Feeding a family costlier here than in Anchorage

Cost of living gap between Alaska, rest of country gradually narrowing

Posted: Tuesday, July 18, 2006

It may be preferable to live here on the Kenai Peninsula than in the big city to the north, but it costs you.

An analysis conducted by the University of Alaska Fairbanks shows feeding a peninsula family of six for a week required digging deeper into the wallet in 2005 than feeding the equivalent family in Anchorage.

That is, what cost $118 in Anchorage cost $129 in Kenai, $136 in Seward, and $159 in Homer.

This family food cost data was part of a larger article on Alaska’s cost of living published by the Alaska Department of Labor and Workforce Development in its July issue of Alaska Economic Trends.

While food may have cost more, putting a roof over the family was cheaper than in Anchorage. For instance, according to data collected in the Alaska Housing Finance Corporation’s 2005 rental market survey (July 2004-July 2005) a three-bedroom home in Anchorage cost an average of $1,407 per month. The same home on the Kenai Peninsula, just $1,006.

Apartment rents showed a similar trend, with a two-bedroom apartment in Anchorage going for an average of $875 per month, compared to $706 in the Kenai Peninsula Borough, the Labor Department said.

According to department economists Dan Robinson and Neal Fried, a “housing affordability index” is reached by combining sales price data with average wages in the same area to determine how many wage earners are needed to afford the average home. The higher the index number, the less affordable is housing and the more wage earners it takes.

In this case, the Kenai Peninsula Borough’s index of 1.4 (wage earners) means housing is slightly more affordable with respect to wages than in Anchorage, where the index is 1.6.

Robinson and Fried note that the high cost of living in Alaska is part of the state’s folklore. But the data shows a changing trend.

“Although it’s still more expensive to live in Alaska than in much of the rest of the country, the gap is gradually narrowing,” the authors said.

The Trends article included Consumer Price Index data, considered the best measure of inflation, as well as other cost-of-living studies comparing prices in various locations over the same time period.

According to Robinson and Fried, the Anchorage CPI hit 3 percent in 2005, the highest since 1993. The actual rate of increase was lower than the national inflation rate, but higher than Anchorage’s 2.2-percent 10-year average. (The CPI is not calculated for any other Alaska city, and thus Anchorage’s is used as the best substitute for a statewide inflation measure).

“Prices rose in nearly all major categories in 2005, with the biggest increase coming in the transportation component,” the authors said. “The only decline among the major categories was in apparel and upkeep, where prices have fallen in seven of the last 10 years, due mostly to the dramatic increase in cheaper imports from China.”

That the gap in cost of living is narrowing between Alaska and the Lower 48 can be demonstrated by comparing overall housing prices (housing has the largest single impact on CPI), and energy costs. Housing rose by 2.7 percent in Anchorage compared to 3.3 percent Outside. Energy costs here rose about 12.8 percent, compared to the national figure of 17 percent in 2005.

Another area affecting the cost of living is medical care. According to Robinson and Fried, no other component of the CPI comes close to matching medical care’s rate of increase over the long term.

“Since 1984, medical care has increased by a whopping 226 percent,” Robinson and Fried said. “Nationally, the story is much the same, with an increase of nearly 203 percent over the same period.”

Whether medical costs will continue increasing at that pace is an open question.

“One factor suggesting they might is increasing demand, fueled by the aging baby boomer population,” the authors said.

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