The High Cost of Living In A HCOL Region

When I worked on Wall Street, I lived in the Financial District neighborhood on the southern tip of Manhattan. The Financial District is actually considered one of the more affordable neighborhoods in Manhattan. It’s far away from a lot of the action, and it was a quiet place to live, especially on the weekends.

I lived on the 3rd floor in one of the high-rise luxury apartment buildings that are common in New York City. For a 1 bedroom apartment, my roommate and I paid $3,315 a month. As is common in New York City, we hired a company to put up an artificial wall in our apartment, turning our living room into a second bedroom. We could each have our own bedroom (a step up from college life), but splitting a $3,315 rent for a 750 square foot converted 2 bedroom apartment still took out a decent chunk of our salaries.

New York City Is Expensive

When I look at apartments on StreetEasy these days, some of the prices are now even more outrageous. Here are some examples of how expensive it can be to live in New York City.

1. $4,095/month rent for a 1 bedroom apartment on Wall Street.
2. $2,995,000 to buy a 1 bedroom condo in Tribeca.
3. $5,750/month rent for a 1 bedroom apartment on the Upper East Side.

The high cost of rent is the price of working in the financial services industry. High-paying jobs in finance are all concentrated in New York, San Francisco, London, Hong Kong, and other very expensive cities. To work in finance, you really have no choice but to live and work in an expensive city.

That’s not the case in medicine. Doctors are needed all around the country. Just as many doctors are needed per capita in New York City as in rural Iowa. Medicare and insurance companies don’t reimburse your work significantly more or less if you work in Los Angeles than if you work in North Dakota.

Rural vs. Urban Physician Compensation

Physician compensation, on the other hand, is markedly different between urban and rural areas. It’s simply a case of supply and demand. Fewer physicians want to work in rural locations, enabling them to work more (and generate more reimbursement). In addition, hospitals need to pay these doctors more to staff these regions.

To quantify this difference, Doximity has been performing salary surveys of doctors and publishing the results in a salary map (you need to be a physician and submit your salary info to view the map). You can look up your specialty and your region and see average salaries in your county.

Even a cursory look at the map shows that salaries are significantly higher in rural areas than in big cities. For example, a general surgeon in Kansas City gets paid on average $377.673, while the doctor in New York City gets paid $332,562. My anecdotal experience is that the discrepancy between urban and rural hospital is even wider than this.

Cost-Of-Living: Rural vs. Urban

I currently live in a major Midwestern city. Houses that would ordinarily cost $700,000-$800,000 in Long Island, New York, cost $200,000-$300,000 here.

Sure, there isn’t a Michelin star restaurant around every corner like in New York City, but there are plenty of things to do. Most of the other Northeast transplants around my hospital, including those who are single, have found Midwest living to be reasonable.

Housing isn’t the only thing that’s more expensive in New York City. Groceries and other items are also more expensive.

There are cost-of-living calculators that can quantify the difference in prices between different cities. I like the cost-of-living calculator from CNN. According to this calculator, the cost-of-living in many Midwest cities is less than half of that in Manhattan.

Reasons Physicians Choose To Live In A Big City

Family

I understand that there are valid reasons to live in a big city as a physician. The most common reason is family. Many physicians (or their spouses) have family in a major city, and living close to family is a high priority. They are willing to pay the higher cost-of-living to be close to them.

Culture

Another common reason is culture. Some people who have lived in big cities their entire lives are accustomed to the luxuries of a big city. This includes access to arts, nightlife, and restaurants.

Politics

One other reason some people prefer big cities is politics. Big cities lean heavily Democratic, and the thought of living in a city that is more conservative, especially in the age of Donald Trump, can be unthinkable to some.

The reality is that all states (both red states and blue states) have conservative regions and liberal regions. Many suburbs of big cities are conservative, and many major cities in red states lean Democratic. If politics is important to you, you’re likely to find an area that fits your politics no matter where in the country you live.

Geographic Arbitrage

Family, culture, and politics are all valid reasons to live in a big city, but there is a significant price to pay. Unfortunately as a physician, you can’t have everything. We simply don’t make enough money to have everything we want like a Wall Street MD (managing director, not to be confused with Wall Street Physician) or technology start-up millionaire.

Picking a high cost-of-living city to work is like choosing an expensive car or a bigger house. If anything, it’s one of the most important financial choices you’ll ever make. You can choose to live in a big city, but you’ll have to sacrifice other things to compensate.

Some people deliberately choose to live in a low cost-of-living area. They call this geographic arbitrage. Arbitrage is when two equivalent goods sell for different prices. For example, let’s say that your local Toys R’Us is going out of business and they are liquidating their inventory. In some cases, you can buy new toys for less than what you could sell them on Amazon. An arbitrageur would buy the toys locally and sell them online for a higher price, profiting on the difference.

In geographic arbitrage, you take advantage of the difference in salaries and cost-of-living between a big city and a smaller city. You earn more and spend less in the smaller city.

Especially if you choose to live in the suburbs of a city, life is largely the same between the Northeast and the Midwest. Living in the suburbs of a Midwestern city is not significantly different than living in the suburbs of New York City. There are all the big-box stores you know and love all around the country. You’ll probably find a Walmart, Costco, and Ikea nearby. So your life in “flyover country” may not be all that different from living in the suburbs of the big-name city.

Conclusion

For some people, the quality-of-life won’t be all that different in a low cost-of-living area than in a high cost-of-living area. For those who choose to live in a low cost-of-living area, they will probably end up with a lot more money, giving them opportunities to see their families more often, take nicer vacations, or retire early. Life is a series of trade-offs, and the decision to live in a high cost-of-living area is an expensive one.

What do you think? Did you take cost-of-living into account when you took your current job? Have you engaged in geographic arbitrage? Have you ever lived in both high and low cost-of-living areas? How did your life compare?