Australian Cities Amongst World's Most Expensive? No, People Can't Read Reports

This time last year, the Economist Intelligence Unit (EIU) released its annual report into the cost of living for executives transplanted overseas, and I devoted a lot of effort to explaining how the report didn't prove the cost of living was generally high for Australians, because it wasn't remotely examining that question. Clearly no-one pays any attention to this sort of analysis, because the 2013 report is out now and exactly the same mistake is being made.

Sydney skyline picture from Shutterstock

To recap briefly what I reported in more detail last year (drawing heavily on an excellent analysis by Matt Cowgill): the EIU's annual analysis is not a direct comparison of how expensive life is in a given city for locals in that city. It is "a relocation tool that compares the cost of living between 131 cities worldwide using New York as a base city", as the announcement press release makes clear. Indeed, the report's editor Jon Copestake points out that the fact that cities in our region dominate the list is because of economic prosperity:

Asian cities have also been rising on the back of wage growth and economic optimism. This means that over half of the 20 most expensive cities now hail from Asia and Australasia.

But that doesn't stop news organisations over-simplifying the situation:

A Reuters report manages to discuss the index extensively without once mentioning that the fact that it's designed for relocating executives, presenting it as some kind of overall measure of the cost of life in different cities. That isn't what the EIU has measured, and it's deceptive to present it as such.

Costliest cities
for relocating executives

  1. Tokyo
  2. Osaka
  3. Sydney
  4. Oslo
  5. Melbourne
  6. Singapore
  7. Zurich
  8. Paris
  9. Caracas
  10. Geneva

Source: EIU

Based on last year's experience, I don't expect commenters to absorb much of this. But let's try and make it extremely clear: this report provides no evidence of whether the cost of living for Australian citizens working in Australia has gone up. It doesn't factor in the level of tax that is paid, because workers employed from other countries will often be on very different tax arrangements, and it doesn't factor in typical income levels for Australians. It doesn't incorporate the overall cost of large government-run systems such as healthcare, and it doesn't make any allowance for population density. It is designed purely to give HR executives in multi-national organisations a means of weighting expenses relative to a single currency (in this case, the US dollar).

It's an election year, and we're going to hear a lot about the cost of living. That's a valid debate and one that should be informed by empirical data, not anecdotal experience. But that doesn't change the fact that this particular set of data has no relevance to the cost of living for Australians. If you're working in a job which might see you move overseas, it's potentially interesting. But twisting it to mean something else doesn't make you look more informed; it makes you look less informed.


Comments

    All well and good. If, as you say, it is valid to be concerned with costs of living, where are the facts that will tell us if costs here are too high, and why?

      CPI

        Actually, no, CPI measures the change in price, of a basket of goods. It doesn't actually show the cost of living. Only how much prices have changed (which needs to be considered in the context of changing wages). A better measure is shown in the Household Expenditure Survey from the ABS (cat. no. 6530) which shows how much is spent by various household types.

        However, once again, this is not a cost of living as it includes inherent expenditure decisions which are purely choice. E.g. some houses spend more on restaurants and cars. Those aren't necessities.

        The cost of living, should be measuerd, as a cost to consume a required amount of necessities to maintain a minimum standard of living, which is unavoidable regardless of income.

        Which, is once again, subjective and varies based on each household.

    Good point. We should be careful to check what any statistics really mean. Media is prone to sensationalise them. Think before accepting them, otherwise we would be easily controlled and brainwashed.

    most people are "cost averse", they're preoccupied with the "cost" of something, just as "taxes", i would pay attention to the other half of the equation: what do you GET for that investment ?

    the "value" is more important than the "price".

    Australia has 4 of the top 10 best cities in the world for health, wealth, and livability?

    http://www.smh.com.au/travel/travel-news/worlds-most-liveable-cities-adelaide-tops-sydney-20120814-2460e.html

    i'm sold.

    As a Brit who moved to Melbourne 7 years ago with my partner, i've never been happier :)

    Last edited 05/02/13 8:29 am

    I think you've got to push some (most?) blame blame to the EIU itself. It's opening paragraph is:

    After currency swings pushed Zurich to the top of the ranking last year, Tokyo has resumed its place as the world's most expensive city. This is a familiar position for the Japanese capital which has been the world's most expensive city for all but a handful of the last 20 years. In fact, since 1992 Tokyo has been the ranking city in every year bar six. Only Zurich, Paris and Oslo were dubbed the world's most expensive city during this time.

    Other news outlets aren't exactly misinterpreting the EIU's statement there, are they? The most qualification the EIU is willing to give to its report is an after-the-jump statement that "The Economist Intelligence Unit helps business leaders prepare for opportunity, empowering them to act with confidence when making strategic decisions".

    Regardless, while I agree it's not the best measure of CoL, and certainly isn't the be all and end all of such measures, it is a measure. You can consider it in concert with other measures, such as the Demographia International Housing Affordability Survey from 2 weeks ago, which also ranked Australian cities as very expensive to live in (yes, it only relates to housing, but that's invariably one of the largest influence on cost of living factors). Mind you, Demographia's website looks like it was last refreshed in 1996.

    The other thing it doesn't factor in is cultural (and consequently economic) focus. Take China for instance.. there is a very strong cultural focus on food and as such access to food, disregarding living conditions themselves, is much more abundant and cheaper. The dreadfully low incomes, poor living conditions (in comparison to here) and so on should mean that eating well is difficult... but because of that cultural focus on food, it's not..

    People value different things differently in different places :)

    How is Perth not on that list, and above Sydney? It is by far more expensive to live there- OH WAIT, NO, people just cant do these economic surveys properly.

    Also, that ABC tweet looks suspiciously incorrect, given the table has us third and fifth, not fourth.

    When I was in Melbourne back in December, I found it cheaper in ways than back up here on the Gold Coast & Brisbane. Like public transport was a bit cheaper and the times I went out to eat at a restaurant, I got more for less money, can't do that on the Gold Coast easily.

    But no real surprise there that some of our cities rank as expensive to live in.

    All it says about Australia is that the dollar needs to be devalued by about 20 - 25% Sadly that wont happen in the foreseeable future.

      Indeed.. try telling that to the average person though.

    So is there anywhere where one can get a reliable source of comparative cost of living as felt by the people living in the city?

    What I would really like the focus to be on is the cost of shopping in Australia compared to the rest of the world. Literally everything is artificially marked up and has been the case for years. Retailers expect Australian's to continue accepting this because they think we are used to it. Everything is included in this, cars, clothes, food, electronics etc... This could actually be one of the primary reasons for pushing Australian cities up the list because relocating executives are not used to pay as much as we are for shopping expenses so has to be factored into their budgets when they move here. Thankfully online shopping has reduced this pressure a little.

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