Where is the best place to live?

In recent years there has been a large outflow of residents from California and New York to places like Texas and Florida. The concept of “revealed preference” suggests that these fast-growing states may be the best places to live. But there are actually two ways to think about the ‘best place’:

1. The best place judged purely on facilities that influence the quality of life.

2. The best place, taking into account both amenities and cost of living.

By way of analogy, the best car might be a Rolls Royce. But the best car in terms of value for the dollar might be a Toyota Camry. If so, you’d expect most people to choose the Camry, even if the Rolls Royce is in some ways a better car. In today’s post I’d like to reflect on the best place to live in the Rolls Royce sense, not the Camry sense.

View this heading and subheading in the OC register:

And 51% of the Top 150!

I was very happy to see this story because it suggests that I have chosen to live in the Rolls Royce of the states. The OC Register defines ‘unaffordable’ based on the ratio of average house prices to income. But of course, these places aren’t literally unaffordable, since 39 million people live in California. Instead, think of that high ratio as a reflection of a high level of provisioning. People will pay more for the privilege of living in California. By comparison, a stock with a high price-to-earnings has intangible positive attributes that are not reflected in typical measures such as current earnings.

It may seem strange to argue that California is the best place to live, given its widespread problems such as overregulation, traffic, crime and homelessness. But if I have to choose between trust in the media and trust in the market, I will go with the market every time. 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 lower housing demand would lead to the kind of low housing prices we see in Detroit. People leave because of less housing supply; California refuses to build any more houses. California residents have decided they simply don’t want more people. (I don’t agree with that decision, but I’m in the minority.)

If I’m right, we should expect that within California, the places with the most unaffordable prices will be the places with the fewest problems. Orange County is not entirely problem-free, but has less overregulation, traffic, crime and homelessness than the rest of California. So it’s worth noting that even though Orange County has less than 10% of California’s population, we have 10 of the 25 largest cities in California that are unaffordable. That suggests that Orange County might be the best county in America. The most unaffordable spot of all is Newport Beach, a luxury coastal community in OC.

So to answer the question in the blog title: Newport Beach is the best place to live in America, if not the world.

There are two types of ‘revealed preferences’. The outflow of people from California suggests that we are not the Toyota Camry of states. But this preference is also reflected in house prices (land prices). The high price of homes in California suggests that we are the Rolls Royce of states.

P.S. I believe the OC Register list was limited to cities with more than 100,000 residents. So it’s possible that smaller places like Beverly Hills and Laguna Beach are even more unaffordable.