On living in big cities - how do people afford it?

[Alphathree33]

I've found a place for $1100/month -- a small bachelor condo that I'm very happy with for now because it's right downtown.

And on my starting salary of $55,000, it's affordable, albeit expensive. (I'm just graduating from college now.)

But in looking around, I notice places that would be considered "average" in my home town going for $3000-4000 a month.

You'd have to be making $300,000-$400,000 a year to reasonably afford such a place.

Since most places in Toronto are like this, am I to assume that the majority of the city are:
1) high-level managers (e.g. Vice Presidents, CEOs)
2) millionaires from old money
3) lottery winners
4) none of the above, so they must always have tenants living in their homes

I know there are lots of upper-middle class folks who make six figures. And I know that in a big city, there are probably tens of thousands who make half a million a year or more.

But that can't possibly explain how ALL of the housing can be priced so high. Where is the cash coming from?

 

[jiggahertz]

Well I think your math may be a little off. If you're making $55k and $1100/mo housing is affordable, than housing 3x that rate should be affordable to someone making 3x your salary. But yeah, it's not cheap. You figure a lot of those places are dual income tenants.

 

[Alphathree33]

Originally posted by: jiggahertz
Well I think your math may be a little off. If you're making $55k and $1100/mo housing is affordable, than housing 3x that rate should be affordable to someone making 3x your salary. But yeah, it's not cheap. You figure a lot of those places are dual income tenants.

You're right, my math is a bit funky. I guess I was taking into account higher property taxes, higher income tax brackets, and all that jazz.

 

[Descartes]

You don't need to make anywhere near $300-400k to afford $3000/mo. That's a bit extreme. Granted, it would be nice to not have to commit so much to a home, but many do and do so comfortably.

No, you're not to assume that most are high-level managers, millionairres, etc. Even in Atlanta, if you look at the cost of housing in the midtown/downtown areas (and even some of the suburbs), it simply wouldn't be possible for that many millionairres, high-level managers, etc. to exist. Many people acquire their home through various means:

1) Investments. They may invest for as much as a decade or two before purchasing the home and live in lower-cost housing before they do.
2) Debt. That's obvious enough, but many people are willing to go far into debt. I know people that have committed 90+% of their income to expenses.
3) Flexible mortgages. People were taking advantage of ARMs and interest-only plans for quite a while, especially in cities experiencing significant appreciation. I don't believe this is so much the case now.

That's my take anyway. $1100/mo sounds reasonable. A decent place in Atlanta will run you ~$2-3k/mo or so unless you want a small studio. I've lived in the downtown areas of several other cities, and it's pretty much the same from what I've seen.

 

[MiniDoom]

You also get a big tax write off with the mortgage and property tax, so that helps make it easier.

 

[TheTony]

A lot of those properties closer in the urban core are also higher density (think lofts, condos, etc), so their tax base is probably spread across the development they're in a little differently than you might see in the suburbs. Granted, it still tends to increase proportionally with the property value, in most markets, just as with any other real estate.

A lot of larger cities do have a decent mix of prices, and starter-type townhome, condos and lofts can be found. Granted, the amenities are bound to be more spartan, but they're there in all but the most competitive markets.

 

[Alphathree33]

Originally posted by: rdubbz420
You also get a big tax write off with the mortgage and property tax, so that helps make it easier.

I've been thinking about financing (buying) my bachelor condo instead of renting it, but then if I ever wanted to move out (which I will eventually... it's only 500 sq feet), I'd have to sell it.

And I hear condos are hard to sell.

But one day I would love to own property. It just seems so complicated and 'final'. It's not the cost so much as the fact that it ties me down that worries me.

 

[Fullmetal Chocobo]

People live in places for a long time with a locked rent rate. And they stay there.

 

[TheTony]

I think the thing people tend to worry about with condos is the fees.

Other than that, I'd assume they sell as well as most other properties, at least in fairly competitive real estate markets.

I'd find out more about your local market, since some of the nuance is directly linked to the state of the market. Don't get (all) your advice from agents, either - some will just tell you want you want to hear and not neccesarily give you the truth. Or worse, see it as an opportunity for a commision.

 

[Skotty]

Having grown up in the mid-west where a nice home goes for $150K, there is no way I could ever move to any high priced city. $500K for a 2 bedroom 1 bath total dump? No thanks, I'll stay in the mid-west and live in my mansion for the same price. Yeah, the cities pay more, but from what I can tell it's only like 2x the pay, whereas housing is more like 5x more expensive. Not a good deal.

 

[JeffreyLebowski]

I <3 Dallas and it's cheap housing. My house cost me ~$110k it's 3 bed 2 bath in a good neighborhood.

 

[jiggahertz]

Originally posted by: Skotty
Having grown up in the mid-west where a nice home goes for $150K, there is no way I could ever move to any high priced city. $500K for a 2 bedroom 1 bath total dump? No thanks, I'll stay in the mid-west and live in my mansion for the same price. Yeah, the cities pay more, but from what I can tell it's only like 2x the pay, whereas housing is more like 5x more expensive. Not a good deal.

Assuming that you stay in the residence for at least the life of the mortgage, you'll own it when you are done and be able to recoup this money through selling the property. Although, I guess you'll pay considerably more in interest on the more expensive property but you should remember that the house becomes an asset.

 

[eakers]

Originally posted by: Alphathree33
I've found a place for $1100/month -- a small bachelor condo that I'm very happy with for now because it's right downtown.

And on my starting salary of $55,000, it's affordable, albeit expensive. (I'm just graduating from college now.)

But in looking around, I notice places that would be considered "average" in my home town going for $3000-4000 a month.

You'd have to be making $300,000-$400,000 a year to reasonably afford such a place.

Since most places in Toronto are like this, am I to assume that the majority of the city are:
1) high-level managers (e.g. Vice Presidents, CEOs)
2) millionaires from old money
3) lottery winners
4) none of the above, so they must always have tenants living in their homes

I know there are lots of upper-middle class folks who make six figures. And I know that in a big city, there are probably tens of thousands who make half a million a year or more.

But that can't possibly explain how ALL of the housing can be priced so high. Where is the cash coming from?

people struggle and make ends meet and do without. I know lots of people who make 20-25000 a year that live in toronto (not including students) and they struggle (and have a lot of roommates) and live in dumps.

 

[erub]

using your math, if 3x the amount is affordable, then they would need to make around ~165K. But also remember, that food and other "necessities" (I put that in quotes because most of us are accustomed to these luxury) like cars, cable bill, electronics, etc don't rise with income..you simply have more disposable income.

Now you might want a nicer car or to upgrade your computer more often because you have more cash, but you don't have to..so you can put that money into your house. Really for you to be able to afford a place that costs $2K more per month, you might need an additional 3-4K monthly income (taking into acct larger utility bills, higher taxes, maintence), so that would really require 55K+12*4K, assuming you are willing to live with the same level of savings + extras..around 100K income, not the 300-400K you were figuring.

Obviously supporting multiple people on the same income factors in as well, but those additional increases would come whether you are living in a condo downtown or in the suburb

 

[HannibalX]

Originally posted by: Skotty
Having grown up in the mid-west where a nice home goes for $150K, there is no way I could ever move to any high priced city. $500K for a 2 bedroom 1 bath total dump? No thanks, I'll stay in the mid-west and live in my mansion for the same price. Yeah, the cities pay more, but from what I can tell it's only like 2x the pay, whereas housing is more like 5x more expensive. Not a good deal.

I also am from the mid-west (Northern Illinois). A very nice home in that area right now is about $200k.

Right now I am living in a 3 bedroom, 2 bathroom condo in Central Florida. This condo goes for $385,000.00. No garage, no yard, no private entrence or private parking. Just six rooms and a roof. I live on the second floor so I get to haul my butt of the stairs every day (no lift in the building). I pay $1,300.00/month plus all utils.

Eventually I will move back to the mid-west and pay cash for a house. I can't wait!

 

[JS80]

1) Roommate
2) Help from parents
3) Get married
4) Invest in stocks while you work, if you hit it cash out and buy a house
5) Move up the ladder and make bank

in big cities it's mostly old money...people who bought 30 years ago at $150k now worth $2 million. then when they sell they have $2 million to buy a house...sort of like a ponzi scheme.

 

[sdifox]

Housing is nuts in Toronto. Dual income is basically the only way you can afford anything decent.

 

[FoBoT]

commute from BFE FTW

 

[thedarkwolf]

mmmm dog food is both cheap and tasty

 

[D1gger]

Originally posted by: Alphathree33
I've found a place for $1100/month -- a small bachelor condo that I'm very happy with for now because it's right downtown.

And on my starting salary of $55,000, it's affordable, albeit expensive. (I'm just graduating from college now.)

But in looking around, I notice places that would be considered "average" in my home town going for $3000-4000 a month.

You'd have to be making $300,000-$400,000 a year to reasonably afford such a place.

Since most places in Toronto are like this, am I to assume that the majority of the city are:
1) high-level managers (e.g. Vice Presidents, CEOs)
2) millionaires from old money
3) lottery winners
4) none of the above, so they must always have tenants living in their homes

I know there are lots of upper-middle class folks who make six figures. And I know that in a big city, there are probably tens of thousands who make half a million a year or more.

But that can't possibly explain how ALL of the housing can be priced so high. Where is the cash coming from?

When I lived in Toronto, my salary was about $72k and my rent was $1200/mth. We lived very nicely. One of the benefits of living in downtown TO, was that we didn't need a car, and just walked or took the subway to wherever we were going.

.. and ignore the comment someone made about mortgage interest being tax deductible. That is not the case in Canada.

 

[LS20]

my rent is 15.5% of monthly salary, which i think is above-average in terms of appropriateness... ... people living in those nice places have split income.. youre thinking of only yourself in a young person, single income situation

 

[WobbleWobble]

Try living in Vancouver, overpriced housing market and lower average wages than Toronto.

 

[bennylong]

I live in Downtown LA and I don't own a car, that's how I can keep maxing out on my retirement accounts.

Yes, someone in LA that doesn't own a car! One less asian on the road.

 

[Ameesh]

Originally posted by: bennylong
I live in Downtown LA and I don't own a car, that's how I can keep maxing out on my retirement accounts.

Yes, someone in LA that doesn't own a car! One less asian on the road.

shens!