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QUESTION: Why are your COL calculations so different from online calculators? How do I sort through the various differing analytics, data, and metrics to determine defensible COL model results?

 

1.Expenditure pattern assumptions matter.  Expenditure patterns depend on the specific earnings level, housing size, whether you rent or own, home amenities, whether the location of the housing is urban or rural, family size, education level, and age of family members. Does the model discuss the underlying expenditure pattern assumptions?

 

2.If you are purchasing, local home prices and the local housing stock matters   Housing is typically the largest component of expenditures.  MSA or city-wide home prices (or rental prices) are an average of all home sizes/amenities. Home prices can differ significantly by neighborhood or specific parts of the city. Frequently, metrics such as the average or the median include single, multi-family, new, and existing homes and not the specific estimates for the cost of your particular size or type of housing. Where does the housing data come from and how is it collected?

 

3.A well constructed, theoretically based, and consistently implemented pricing index measurement metric matters.  Price indexes are costly to build and resource intensive to update regularly.  It is prohibitively costly to collect price data in every location.  A statistically based, econometric model that identifies important determinants of the cost of living in a place can be used to estimate prices in locations that do not collect survey data.  Cost-of-living differences determined from data collected as input from users is suspect as to quality control and timing of collection. What is the source of the pricing data?

 

4.Federal, state, and local tax obligations matter.  Tax obligations should be calculated in a cost-of-living differentials model. Mortgage interest deduction, property taxes, and family size deductions affect taxes and should be included in estimated effective tax rates. It is reasonable to assume tax obligations are factored into a cost-of-living model (calculated) prior to consumable, health services, and transportation expenditures. Property taxes at the local level also matter (think NJ with high millage and TX with low millage). Does the model include taxes?

 

5.Consistency, comparability, and timeliness of data used to build the COL differentials model matters. Is the methodology described?  How often the data is updated and are the same sources used consistently?

 

ERI’s Geographic Assessor model addresses these issues and allows a high level of customization of other parameters in its cost-of-living calculations.

 

For a list of data sources used in the calculation of cost-of-living differentials, see Data Background FAQ #19.

 

See Two City Comparison - Background for more information.