Cities where cost of living outweighs growth potential
By Betsy Schiffman

Updated: 1:59 p.m. ET Aug. 13, 2004

Do you think where you live is overpriced? You may be in for a shock. No matter how bad you think you may have it, it's a good bet that plenty of other Americans have it worse.

One of the inalienable rights of American citizenship, although not one expressly cited in the Declaration of Independence, is the ability to complain about how much things cost. Whether it's a gallon of milk, a tank of gas, the price of a Broadway show or real estate prices, we find solace for the damage to our wallets with a little healthy griping. 

That griping becomes even more heartfelt when the cost of living isn't keeping pace with people's incomes. 

Earlier this month the U.S. Commerce Department reported a 0.7 percent dip in spending for June (a much steeper drop than the 0.1 percent drop economists were expecting), and the decline was attributed to the fact that job growth hasn't come back in yet, and personal income growth had been slight. That means residents of major metro areas such as New York or Chicago may rightfully grumble that they're paying boom economy prices for real estate in a non-booming economy.

Although residents of Boston, New York or San Francisco are obviously willing to pay dearly for housing, the financial blow is usually softened by the promise that they will be earning a decent living and may have the opportunity to advance their careers. When the economy hits a bump, however, it becomes more difficult for big city residents to justify the premiums they pay to live in areas that aren't quite as rich in opportunity as they'd hoped.

This is the third time we've compiled our list of the Most Overpriced Places. We determine our findings by looking at the cost of living, housing affordability and job and income growth of the 150 places ranked on Forbes' Best Places For Business. The places with the highest cost of living, least affordable housing and most modest job and income growth are the cities that make it to our list.

There are a few places that have made it here each year — including San Jose, Calif., and Bergen-Passaic, N.J. — but we have a few newcomers this year, too. Portland, Ore., for example, has a diverse business base, but it's been saddled with high unemployment numbers and meager job growth; and while the cost of living isn't as exorbitant as places like San Francisco, the median home price there is a good $25,000 above the national median.

A surprising newcomer is Jersey City, N.J., where the cost of living is high, partly as a result of all the New Yorkers who moved across the Hudson River in search of lower tax and housing costs. There has been a great deal of development over the past decade, with new residential and commercial buildings dotting Jersey City's waterfront overlooking lower Manhattan. The city is still mostly a commuter town, however, thanks to an improved ferry system, but there isn't much local job growth yet despite the fact that many Wall Street firms such as PNC and American Express are opening offices here.

About the rankings
The rankings in Forbes' Best Places To Do Business are based on a 1 to 150 scale, where 1 is the best and 150 is the worst. A city that ranks 150 for its cost of living, for example, is the absolute worst of all 150 places in the list. (The rankings we used in this list were based on data from Economy.com and Sperling's Best Places.) The median home prices were taken from the National Association of Realtors' fourth-quarter report on existing family home sales, where the national average was $170,800. (The median home price in Jersey City was not available, however, and the median home price in San Jose came from the Santa Clara County Association of Realtors.) The cities are ranked in the order of the most overpriced to the least overpriced.