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The “cost of living” is highly subjective

[Note to readers: This post is not about inflation. The rate of inflation is a little bit subjective, but much less subjective than the cost of living.]

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

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

That surprised me for a couple reasons. First, I’ve been to Singapore on several occasions and didn’t find it to be expensive. Second, I recalled some IMF PPP comparisons that suggested Singapore was actually quite cheap.  When I doubled checked, my memory turned out to be correct:

If you divide 88.45 by 133.74 you get 66.1%.  In plain English, the IMF estimates Singapore’s cost of living to be an astounding 33.9% lower than the cost of living in the US.  Not 33.9% below NYC, rather 33.9% below the US average.  There’s an almost crazy disparity between the IMF’s claim that Singapore is a very cheap city and surveys showing that Singapore is literally the most expensive city on Earth.  What gives?

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

1. Singapore is a really expensive city for expat business people who wish to rent a private apartment in fashionable central neighborhoods, have a private car, and have membership in a golf club.

2. For average Singaporeans living further out and not owning a car, the cost of living is quite reasonable.

The article matches my observations.  I recall that subway fares were low and restaurant meals were cheap.  I presume that lots of other services that use imported low skilled temporary workers (say nannies, nail salons, home remodelers, etc.) are also cheap.  Here’s what the linked article says about transport costs:

Owning a car in Singapore is certainly pricier than in other countries – no argument about that! This is because the certificate of entitlement (COE) that every car owner must purchase averages a whopping $75,000 for a sedan – and that excludes the cost of the car, road tax, fuel, and insurance. 

It’s a major contributing factor to Singapore being ranked the most expensive city in the EIU survey.

There’s a reason for it, though. Given Singapore’s small size, the volume of traffic on the road is carefully controlled to ensure we meet sustainability goals as well as avoid traffic gridlocks common to dense cities.

Paired with Singapore’s compact size, an efficient and affordable public transport infrastructure means there is no need to own a car. This is unlike larger cities where driving an hour or more to your destination is common.

If you really need a car from time to time, rental services like GetGo are an affordable alternative that starts at $2.20/hour and go up to $65.50/day. Longer-term rentals start at $283/week for non-luxury models. 

Taxis and ride-hailing services like Grab, CDGzig or Gojek are readily available in Singapore for around $11 to $26 per trip, less if you opt for shared rides. 

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

In my view, the truth is somewhere in between these two estimates.  Recall my earlier post arguing that Newport Beach was America’s best place to live.  That claim was based on a survey that showed Newport Beach to be America’s most “unaffordable” city (of more than 100,000 people.)  The basic idea is that a highly desirable place becomes “unaffordable” as people bid up housing prices to a high multiple of average incomes.  Unaffordability is an index of “revealed preference”.

Central Singapore is extremely desirable, especially to expat business people who want to be close to the action.  So the high “cost of living” there is essentially a measure of its attractive amenities.  

But all of Singapore is relatively attractive, at least compared to most other Asian nations.  Thus real estate in even the outlying districts is much more expensive than in most of the US.  An American family with a 2500 sq. foot home, a nice yard, and 2 SUVs in the driveway, would have a difficult time recreating their lifestyle if transplanted to Singapore.  They would view the IMF estimate as an almost absurd underestimate of Singapore’s cost of living.

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

My general sense is that Singapore does fairly well on service-focused measures of living costs (and perhaps some imported goods), and the US does relatively well on “physical goods” based measures of living costs.

Within the US, dense coastal cities like New York are particularly expensive for people that want big houses and cars.  It wouldn’t surprise me if studies even found a political dimension, with Republican consumption baskets skewing a bit more toward things, and Democrat consumption baskets skewing a bit more toward services.

The cost of living is thus highly subjective:  The cost of living how?

PS.  Singapore also does well on many “intangibles” that don’t show up in price indices.  Subways 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 comment on Singapore’s excellent health care system, and the political barriers to translating that success to other countries.

PPS.  Even service quality is highly subjective.  Americans who like to eat steak and potatoes in a big restaurant with plush chairs might not like the hawker’s markets where many Singaporeans eat.  Tyler Cowen loves these eateries:

 

PPPS.  Yesterday, a New Zealand tourist was murdered during a holdup at one of Newport Beach’s most elegant shopping malls.  This is a reminder that even America’s safest areas would not be viewed as all that safe by Singaporean standards.  Indeed, even Canada’s murder rate is almost 20 times higher than the rate in Singapore.

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