Cost of living gap closes for Alaskans

Study: Difference between state, Lower 48 decreases

Posted: Monday, June 14, 2004

It costs less to live in Alaska today, relative to living Outside, than it once did, according to data analyzed by the Alaska Department of Labor and Workforce Development.

In an article printed in the latest issue of Alaska Economic Trends, published by the department, economists Neal Fried and Dan Robinson explored various statistical paths to asses Alaska's economy and compare it to eco-nomies elsewhere in the nation.

The data also provided comparisons between major municipalities and regions within the state.

According to Fried and Robinson, as recently as 1997, a cost-of-living survey conducted by the American Chamber of Commerce Researchers Association (ACCRA) had rated four Alaska cities among the eight most expensive in the nation. By 2003, only Juneau and Kodiak made the top 20, and they listed 16th and 17th, respectively.

The ACCRA report and other measures show the cost of living in Alaska is falling relative to other U.S. locales.

"The state's population has grown and technology has brought advances both in the ability of the state to supply more of its own goods and services and also to obtain goods from national and international markets," the authors said.

Two standard measures are commonly used to assess the cost of living. One is the Consumer Price Index, or CPI, often called the inflation rate, which measures the cost of living over time. Among other uses, the Alaska Permanent Fund Corp., uses the CPI to determine how much must be added to the fund's principal to keep pace with inflation, the article noted.

The other measure relates costs differences among various locations at a single point in time. It can provide a useful tool, but not an absolutely accurate measure, for comparing whether it costs more to live, say, in Fairbanks or in Ketchikan.

Fried and Robinson pointed out that some surveys of this type compare locations by indicating what it would cost to maintain the same living standard. For instance, a lifestyle maintained on $40,000 annual income in one location, might be possible for less in another, or more in a third.

Both types of surveys, the authors said, have shortcomings and should not be used as absolute measures.

In Alaska, only Anchorage is measured for a national CPI index. Thus, it is typically used as the CPI for all of Alaska. Extensive surveys are done by the U.S. Department of Labor's Bureau of Labor Statistics (BLS) to measure spending habits. They use what is called a "market basket," a list of goods and service. Various categories are then weighted based on the percentage of available income consumers spend in those areas.

Data shows, for instance, that Anchorage consumers spend almost 43 percent of their income on housing and 18 percent on transportation. In those, and in most other areas food and beverage, medical care, clothes, for instance, Anchorage is close to national averages. Anchorage consumers do spend significantly more than their counterparts elsewhere when it comes to recreation, 8.1 percent to 5.9 percent, the authors said.

But CPI does not reveal comparative differences between locations. Fried and Robinson provided an example showing that in 2003 the annual average index for Anchorage was 162.5, while nationally it was 184. That does not mean prices were lower in Anchorage. The opposite was true, they said.

"The higher U.S. number means only that prices have risen more at the national level since the base years of the early 1980s then they have in Alaska," they said.

The inflation rate rose in Anchorage slightly during 2003, reaching 2.7 percent, which was higher than the 10-year average of 2.1 percent and higher than the national increase in 2003 of 2.3 percent.

"It has now been 10 years since Alaska recorded an inflation rate above 3 percent," Fried and Robinson reported.

Inflation rates were much higher in the early 1990s. In 1990, it was 6.2 percent in Anchorage. By 1999, however, it had fallen to just 1 percent. It rose to 2.8 percent in 2001, fell again slightly to 1.9 percent in 2002 and rose once more to 2.7 last year.

Housing, as mentioned, has the most influence on the overall index. The local housing market tends to give the Anchorage CPI "a local flavor," Fried and Robinson said. Housing's influence often leads the Anchorage CPI to diverge from the national CPI.

"Other CPI components are much less affected by local conditions," the authors said. "Price changes for gasoline, food, clothing, automobiles and other goods and services are dictated more by national and international conditions than local ones," they said.

Among all the consumer product areas measured, the cost of medical care in Anchorage and by extension, elsewhere in Alaska is rising the fastest, though, the authors point out, the category is not weighted heavily enough to have a major effect on the overall index.

Nevertheless, the authors said, "No other CPI component has come close to matching the steep increases in health care costs in the last 20 years."

Between 1992 and 2001, the medical care index for Anchorage rose 60 percent. That compares to the 25-percent increase for the overall index.

The story is similar on a national level, Fried and Robinson said.

"As the state and national populations age and the need for health care continues to expand, rising costs will intensify the focus on medical care affordability," they said.

Food prices are compared in 20 Alaska communities four times a year by the University of Alaska Fairbanks Cooperative Extension Service. The Trends article compares eight, including Kenai and Soldotna, which are treated as one community.

In September of 2003, it cost $105.54 to feed an Anchorage family of four with elementary school children for a week. In Kenai-Soldotna, it cost $122.39, about 16 percent higher. In Bethel, one of the costlier places to live in Alaska, the same food would cost that family $186.07 a week.

The Trends article also looked at housing.

The Kenai Peninsula rated the least expensive among 10 communities surveyed (Juneau, Kodiak Island, Valdez-Cordova, Ketchikan, Sitka, Anchorage, Fairbanks, the Matanuska-Susitna Borough, Wrangell-Petersburg, and the peninsula). Last year, the median adjusted monthly rent, including utilities, for a two-bedroom apartment was $671 on the Kenai Peninsula but $967 a month in Juneau.

The highest rents for three-bedroom single-family homes were in Juneau and Anchorage ($1,490 and $1,389 per month, respectively), while the peninsula came in second least expensive at $950. It cost $856 for the same accommodations in Wrangell-Petersburg.

You would do fairly well buying a home on the peninsula, according to the Trends' look at single-family home prices. The average sale price here in the second half of 2003 was $169,000, compared to a statewide average of $210,000. Anchorage, Fairbanks, Bethel and Juneau were all higher.

Looking at housing affordability another way, according to Trends, it took 1.3 household wage earners to afford to buy an average house on the peninsula, slightly lower than the statewide average of 1.4. The same home in Anchorage required 1.6 wage earners. In Bethel, it took almost two full-time wage earners (1.9).

ACCRA surveys also look at the "market basket" for higher-income households, such as those of professionals and executives, with incomes in the top 20 percent of all U.S. households. A city with an index score of 125 means it costs 25 percent more than the average of all 400 cities surveyed.

Anchorage data beyond the fourth quarter of 2002 was not available for the ACCRA survey, but it showed that Juneau and Kodiak had indexes of 132.3 and 130.8, respectively.

Fried and Robinson pointed out one important fact about the high-end spending survey.

"The survey does not include taxes, a significant point for Alaskans, whose tax burden is the lowest in the country," they said.

Another survey cited in the Trends article, called the Runzheimer International Living Cost Standard, measures cost of living among households in the lower end of the economic spectrum.

According to that survey, a household in Anchorage would need $34,682 annually to maintain the same standard of living attainable for $32,000 in the so-called standard city.

Seattle was about comparable to Juneau, $39,828 and $39,267, respectively. Housing costs for low-income families may be toughest in San Francisco, where, according to the Runzheimer survey, it costs $72,000 a year to buy what is available for $32,000 in the standard city.

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