back on non-essentials, limiting travel, searching for bargains and working extra hours to earn more are some of the common ways of off-setting bigger expenses.
But anyone who travels – even within a single state like North Carolina – observes that prices are not the same everywhere. This is particularly the case for big-ticket items like the prices of homes and apartment rents.
Does this mean people living in different regions pay different prices for the same products and services? And if the answer is yes, are we lucky or unlucky to be living in North Carolina in terms of the prices we pay?
Answering the first question requires a tremendous amount of work. Hundreds of prices must be compared, making sure the comparisons are for the same products and services, and the comparisons must be made repeatedly over time. Fortunately, the federal government’s Bureau of Economic Analysis (BEA) has taken on this task for over a decade.
BEA’s latest numbers are for 2019. The most expensive state to live in is Hawaii, with California and New York a close second and third. The cheapest state to live in is Mississippi, with Arkansas and Alabama the second and third cheapest.
North Carolina is the 19th lowest-cost state in the country, meaning there are 32 states (including the District of Columbia) more expensive than North Carolina. Among nearby states, Virginia, Florida and Georgia are more expensive, while South Carolina and Tennessee are less expensive (although only slightly).
The BEA numbers also reveal an urban-rural divide in North Carolina regarding prices, with rural areas winning for affordability. Average prices are nine percent higher in urban areas than in rural locations. But in one area – rent for shelter – rural areas really come up big. For the same sized dwelling with the same amenities, rents average 37 percent more in urban North Carolina than in rural North Carolina.
Today’s business recruitment often focuses on metropolitan areas. This is because those locations usually have talent from local universities, amenities to attract households and transportation networks from interstates and airports. This means that in vying for big companies, it’s often the Triad, Charlotte or the Triangle against Nashville, Austin or Washington, DC, rather than North Carolina versus Tennessee, Texas or Virginia.
Yet here again, North Carolina’s big metros look good on cost. Compared to the national average in prices, Raleigh is four percent under, Durham is five percent less, Charlotte is six percent cheaper, Greensboro is 10 percent under and Winston-Salem is 11 percent less. Among the three competitive metros mentioned, only Nashville is in the same range at six percent under the national average. Austin is only one percent under the national average, and Washington is 17 percent above the national average.
The big take-away is that in today’s heightened awareness of what things cost, don’t assume your dollars will buy the same amount in different locations. The purchasing power of dollars varies by where you are. In general, items are cheaper in rural areas than in urban regions, and your dollar goes farther in North Carolina, the rest of the South, as well as in the Plains and Mountain states than in the Northeast, Midwest and Pacific Coast states.
This is a big reason why we’ve seen people and businesses migrating to North Carolina and other southern states in recent decades. Interestingly, despite the popularity of our state as a place to live and do business, North Carolina’s cost advantage has actually widened a bit in the last decade.
There’s one other important point to add about these regional price differences. If it’s costlier for a worker to live in an expensive city to do the same job as a worker living in a rural location, won’t the company pay the city worker more to compensate for their higher costs?
Logic would say yes, yet reality shows the logic here is not completely correct. Studies show that for two people doing the same job, the one living in the more expensive location is paid more, but not enough to make up for all of their higher costs. The reason is that some of those higher costs are related to benefits of the costlier location, like access to a wider range of amenities and personal services.
So, the next time you’re considering moving to a new region, use the data from the U.S. Bureau of Economic Analysis to compare the cost of the new location versus your current location. Businesses do this all the time. And what they have found is, North Carolina looks pretty good. Is this a big reason why our state is one of the fastest growing in the nation? You decide.
Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.