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Why Moving to One of America’s Most Expensive Cities Might Make Financial Sense

This is part one of an ongoing series about housing costs. Check out part two and three on our blog.

Attention, small-town denizens: Your big city dreams may be more affordable than you think. And to the urban renters currently paying a pretty penny for a closet-sized apartment: You may be investing in your future more than you know.

We analyzed more than 15,000 of our loan applicants,1 looking at individuals’ current rent spends to get a better understanding of the cost of living in major U.S. metro areas. And while most “Should I move?” analysis focuses purely on current market-rate housing costs, it turns out rent alone is a poor judge of affordability.

Why? Affordability has as much to do with income and housing options as it does with rental costs.

Let’s dig into Earnest’s findings. Young people are unsurprisingly paying the highest median individual rents in areas like New York City, Washington, D.C. and San Francisco — but they also tend to have higher incomes. In fact, crunching a few numbers indicates that residents of these “premium” cities can spend a lower percentage of their gross income on rent than those in supposedly more affordable areas.


Evaluating income-to-rent ratios paints a different picture of affordability than rent alone.

Keep in mind that Earnest’s applicant database represents only a subset of this age group. Generally speaking, people who are seeking to borrow relatively large amounts of money online (e.g., for personal loans or refinancing student loans) are more likely to have higher incomes than their peers nationally. But when we narrowed the applicant pool to young people earning within $10,000 of the median income for their metro area and age group, the trend remained the same.

Debunking City Hype

“Expensive” San Francisco? According to our analysis, the average rent spend in our normalized data set (+/- $10,000 of the metro media income) is $900 a month, yet only 22% of the median gross income. “Cheap” Houston? Try $730 a month in rent, but 25% of the median gross income. (If these rent numbers seem low compared to the headlines — San Francisco’s median rent was reported to be $4,225 in May — remember that they represent individual contributions to rent for existing leases, not the cost of entire units on the market.)

Considering income-to-rent rates between cities is particularly impactful if you’re planning to stay long-term. While our data shows that working in an expensive market may be a smart financial move based on current income rates, outside research shows that such markets may also be smart in terms of future income and earning potential.

According to a recent piece in The Atlantic, high-cost metro areas also have the highest upward mobility rates, meaning you have a better chance of working your way into the middle or upper class in New York or San Francisco than you do in Atlanta or Detroit.


The most expensive markets tend to provide the best opportunities for upward mobility.

Why does it matter? If you’re in a lower-cost city, you might save money, but run the risk of slowing down or minimizing your future earning potential. In a higher-cost city, you may hit the big bucks, but perhaps compromise a white picket fence for a two-bedroom apartment shared with others in the process. As Derek Thompson wrote in the Atlantic piece, “The best cities to get ahead are often the most expensive places to live, and the most affordable places to live can be the worst cities to get ahead.”

Bottom line: Evaluating cities solely by their rental markets doesn’t tell the whole story. So, if you’re considering a move or just starting out in the workforce, remember to think about rent as it compares to your current income as well as your future income mobility. Depending on your occupation and career path, you might find that paying more for rent right now can result in bigger financial gains down the line.

1Data reflects applicants aged 18-34 who applied for an Earnest loan, and earned within $10,000 of median income for their metro area. Median income based on Bloomberg analysis of U.S. Census Data.

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