This is a very subjective thought experiment and I'm sure you could make all kinds of arguments against it but here goes...
Imagine person A lives in an area with a high cost of living and gets full salary. Person A is able to purchase a house at a high valuation relative to the national average. Person B in a rural area is able to buy perhaps as nice a house on a smaller salary in a below average market.
Now look at the options available to these two people when they want to move. Person A sells at market rate or perhaps a little below and can move to a lower cost of living with a relatively large pile of cash. Person B has no such option. The real estate market arbitrage is available to person A and not to person B.
The salary of person A looks like it produces options and upward mobility. The salary for person B seems to have more limitations.
Yep. With these "cost of living adjustments" it's almost always a better move long term to live in the higher COL area, especially if you are living inexpensively and saving the vast majority of your money. I save more per year than I would gross working as an engineer near my hometown...
Although I will say, person B in your scenario has potentially more upside on their housing equity, and they do potentially get a higher standard of living short term. Of course, there are aspects of standard of living such as public transportation, good public schools, people in your area you'd like to date/be friends with that person B may not be able to buy.
99% of the things I want to buy are dirt cheap. The other 1% are expensive to the point where they are unaffordable for almost everyone. Think about something like a $120k 3d metal printer. Those things are actually possible to buy if you move to SV.
I’ve done the budget calculations based on my own personal spending and found that outside rent, the majority of what I spend money on costs essentially the same no matter where I live (if you normalize out taxes).
In the US, state and local taxes can cause a huge variance. Certain states are in debt for multiple tens of thousands of dollars per taxpayer more than other states, and those taxpayers will have to pay far more for debt service.
This whole FB thing is actually more nuanced than people talk about:
1) It's only for senior engineers
2) US only right now.
Essentially, this is a play to increase senior retention. California is pretty much unaffordable for most people who weren't pre-IPO or very good at saving.
Therefore, the trend is for more senior people to leave, and move to cheaper places. By allowing remote for seniors, FB have a good shot at keeping people for longer, which is incredibly important for large engineering driven tech-co's as the churn in tools/frameworks/approaches is really high, and keeping people who remember Tool version -2 is super high leverage when they come to consider tool version + 1.
I've always assumed these companies liked the senior rotation in order to keep seniority (and wages) lower. It also likely has the effect of keeping average age lower, which would make for an interesting disparate impact lawsuit.
I foresee the bar being raised for those wanting to enter a high COL city in the future. I’m already noticing an emphasis on companies wanting to hire more outside of the Bay.
This is absolutely 100% true. And people considering the pros/cons of high COL+high salaries vs low COL+a lower salary should very much consider this when making their choices.
And it's not just about the cost of housing. That $1000 phone you cary: it'll be a higher % if your salary if you go for the latter choice instead of the former. Same thing for many many other purchases you will want to make.
I find that people don't think about this enough. To their detriment.
Bingo. In a high COL area, you have the option to retain a significant surplus of your exchanged labor if you trade off COL for inconvenience, which adds up to compounding gains over time. And as your thought experiment proves, the real move is to relocate after a substantial tranche of that money has been earned, at which point the lower earnings are no longer as much of an issue.
Another way I've been thinking about it over the past few days is that this also makes side project optionality significantly more attractive. If you can make a side project that makes XX% of your BigCo T1City pay, the point at which you're making top 50% percentile low COL MRR could become significantly lower than if you planned on remaining at that BigCo in BigCity forever.
I agree, but want to mention another variable that throws a wrench into things:
The longer it takes for one to accumulate that substantial tranche, the more entrenched they become in their home city (family, friends, community) and the more challenging it is to move.
Looking at average sales values from the low point in ~2010 and today's high, there's about a $700k difference (looking at SanFran city).
So, yeah, if you timed perfectly on an average house or higher, you'd have $200k+ of income to report. But, anybody who bought an average home within 5 years is going to be below the $500k threshold.
Either way, you still walk away with $500k tax-free. Which is still a massive pile of cash by any measure, contrary to the post to which I responded.
Traditional economic theory should handle liquidity in pricing.
That is it would be a weird market where prices were artificially high for houses you couldn’t sell quickly. The price would just lower and the rent should follow.
I’m experienced enough to believe markets don’t follow traditional models, but in this thought experiment at least liquidity isn’t an interesting new unknown variable.
Imagine person A lives in an area with a high cost of living and gets full salary. Person A is able to purchase a house at a high valuation relative to the national average. Person B in a rural area is able to buy perhaps as nice a house on a smaller salary in a below average market.
Now look at the options available to these two people when they want to move. Person A sells at market rate or perhaps a little below and can move to a lower cost of living with a relatively large pile of cash. Person B has no such option. The real estate market arbitrage is available to person A and not to person B.
The salary of person A looks like it produces options and upward mobility. The salary for person B seems to have more limitations.