A friend of mine runs the How Money Works
YouTube channel – let’s call him the “How Money Works guy” or “dollar question mark”. He is a retired tech Investment banker in
his twenties living in San Fransisco, but he is not originally from San Fransisco and
doesn’t really need to live there anymore. We were speaking recently about where he should
live as a YouTuber and Newsletter writer who can really work from wherever he wants to. It’s not that easy of a problem to solve. So, I decided to help him out – and maybe
help some of you who are thinking of moving - by making this video analyzing home prices
around the world and adjusting them for income opportunities and various costs you would
incur as a homeowner and resident in the different locations. Let’s look at what you get for your money
globally and try to find “Dollar Question Mark” a good place to live. Now, the population of California (where he
currently lives) has been falling since 2020 – and a big reason for this is that California
is expensive, both in terms of real estate prices and state income taxes. As Californians have been moving, they have
been filling the internet with memes comparing the kind of house you can buy in Texas (where
they all seem to be going – led by Joe Rogan) versus what you would get in California for
the same price. And, you get a lot of home for your money
in Texas. The Menswear guy (one of the big accounts
on Twitter) who also lives in California chimed in on this topic last week when looking at
two 2.7 million dollar homes. He commented that there was a risk of becoming
lonely in the huge Texas home that was so much larger than the Californian one. We might even be able to solve that problem
in this video too. You just buy a smaller home in Texas and put
the extra two million dollars that you saved in the bank. Maybe even spend some of the interest income
on organizing dinner parties… Your loneliness problem is solved… We (of course) have to take more into account
than just the price of a home. While we might be able to find a big cheap
house in a warzone (for example), you might find it noisy and stressful, and you may not
even speak the local language. Your lifestyle is going to matter a lot too
in deciding where to live. Some people would prefer to live downtown
in a vibrant city, others would prefer to live in the calm and quiet of the countryside. For most people the availability of work and
networking opportunities in their career of choice will matter a lot. A quick way of comparing different locations
to each other would be to look at the ratio of average home prices to average household
income in different cities. You shouldn’t be too surprised if a home
in a city where you would earn twice as much also costs twice as much. You are paying up for the opportunity to earn
a high income, have an exciting career and to be around people with similar incomes and
educational backgrounds as you have. There will be all sorts of cultural amenities
for you to enjoy, but you’ll have to pay to live near them. You will next need to adjust this calculation
for taxes, and other expenses you may encounter based upon the location you choose. If you earn more in a given location, but
the extra earnings all go on taxes, that is not really a win. Other things that you will need to adjust
for are the different expenses you might be faced with. In the United States citizens might pay lower
taxes but have to spend more on health insurance than in Europe. In some cities there may be great public schools
that parents are happy to put their kids in, while in other locations they might find themselves
paying for private schools. When comparing buying a large Texas home to
a smaller one in California, you need to consider the additional cost associated with heating
and air conditioning all of that extra square footage. You need to take into account the additional
maintenance and repair costs that you will face too, extra bathrooms will mean more plumbing
fixtures that will eventually need repair. If the bigger house has a swimming pool, a
huge garden, and is too big to clean on your own, you will need to take into account all
of the additional expenses that you’ll incur by buying the bigger home. How Money Works is a fancy guy, he’s not
going to do his own gardening… OK so lets look at American cities, and how
they compare in terms of home price to income ratios, then look around the world to see
how different countries compare. We’ll look at some quality of life measures
and discuss why people choose to live where they do. Before we get to that let me tell you about
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to get started for free. Get your money right. When we look at real estate in the United
States we see that the average American home trades at four times the average household
income, but this varies quite a bit by state. Looking at the ten most populous US States
we see that California is the most expensive at 6.2 times average Californian household
income and Illinois is the most affordable at 2.5 times average Illinois household income. New York (the state- not the city) is average
at four times income and Texas is affordable at 3.2 times income. Going back to the Texas / California -or Joe
Rogan – comparison. The average home in Texas costs $300,000 and
the average Texan household earns $94,000 per year. Californians earn 26% more than Texans – the
average family earning $119,000 per year, but they pay on average $743,000 for a home
– more than twice what Texans pay, putting them under considerable additional financial
strain. They don’t get to keep all of their additional
income either. Being a higher earner will push you into a
higher tax bracket for federal taxes. And in California there are nine state tax
brackets ranging from 1% to 12.5%. There is an additional 1% mental health services
tax on income exceeding $1 million, making the state's highest tax rate 13.3% [remember,
that’s on top of the federal taxes]. The average Californian who has a household
income of $119,000 per year will pay 6.5% of that in state taxes alone. There is no state income tax in Texas. In Texas, sales tax on all of the goods you
buy, (or VAT), is 6.25% and in California it is 7.25%, which pushes up your cost of
living too. Texas homes are much bigger than Californian
homes on average and they are more spaced out from each other too. For the same budget you will get a home five
times as big in Texas as you will get for your money in California. That’s why Joe Rogan now has all of that
additional podcasting space. So, let’s adjust the family incomes in each
of the top ten most populous states by the average tax rate, and adjust the average home
price for local property taxes, maintenance, utility costs, and home insurance headwinds. Here we come to a more nuanced story… Those 7,000 square foot Texas starter homes
aren’t going to clean themselves, and the 2 acres of landscaped gardens aren’t going
to weed themselves. You’ll need 3 air conditioners to keep the
house cool, and, in the million dollar plus home price range, you might not be skimming
leaves from your own pool… Adjusted for maintenance costs on different
average home sizes per state, and adjusted for income and property taxes, we find a much
wider affordability range between the top 10 US markets. High taxes in certain states reduce families’
net incomes much more than high maintenance costs increase the expense of owning a large
home in the more affordable states. California becomes even more unaffordable
once we take these factors into account. An individual earning the average state income
finds themselves paying 9.1 times their after tax income to own the average home in the
state. Some states like Florida have low tax rates
but high real estate prices meaning that one offsets the other and you don’t really win
much by moving there. Now, you might feel that living in a high
tax state gives you access to additional government services for the higher taxes you are paying
– education, police, healthcare services, better roads. Things like that. If you feel that you get a lot of value for
your tax dollar then maybe living in a high tax location that is less affordable might
still make sense to you. OK, so what do you get when you look around
the world? Well, it turns out that home affordability
is much worse in Europe, with home price to household income ratios averaging at 6.8 times
income being spent on the average home. Spare a thought for the Dutch, with home prices
at well over 10x family incomes. Ireland where I grew up is above the average
at 7.3 times average income for the average home. When you start looking around the world you
sometimes find other government fees: stamp duties (or sale taxes) are incurred at 9%
in places like Greece and Germany, this means that many Europeans don’t start out with
a starter home, then move to a bigger house over time, they typically rent until they
can afford to buy a family home and then stay there for the rest of their lives. When we adjust European housing affordability
for taxes which are typically higher in Europe and maintenance costs – which are often
lower in Europe as the homes are smaller, the situation gets worse. The Dutch find themselves paying almost 16
times their take home pay to buy an average home. The Greeks come in at 4.3 times income – similar
to what Americans pay. The UK is a bit of an interesting case. The average home in the UK costs 362 thousand
US dollars, while Central London housing prices average to 1.6 million dollars. The average Londoner is thus paying almost
twenty times their income to buy a home, a much higher multiple than the average Brit
pays. London accounts for an outsized share of Britain’s
economic output. According to John Burn-Murdoch in the FT yesterday,
removing London’s output and headcount from British statistics would show that the rest
of the country is as poor as Mississippi – the poorest state in The United States. Let’s look at other big cities around the
world to try and find some affordability. Well you wont find it in Shanghai where whole
families pool their wealth to buy a home. Shanghai house prices trade at 49 times average
income. In Bangkok people pay 31 times average income,
and in Mumbai people pay 30 times average income. In Sydney it is 16 times and Toronto – just
on the border of the United States they pay 12 times average incomes. Mexico City trades at four times average incomes. It is worth noting that in Shanghai you pay
49 times average income and you just own the building, not the land it’s built on. You get a 70 year lease on the land and then
have to renegotiate that lease with the local government when it expires – otherwise you
move out. It would appear that the Americans are doing
ok, they are spending less of their incomes on housing than the rest of the world is. Meaning they have more to spend on other things. So do they live in much smaller homes then? No, they live in much larger homes. According to Sonia Hirt from the University
of Georgia the median size of an American Home is 1650 square feet which is about 75%
(or 700 square feet) bigger than the average home in the rest of the world. Australia, Canada and New Zealand have similarly
sized homes to the Americans. The UK has some of the smallest houses in
the world at an average of 818 square feet, only China, Russia and India are home to smaller
properties. So, in order to help “How Money Works”
out, let’s see what you can get for a million dollars in different parts of the world. OK, lets start where he is in San Francisco. It seems you can get a 1400 square foot 2
bed 2 bathroom apartment with a condo fee of just under 8000 per year. It looks OK, if a bit small. And they seem to be highlighting that the
prior owner bought something once at Louis Vuitton and has been storing the bag ever
since. They also have two hat boxes… OK. I’ll have to check with him if he has any
hats that he needs to store. Let’s try Manhattan next, a big financial
center. Well, we’ve got a two bed two bath, a little
bit smaller, than the last one but with a nice view of the East River. The Condo fee is 43 thousand dollars per year,
which seems a bit steep. Just to be clear, I’m just looking at the
first million-dollar apartment that I see on the website… These are not necessarily representative. OK, so Boston next, let’s check out the
Back Bay. We get a two bed one bath, 925 square foot
apartment in the Back Bay with a 9-thousand-dollar annual condo fee. So far San Fransisco doesn’t look so bad. OK, let’s check out Houston Texas next. Houston is the fourth biggest city in the
United States. Here we go. 3 bed five bath (that’s a lot of bathrooms),
right downtown with a two car garage. There is no swimming pool though, but it is
3600 square feet, so about three to four times the size of the others and there is no condo
fee. The Texans aren’t paying a condo fee… OK, let’s try London next. A million dollars is around 800 thousand pounds. Here we go, Kensington, that’ll be nice. Oh OK, its above a shop, and it’s a two
bed one bath, in what it describes as a striking building. It does look like something struck it allright… The description says an attractive opportunity
for a purchaser to add value and refurbish throughout to their own taste & style. I mean what would you change – this is his
taste and style. They don’t list the square footage, but
it does not look big… I mean this one is the obvious choice right? Just needs a bit of paint… OK, maybe we need to up our budget in London. One of the problems with comparing locations
like this is that tourist locations will always look really expensive. Wealthy people will pay up for holiday homes
in popular locations, and people working in that location will be priced out. Cities like London, Paris and New York attract
a lot of tourists and they are expensive places to live, but they also attract a lot of tourists
because they are nice and there are a lot of things to do there. Other tourist locations are tougher for the
locals from an affordability perspective because they don’t even have highly paid jobs like
the big cities do, they just have expensive real estate. When we look at different cities around the
world you see that there is significantly different population density and that can
affect quality of life. The graphic on screen right now shows how
much space the entire worlds population would take up if everyone lived in the United States
at the densities that people live in a variety of different cities. As you can see, Paris, New York and Singapore
are very dense. The entire global population could live in
Texas if it was as densely populated as New York City. San Fransisco has a lot more space, London
even more and Houston has the most space. Things are spread out there. In Paris and New York, you don’t really
need a car, while having a car in Houston would be essential for getting around. So how do people weigh this type of information
when deciding where to live? Well, they don’t necessarily weigh it at
all. Housing is a notoriously “sticky” asset
and not everyone has the opportunity to move or the legal right to work, and to settle
as a permanent resident across various borders. In some parts of the world like Singapore
and the UAE, if you are a foreigner living and working there and you lose your job, you
have to leave the country within thirty days, unless you find a new job. In contrast to this, citizenship of some countries
can be obtained by investing money in the local economy, buying real estate or securities,
starting a business or creating jobs. It can cost as little as investing $100k dollars. As I said though, not many people do these
things. In the United States studies show that the
typical adult lives only 18 miles from his or her mother, according to an Upshot analysis
of data from a survey of older Americans. Over the last few decades, Americans have
become less mobile, and most adults – especially those with less education or lower incomes
— do not venture very far from their hometowns. Only 20 percent of older Americans live more
than a couple of hours’ drive from their parents’ home. (Researchers often study the distance from
mothers because women tend to live longer than men.) The biggest determinants of how far Americans
venture from home are education and income. Those with college and professional degrees
are much more likely to live farther from their parents than those with a high school
education, in part because they have more job opportunities in big cities. Wealthier people can also afford to pay for
services like child and elder care and don’t need to rely as much on their families. It appears that the more education a person
has, the farther from home they are likely to go. In recent years Americans appear to have widened
their house hunt radius, moving further and further from their original homes. The median distance that buyers traveled to
their new home was 50 miles in 2022, according to data published by the National Association
of Realtors. That’s more than three times the median
distance moved in the last 30 years, which ranged from 10 to 15 miles. People moved to favorable weather, lower tax
locations, they moved for more space, affordability, and a good job market according to the National
Association of Realtors. In a separate report from Realtor.com, more
than 60 percent of house shoppers searched for listings outside of their metro areas
in the second quarter of this 2023. That’s up 4.1% since last year. We cant wrap up without first talking about
those Quality of life indexes that that tell you you should move to cities like Vancouver
and Vienna. These indices look at things like access to
clean water, air quality and claim to measure more subjective elements like a city's capacity
to generate a sense of community. I don’t have a good way of measuring a city’s
capacity to generate a sense of community. I can’t even generate a sense of community
in the comments section of my videos. Despite the fact that American cities are
more affordable than other cities around the world and have larger dwellings, no American
city cracks the top ten of any of the most livable cities lists. From what I can see when looking at these
rankings some US cities (other than their downtown cores) don’t even qualify as cities
under some of the metrics used as the populations are not sufficiently dense. Public transit seems to be weighed heavily
in deciding on quality of life, and then things like access to free health care, and levels
of incarceration are all metrics that do not favor US cities. Other reasons given for US cities not making
the rankings are fewer public services and less favorable work-life balance in the United
States. Many of the highly ranked Quality of life
cities unfortunately have very expensive real estate relative to worker income, and being
saddled with a huge mortgage may not exactly give people work life balance. The top three cities for quality of life,
Vienna, Copenhagen and Melbourne are all beautiful cities but have average home prices at 11
times, 16 times and 15 times average incomes respectively. It is possible that these cities provide a
very enjoyable place to live for wealthy people who can afford the expensive homes. When we look at a list of the ten most visited
cities in the world, three of the ten are American cities, implying that despite the
claimed low livability, people around the world are very willing to visit. OK, so taking all of this research into account,
where should my friend “How Money Works” live? I dunno, maybe Dubai. He is one of those flashy YouTuber types. He probably wants to live on one of those
Palm Islands, hang out at malls buying designer goods, and maybe do some indoor skiing. That’s just the kind of guy he is. A friend of mine was there a while ago and
she told me that there are people on the beach who polish your sunglasses for five dollars. He is just the kind of guy who doesn’t want
to polish his own sunglasses. I think Dubai is the right place for him,
he could get one of those money gun things that the YouTubers have. You can’t make these decisions with a spreadsheet,
you have to work out what’s right for you. If you have any suggestions of great places
to live, or feel I missed something important let me know in the comments section. If you enjoyed today’s video you should
watch this one next. Don’t forget to check out our sponsor Rocket
Money using the link in the description below. See you in the next video. Bye.
