What is the Real Value of $100 in Metropolitan Areas?

by Alex Muresianu and Erica York, Tax Foundation, August 22, 2018

In May, the U.S. Bureau of Economic Analysis released new data covering differences in purchasing power in different metropolitan and nonmetropolitan areas in 2016. In layman’s terms, the data compares how much $100 can buy in different regions of the country. This post focuses on comparing the purchasing power in different metropolitan areas around the country.

There are large differences in price level by region. In general, the regions where $100 buys the least are concentrated around large cities in the Northeast and California. Conversely, $100 stretches the most in the rural areas of the Midwest and the Southeast.

Table 1 shows the ten most expensive metropolitan areas in the United States, where the real value of $100 is the lowest. For example, San Jose-Sunnyvale-Santa Clara, CA, is a high-price metropolitan area. There, $100 will buy you goods that would cost just $78.70 in a metropolitan area at the national average price level. You could think of this as meaning that residents of the San Jose-Sunnyvale-Santa Clara area, for the purposes of day-to-day living, are around 21 percent poorer than their incomes suggest.

(Editor’s Note: In 4th place Honolulu $100 is worth only $80.40, in Maui County, $93.90, but in the rest of Hawaii—Big Island + Kauai--$100 is worth $98.33.  See CHART.) 

Table 1: Ten Most Expensive Metropolitan Areas in 2016

Metropolitan areas are characterized by a relatively high population density. In these areas, many residents seek to occupy a limited amount of available land, driving property prices up. This is a principal reason why metropolitan areas, particularly cities, are almost universally more expensive than rural areas.

However, some metropolitan areas are actually quite affordable. The ten least expensive metropolitan areas in the United States, where the real value of $100 is the highest, are presented in the following table.

Table 2: Ten Least Expensive Metropolitan Areas in 2016

We can get a sense of the extent of the differences in price level by metropolitan area by comparing the price level of the most expensive metropolitan area (San Jose-Sunnyvale-Santa Clara, CA) and the price level of the least expensive metropolitan area (Beckley, WV). The real value of $100 in San Jose is $78.70, whereas the real value of $100 in Beckley is $126.90. This means real purchasing power in the Beckley area is 61 percent greater than in the San Jose-Sunnyvale-Santa Clara area.

The issue of variance in price level has important ramifications for economic policy: some areas are effectively richer or poorer than their nominal incomes suggest. Many policies are based on income, like progressive taxes and means-tested federal benefits. If real incomes vary from place to place due to purchasing power, this matters for those policies.

For last year’s analysis of differences in price level by metropolitan area, click here. For last year’s analysis of differences in price level by state, click here.