In recent years, there has been a significant exodus of residents from California and New York to places like Texas and Florida. The concept of “revealed preference” suggests that these fast-growing states might be the best places to live. But there are actually two ways to consider the “best place”:
1. Best place judged solely on amenities that affect quality of life.
2. Best location considering both amenities and cost of living.
By analogy, the best car might be a Rolls Royce. But the best car in terms of value for money might be a Toyota Camry. If that’s the case, you’d expect most people to go for the Camry, even if there’s a feeling that the Rolls Royce is a better car. In today’s article, I would like to consider the best place to live in the sense of a Rolls Royce, and not in the sense of a Camry.
Check out this title and subtitle in the OC register:
And 51% of the Top 150!
I was delighted to see this story, because it suggests that I have chosen to live in the Rolls Royce of the States. The OC Registry defines “unaffordable” based on the ratio of average housing price to income. But obviously these places aren’t literally unaffordable, since 39 million people live in California. Instead, think of this high ratio as reflecting a high degree of amenities. People will pay more for the privilege of living in California. By analogy, a high P/E stock has intangible positive attributes that don’t show up in typical metrics like current earnings.
It may seem strange to claim that California is the best place to live, given its widely publicized problems such as overregulation, traffic, crime and homelessness. But if I have a choice between trusting the media or trusting the market, I will always follow the market. The market tells us that California is a great place to live. Even homeless people prefer to live here. People aren’t leaving because California is a bad place, because a drop in demand for housing would lead to the kind of low housing prices we see in Detroit. People are leaving due to diminishing housing supply; California refuses to build more housing. California residents decided they just didn’t want more people. (I disagree with this decision, but I’m in the minority.)
If I’m right, we might expect that in California the most unaffordable places would be those with the fewest problems. Orange County is not completely problem-free, but it experiences less excessive regulation, traffic, crime, and homelessness than the rest of California. So it’s worth noting that even though Orange County is home to less than 10% of California’s population, we are home to 10 of the 25 most unaffordable California cities. This suggests that Orange County might be the best county in America. The most unaffordable location of all is Newport Beach, an upscale coastal community in OC.
So, to answer the question posed in the blog title: Newport Beach is the best place to live in America, if not the entire world.
There are two types of “revealed preference.” The exodus of people from California suggests we are not the Toyota Camry of the states. But revealed preference also appears in housing (land) prices. California’s high home prices suggest we are the Rolls Royce of states.
PS. I think the OC registry list was limited to cities with populations over 100,000. So it’s possible that smaller places like Beverly Hills and Laguna Beach will be even more unaffordable.
