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April 2007

Cost of Living Index:
How Texas Compares

Biennial Revenue Estimate, Report Find Texas Affordable

In real estate, value is about "location, location, location." Move a house from Brownsville to the River Oaks section of Houston, and that house will have a higher price tag. That's part of the "cost of living."

Apples to Apples

"Cost of living is all the expenses it takes a household to live," said Winfred Kang, senior research analyst with the Texas Comptroller of Public Accounts. "It would be housing expense, food, medical, transportation and taxes."

When those costs are indexed, people can compare the cost of living in one city or region compared with another, Kang said.

"It also allows a person to compare what their living expenses are compared to a median," he said.

A September 2006 report by economic researcher Moody's Economy.com Inc., the Regional Financial Review, reported cost of living trends for cities across the nation for 1999, 2002 and 2005.

The report represented the national average cost of living as a score of 100. Cities with higher costs than average scored an index above 100, and cities lower than average scored below 100. Only one Texas city, Dallas, scored more than 100, with its index of 100.5.

Measuring Up

A high cost of living can signal an expanding economy but also can deter new businesses considering locating in an area, according to Moody's. Similarly, a low cost of living can draw those relocating but can indicate low wages and weak economic performance.

Dallas' score, which declined between 1999 and 2005, was slightly more than the national average. In 1999, Dallas' index was 103.2, the 57th highest cost of living in the country. In 2002, Dallas' index decreased to 102.9; and in 2005, it dropped to 100.5, the 82nd highest cost of living.

"We're just normalizing," said Lyssa Jenkens, chief economist for the Greater Dallas Chamber.

Jenkens said that in 1999, Dallas suffered from labor shortages in high wage industries and extraordinary price pressures. The 2005 rating sounds not only accurate, but positive compared with other large metro areas nationwide, Jenkens said.

"We're the fourth-largest metropolitan area in the country right now, so if we're right at 100, that means we're actually very affordable," she said.

Other Texas cities fared even better. The state's other major cities--Houston, Austin, San Antonio and El Paso--all had indices in the 90s. Smaller cities, such as Abilene, and Texarkana, mostly registered in the 80s.

By comparison, the nation's highest cost of living was in San Jose, Calif., with an index of 146.7, and the lowest was Danville, Ill., with 77.3.

Estimating Affordability

Comptroller Susan Combs' Biennial Revenue Estimate for 2008-2009 (BRE), released in January 2007, predicted continued affordability for Texas.

Often the biggest expense for a household is housing costs, said Kang. Moody's found the areas with the highest costs of living were areas with home prices above the national average.

The BRE found that the percentage of Texas mortgage holders whose housing costs were more than 30 percent of their income increased from 22.4 percent in 2000 to 32.4 percent in 2005. That was below the national average of 34.5 percent and much lower than several states. In California, 47.7 percent of households spent more than 30 percent of their income on housing. In New Jersey 40.7 percent spent that much; in Florida 40.6 percent did; and in New York 38.9 percent did.

Housing prices in Texas should stay low, according to the BRE. From January through October 2006, the year-over-year increase in the sales price of the average Texas home fell from 8.8 percent to 3.6 percent. If that trend holds, it should keep the cost of living manageable for many Texans.

Suzanne Staton


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