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The ‘cost of living’ is very subjective

The ‘cost of living’ is very subjective

(Note to readers: This post is not about inflation. Inflation is somewhat subjective, but much less subjective than the cost of living.)

In my previous post I discussed Singapore. Today’s FT has an article about Singapore, which contains this interesting fact:

The city, one of Asia’s major financial centres, has been named the world’s most expensive city for nine of the past 11 years by the Economist Intelligence Unit’s annual Worldwide Cost of Living survey.

That surprised me for a couple of reasons. First, I’ve been to Singapore several times and didn’t think it was expensive. Second, I remembered a couple of IMF PPP comparisons which suggested that Singapore was actually quite cheap. When I checked again, my memory was correct:

If you divide 88.45 by 133.74 you get 66.1%. In plain English, the IMF estimates that the cost of living in Singapore is a whopping 33.9% lower than the cost of living in the US. Not 33.9% lower than NYC, but 33.9%. below the US average. There is an almost insane discrepancy between the IMF’s claim that Singapore is a very cheap city and studies that show that Singapore is literally the most expensive city on earth. What is going on?

Fortunately, the FT links to a useful linked article which explains the reality of Singapore prices. The “TLDR” synopsis is as follows:

1. Singapore is a very expensive city for foreign business people who want to rent a private apartment in a posh, central area, have their own car and be a member of a golf club.

2. For the average Singaporean who lives further away and does not own a car, the cost of living is reasonable.

The article matches my observations. I remember subway fares being cheap and restaurant meals being cheap. I assume that many other services that use imported, low-skilled temporary workers (such as nannies, nail salons, home remodelers, etc.) are also cheap. Here’s what the linked article says about transportation costs:

Owning a car in Singapore is definitely more expensive than in other countries – there’s no arguing about that! This is because the Certificate of Entitlement (COE) that every car owner has to buy averages out to a whopping $75,000 for a sedan – and that’s excluding the cost of the car, road tax, fuel and insurance.

It is a major factor that has contributed to Singapore being ranked as the most expensive city in the EIU survey.

There is a reason for this, however. Given Singapore’s small size, traffic volumes on the roads are carefully controlled to ensure we meet sustainability goals and avoid the traffic congestion common in densely populated cities.

Combined with Singapore’s compact size, an efficient and affordable public transport infrastructure means you don’t need to own a car, unlike larger cities where it’s common to drive an hour or more to your destination.

If you really need a car occasionally, rental services like GetGo are an affordable alternative, starting at $2.20/hour and going up to $65.50/day. Long-term rentals start at $283/week for non-luxury models.

Taxis and ride-hailing services such as Grab, CDGzig or Gojek are easy to find in Singapore for around $11 to $26 per ride. If you opt for a rideshare, you will pay less.

It should be noted, however, that this article is a government-sponsored rebuttal to the cost of living survey, which found Singapore to be extremely expensive.

In my opinion, the truth lies somewhere between these two estimates. Remember my previous message claim that Newport Beach was the best place to live in America. The claim was based on a study that found Newport Beach to be the most “unaffordable” city in America (with a population of over 100,000). The basic idea is that a highly desirable place becomes “unaffordable” as people drive up housing prices to multiples of the median income. Unaffordability is an index of “revealed preference.”

Central Singapore is highly sought after, especially for expat business people who want to be close to the action. So the high “cost of living” there is actually a measure of the attractive amenities.

But Singapore as a whole is relatively attractive, at least compared to most other Asian countries. So real estate, even in the suburbs, is much more expensive than in most parts of the US. An American family with a 2,500 square foot house, a nice yard, and 2 SUVs in the driveway would have a hard time recreating their lifestyle if they moved to Singapore. They would see the IMF estimate as an almost absurd underestimation of the cost of living in Singapore.

On the other hand, Singaporeans enjoy a relatively low cost of living in most things, including some areas that are much more important than restaurant meals and nail salons. Healthcare is quite cheap and income taxes are very low.

My general sense is that Singapore does reasonably well on services-based cost-of-living measures (and perhaps some imported goods as well), and the US does relatively well on “physical goods”-based cost-of-living measures.

Within the US, densely populated coastal cities like New York are particularly expensive for people who want big houses and cars. I wouldn’t be surprised if studies even find a political dimension, with Republican consumption baskets leaning a bit more toward things, and Democratic consumption baskets leaning a bit more toward services.

So the cost of living is very subjective: What about the cost of living?

PS. Singapore also does well on many ‘intangibles’ that are not included in price indexes. Metros are clean and efficient. Crime is very low. There is much less pollution and traffic congestion than other Asian cities. On the negative side, there is less freedom of speech. After my previous post, Jim Glass provided a very astute commentary on Singapore’s excellent healthcare system and the political barriers that prevent that success from being replicated in other countries.

PPS. Even the quality of service is highly subjective. Americans who enjoy steak and potatoes in a large restaurant with plush chairs find the street vendors markets where many Singaporeans eat. Tyler Cowen loves these places:

PPPS. Yesterday, a New Zealand tourist was murdered during a robbery in one of Newport Beach’s most elegant shopping malls. It’s a reminder that even the safest areas of America wouldn’t be considered safe by Singaporean standards. In fact, even Canada’s murder rate is nearly 20 times higher than Singapore’s.