How Much Are You Willing to Pay to Live in America’s Best Neighborhoods?

A new, expansive index measures and maps the quality of life for 2,000 U.S. neighborhoods.

Image Flickr/A McLin
Flickr/A McLin

Location, location, location. When choosing where to live, we all make choices and tradeoffs between housing costs, commutes, and the kinds of amenities we need and want from communities—from better schools, safer streets, and warmer climates, to access to mountains or waterfronts, restaurants, and bars.

Just how much are we willing to pay for a better quality of life, and for the amenities and public services we believe will bring us that?

A new study published in the Journal of Urban Economics by economists David Albouy, of the University of Illinois, and Bert Lue, of the University of Michigan, provides important new insight on how much Americans are willing to pay to live in certain areas and to access the amenities that improve quality of life. The study looks at more than 2,000 neighborhoods across the country. I have written about quality of life indexes before, but the strength in the work of these economists lies in its specificity. Using people’s willingness to pay to live in specific areas as a measure of the quality of life there, the economists’ new index makes comparisons not just across metros, but within them.

To get at this, they use finely detailed data on from the U.S. Census’ Integrated Public Use Microdata Series, based on what the census defines at “Public Use Microdata Areas,” or “PUMAs.” In some cases, PUMAs conform to counties, in others, they conform to municipalities, and in some less populated areas, PUMAs correspond to multiple counties. But in big cities and metros areas, they correspond to neighborhoods, like Manhattan’s Upper East Side, or San Francisco’s Ingleside. Reaching this more detailed geographic unit of analysis is a very big deal—it enables the economists to compare patterns and tradeoffs between housing costs, wages and amenities both between and within metros.

Using these detailed data, the economists create a series of regression models to determine the real take-home pay in different areas across the country (taking wages, housing, and commuting costs into account), and then how much of that pay people are willing to sacrifice to live in the best neighborhoods and to access the best possible services and amenities.

The map below shows what people are willing to pay to live in specific places across the United States, based on the economists’ analysis. The areas in green are those for which residents are willing to pay the highest fractions of their income to live. Those in red are where residents are willing to pay the least.

(Albouy and Lue)

The most desirable areas are highly concentrated. They include communities along the West Coast, the Boston-Washington corridor, in coastal Florida, and in Colorado. East Oahu, Hawaii, (not pictured) tops the list, according to the economists’ analysis; households sacrifice 25 percent more than the average American to live there. California’s Marin, San Mateo, and San Francisco are not far beyond. San Cruz, San Jose, and Oakland do well, as do parts of Colorado and Washington State.

The least desirable places include Detroit’s poorest and least-advantaged neighborhoods, as well as parts of western Maryland, central Kansas and west and south Texas. And there is a considerable amount of red and orange—areas where people are less willing to sacrifice large chunks of their paycheck—across parts of the mid-section of the country, from Illinois and Iowa to the Dakotas and Wisconsin, and in regions of the southwest, especially Nevada, southeastern California, and eastern Arizona.

What will people pay for?

But what makes places more or less desirable, and which amenities matter the most? To determine this, Albouy and Lue ran a series of statistical analyses to sort out how much value households place on schools, crime, and climate, and on access to waterfronts and urban amenities.

They find, first, that people will pay more for better, well-funded schools. The economists discover than a regional funding increase of $1,000 per student is associated with a $570 annual increase in what people are willing to pay. But as they note, “This number is likely biased from well-funded areas being nicer or having more desirable residents.”

People will pay more to live in less dangerous places: A 10-point jump in the murder rate, from 10 to 20 deaths per 100,000 residents annually, is associated with a $1,000 to $1,600 annual drop in what people are willing to pay, depending on the neighborhood.

People will pay for access to more bars and restaurants. Each establishment per 1,000 is worth an annual $170 jump in what people are willing to pay. This number, the researchers note, may also be representative of the value of a large variety of stores and entertainment venues available in more amenity-filled neighborhoods. As they write, restaurants and bars are “located near other retail and entertainment establishments, in highly visited areas where residents can afford to eat out.”

While these aspects of quality of life are often associated with denser places, the authors point that this does not mean that urban centers and downtowns are always the most appealing places to live. In suburbs with over 5,000 residents per square mile, willingness to pay is 5 percent above average. In some center cities with less density—Kansas City, Missouri, for example—quality of life is 3 percent below average.

The study also finds that a neighborhood’s size, density and “artificial amenities”—those that are created by a neighborhood’s residents—create demand, more so than aspects of its natural environment, like mountains or coastlines. As the economists write, “Because artificial amenities are largely produced by local residents, they may reflect the desirability of the populations themselves.” In other words, we pay not for the neighborhood itself, but for the access the neighborhood affords us to other people, as well as jobs and or amenities.

The spiky metro

Even more interestingly, the study finds that there is nearly as much variation in quality of life and willingness to pay within cities as between them. This is particularly “remarkable,” as the economists put it, because rents and wages don’t vary as much within metros as they do between them. This suggests that residents’ access to a metro area’s amenities (like good schools or a variety of stores and entertainment venues) varies even more widely than their incomes.

This variation within metros can be clearly seen in maps of specific metro areas. Take the one for the New York metro area, below and to the left. It shows that some parts of the metro are extremely desirable, with a high quality of life—neighborhoods like the Upper East Side in Manhattan, Port Washington on Long Island, and Bergenfield in New Jersey. But the metro also contains neighborhoods for which residents are less willing to shell out significant fractions of their paychecks: East Harlem in Manhattan, Mott Haven in the Bronx, and Brownsville in Brooklyn.

(Albouy and Lue)

In the San Francisco metro area, above and to the right, there’s much less variability in quality of life. People are very willing to pay for most neighborhoods in the city itself, as well as the surrounding suburbs. Only a few sections of Oakland and Richmond, to the north of Berkeley, rank lower on the quality of life index, but these still do well relative to the rest of the country.

The picture is very different in Detroit, mapped below. There are few neighborhoods for which residents are willing to pay a premium: just the wealthy suburbs of West Bloomfield and Birmingham. By contrast, all of downtown Detroit, and neighboring communities like Dearborn Heights, East Riverfront and Pershing, have some of the lowest quality of life ratings in the country. Flint, to the northwest of the city, also does poorly in quality of life measures.

(Albouy and Lue)

As Albouy and Lue note, there are caveats to their research. They point out that households are “imperfectly mobile and heterogeneous”—in other words, the reasons to move are not always limited by money and amenities, but by the locations of one’s family, social networks, or a particular industry. Furthermore, their index doesn’t account for the attractiveness of communities residents’ themselves as a motivating factor for moving. Perhaps one moves to a particular community not because schools are well-funded, but because one knows that their neighbors will be well-connected and particularly devoted to promoting education.

What appears to drive all of this is the ongoing sorting of the population by income and talent. As the economists write, “Quality of life varies as much within metros as across them, and is typically high in areas that are dense, suburban, mild, safe, entertaining, and have higher school funding.”

Our nation is becoming increasingly sorted and spiky, not just in what people make, but what they get—the amenities they enjoy, and the quality of life they can pass on to their children.

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