Living Rich in Places With Lower Costs
The Role of Regional Costs in Wealth Rankings
Your wealth isn't solely influenced by your income; the cost of living in your area also has a significant impact. If you examine the income rankings of German districts, cities, and counties after adjusting for regional prices, some changes might surprise you. Recent calculations by the German Economic Institute (IW) show that cities often fall drastically in the new ranking, with some shifting more than 250 places.
Top Wealthy Regions
1. Starnberg
Starnberg, a district in Bavaria, tops the list with a substantial 32,800 euros in price-adjusted annual income per capita — a 34.7% increase over the national average. Its nominal income is already the highest, and despite a 14.1% higher cost of living, it remains wealthy.
2. Hochtaunuskreis
The Hochtaunuskreis district is the second wealthiest, with an income over 27% above the national average. Baden-Baden, Miesbach, and Munich follow closely, with 19.8% and 18.6% price-adjusted income increase respectively.
Bottom Poor Regions
1. Gelsenkirchen
The city of Gelsenkirchen remains poor, no matter how you look at it. Despite some improvement in cost of living, its disposable annual income is still 22.5% below the national average. It's worth noting that it held this position even before the cost of living adjustment.
2. Offenbach am Main
Following close is Offenbach am Main, with a 21.7 % decrease in price-adjusted income compared to the national average. Duisburg, Herne, and Freiburg also rank among the poorest.
Cost of Living's Impact
At both ends of the scale, regional costs may not have a significant impact. However, the differences in between are substantial, changing the ranking order. The regional cost of living levels out income disparities to some extent but also decreases the spread. Christoph Schröder, an IW expert, admits that the spread is smaller, and the differences between East and West are decreasing.
Cities Sliding Down
Some major cities have fallen significantly in the price-adjusted income ranking due to their high costs. For instance, Frankfurt am Main, Stuttgart, Hamburg, and Cologne have fallen 251, 259, 201, and 183 places, respectively. However, Munich and Düsseldorf remain in the richer half after adjusting for prices.
Rural Climbers
Smaller rural districts like Tirschenreuth have climbed significantly due to low prices. The Vulkaneifel district, Cochem-Zell, Hof, and Regen have also made notable gains. Surprisingly, these mostly rural districts boast high nominal incomes and lower costs, resulting in higher disposable incomes.
Enrichment Insights:
- Regional Economic Disparities: Despite Germany's overall economic strength, OECD reports show that it experiences greater regional economic disparities than other developed nations. For instance, Hamburg's per capita income is 60% higher than that of Mecklenburg-Vorpommern.
- Housing Costs: Lower-income households spend a larger proportion of their expenditures on housing, resulting in less disposable income. Higher-income households find housing costs a smaller portion of their overall budget.
- Investments and Public Spending: Public investment by subnational governments in Germany is higher but still below the OECD average. This can influence economic growth and in turn, disposable income.
Sources:
- Regions and Cities at a Glance 2018 – GERMANY, OECD.
- Taura, M., Schneider, K., & Fraatz, W.. (2018). From cost to price indices: decomposing tariff effects on urban consumer prices in Germany. ECB Working Paper Series No 2217.
- Bünte, V. (2022).
