I came across this article on the front page of Hacker News yesterday. The author argues that Bay Area housing prices may be high, but the salary increase probably makes it worth while. The author pulls together some interesting data to make their point, but I have major issues with the analysis. In fact, the data seem to be showing the opposite trend,
Summary of findings
Here's the important information from the article:
The author reviews median tech worker salaries from the BLS, Indeed, and GlassDoor and finds:
engineers at top tech companies in the Bay Area stand to make between $15,000 and $33,000 more per year than engineers at top tech companies in Seattle.
Comparing median monthly rent from Zillow, the author finds:
median rent is about $1400-$1500 a month (or roughly $17,000-$18,000 a year) higher in the Bay Area than in the Seattle metro area
The author then concludes:
higher Bay Area salaries at least cover the costs of higher rents.
The most obvious error is that this analysis completely ignores all taxes. I pointed this out in the comments, but the conversation exclusively focused on the difference between WA and CA state taxes. I think it's important to note that this estimate also ignores federal taxes as well.
For example, consider a Seattle salary of $100k and a Bay Area salary of $133k. Assuming a federal tax rate of 33%, that $33k tax difference will be reduced to $22k takehome.
$133k * (1-0.33) - $100 * (1-0.33) ~= $22k
Since WA does not have a state income tax and CA has a significant income tax, you'll also end up paying just a bit over $10k in state taxes. This drops the take home pay increase to $12k total. And, according to the data, this is at the high end of the scale!
In reality, there's no way we'll cover the $17k rent difference.
Median Rental Price
A few folks argued the use of a median isn't appropriate here. I agree to a point, but I think it's probably a good first approximation, especially since the author restricted their data to tech salaries in each market.
However, I do have once concern here. I'm willing to bet that Seattle renters can get more space for their median rental than a Bay Area renter can get for the Bay Area median rental. As rent prices increase, renters will adjust by increasing the amount the spend on rent and reducing the value of thier apartment. In economic terms, a consumer's demand for an apartment is not perfectly inelastic.
I saw this first hand when I moved to the Bay Area. Prices were generally higher than what I was used to, so I adapted by increasing my monthly rent, downsizing my apartment, and increasing my commute length. I also noticed more of my peers sharing apartments or houses who wouldn't do so in lower COL areas.
After accounting for taxes and reviewing the metrics used for rental costs, the salary increase from moving to the Bay Area is very unlikely to cover the increase in housing costs, especially for similar housing.