Living in Miami drains your wallet. See where area’s cost of living ranks nationally
In the three years since COVID-19 reached the United States, South Florida has stood out, drawing new residents and newfound wealth. In January, it received another distinction confirming that living here really does cost an arm and a leg.
The Miami metropolitan area posted the highest cost-of-living increase among major U.S. cities, according to the latest Consumer Price Index report by the U.S. Bureau of Labor Statistics. It reflects the tough daily reality for many locals who work outside of technology, finance or law — sectors paying many workers six-figure salaries and head-spinning annual bonuses on top of that.
“The more people that came into the city, the more expensive things got,” Rodolfo Crisanto, a 24-year-old barber who works downtown and has lived most of his life here, recently lamented outside his shop. “Going out in Miami is way more expensive than it used to be.”
Consumer prices in the region encompassing Miami, Fort Lauderdale and West Palm Beach rose 9.9% for the 12 months ending in December, the highest figure among the top 14 metro areas. Phoenix came in second place at 9.5% and Seattle in third at 8.4%. New York-New Jersey and the San Francisco Bay Area, two sources of new Miami residents, fared much better at 6.3% and 4.9%, respectively.
Miami’s pace of inflation in 2022 also outpaced the national level of 6.5%.
“You chalk that up to the housing market,” said Greg McBride, senior vice president and chief financial analyst at Bankrate.com, a national financial information provider with an office in West Palm Beach.
On Wednesday, Federal Reserve officials tapped the brakes on their aggressive inflation-fighting offense and lifted the central bank’s benchmark interest rate by one-quarter of 1% to 4.75%. Since inflation has eased nationally in the past few months, Fed officials said this smallest rate bump since March 2022 portends what consumers and investors should expect from the Fed this year in future hikes since inflation remains a challenge.
Housing main price driver
In the Miami-area, housing is the main culprit for the cost of living jump last year, according to economists, but the prices of food and energy also rose. The latest government report did provide a bit of relief for residents. The 9.9% annual inflation increase in Miami in December for all items was less than the peak in August 2022, and it has decreased in each of the four ensuing months.
READ MORE: What’s in store for Miami-Dade homebuyers and renters in 2023?
Still, the price increase in the Miami metro area for all items, excluding food and energy, called the core Consumer Price Index and considered by some economists a better indicator of inflation, increased 10.4% over the last 12 months and in December reached its highest point in at least the past three years, suggesting hard times remain. Core inflation nationally was almost half of that at 5.7%.
In South Florida, “Inflation is beginning to trend in the right direction but there’s still a long way to go,” McBride said, reflecting on the downward path of consumer prices.
The Consumer Price Index measures average change in prices over time paid by urban consumers for a basket of consumer goods and services.
In the Miami area, cereal and dairy products are more expensive, too.
“Almost everything in the supermarket has gone up,” said Crisanto, the barber.
That goes for electricity and natural gas, as well.
Buying furniture and lunch can cause stick shock. Parking a car for about two hours in a garage in Coconut Grove on a recent Friday afternoon for a business lunch cost this reporter $25. That is 250% higher than downtown San Francisco’s Fifth and Mission/Yerba Buena Garage, roughly five blocks from Twitter’s headquarters. Meanwhile, public parking lots in Palo Alto, Mountain View and Sunnyvale, California, cities long the heart of Silicon Valley, continue to be free.
Newcomers get abrupt shock
New arrivals to the Magic City are being hit hard.
Zhenya Kolcheuskaya, a 29-year-old waitress who moved to Miami in 2020, said recently, while taking a break at the restaurant where she works that, “Prices went up a lot especially compared to three years ago when I moved here.” The Belarus native added, “We all feel it.”
What if anything can consumers do now? Not too much, experts say, because we all need to keep buying staples and pay housing costs.
READ MORE: Four Miami-Dade professionals describe housing squeeze
If you are looking to buy a used car or truck, you may be in luck. That was one of the few categories that posted a price decrease of 9.8%.
Otherwise, consumers are stuck. Traditional advice consists of telling people to economize, switch to lower cost brands, buy in bulk, and make less frequent purchases, but many Miamians are already doing that and as much as they can, economists observe.
For example, Kolcheuskaya said, “I’m prepping and cooking at home more and eating out less,” she noted. And she is generally going out less and instead “staying and chilling at home.”
Many Miamians simply don’t have much room to further maneuver.
“There is nowhere to hide because inflation has been so pronounced in categories that are necessities,” said McBride. “So, it’s not a matter of cut back on this or do without that. [Such advice] just doesn’t apply in these circumstances.”
Forced to work multiple jobs
Many new arrivals and old-timers, are seeking additional sources of income.
“The only thing you can do is work more,” said Crisanto, the barber, who now puts in 60-hour workweeks including house calls.
Kolcheuskaya, the waitress, holds additional side jobs including modeling and social media work, both of which she first started due to personal interest. But now, “I feel financial pressure to continue them,” she said.
One measure of that comes from a company called Instawork, a digital marketplace that connects businesses with individuals looking for nearby hourly work in over 25 U.S. cities.
The San Francisco-based company is seeing massive growth in South Florida, said Daniel Altman, the firm’s chief economist. Out of its 30 biggest markets in the United States and Canada, the Miami area had the biggest increase in completed work shifts between November and December 2022, he said.
Last year, three-quarters of flexible workers surveyed via the Instawork platform used the income they earned to pay for essentials.
“So many people need extra income to make ends meet,” Altman said. “This a big reason why our platform has been growing so quickly across the state of Florida.”
This comes as unemployment in Miami-Dade County continues to drop. In November, it stood at 1.5%, far lower than the national rate of 3.4%, according to the U.S. Bureau of Labor Statistics. And wages continue to rise for most middle-class workers, yet not enough to keep pace with price increases.
Consumers’ buying power in the greater Miami area rose by 6% early in the pandemic, but all those gains were erased by early last year, according to an analysis by Altman. Only recently have they started to bounce back.
“The spending power of Floridians has actually been declining even though for many their pay has been increasing in nominal terms,” the Instawork economist said.
Quick price relief not in the cards
How long will this last?
Some of the slowdown in inflation seen in the most recent report was due to the sharp drop in the price of gasoline, McBride said. But that continues to be volatile. For example, gas prices in Miami went back up in January.
“We need to see broad-based improvement,” the Bankrate economist said. “That’s still lacking.”
How did this problem arise? The causes of inflation are not unique to South Florida or the state.
The onset of the COVID-19 pandemic in March 2020 and the ensuing policy decisions made in Washington, D.C., were the initial catalysts. Starting after the pandemic emerged, the federal government put billions of dollars into the economy via Paycheck Protection Program loans, tax credits, and stimulus.
“That led to spending and some inflation,” said Rob Anderson, the chief financial officer of U.S. Century Bank, a Miami-based community bank.
Combine that with kinks in the supply chain that worsened during the ongoing pandemic followed by the Biden administration’s focus on policies seeking to return manufacturing to the United States, and the result is more inflationary pressure — no matter whether such policies have other merits.
More recently, the Federal Reserve has hiked interest rates throughout last year in response to rising inflation. That means higher borrowing costs for individuals and companies.
At the same time, some causes are specific to the Miami metro area.
‘Perfect storm in South Florida’
The rise of remote work during the pandemic spurred technology professionals to move across the country. Many flocked to Florida and brought their high wages. Meanwhile, immigration from Latin America to the state continued. Venezuelans, for example, would be delighted to find double-digit inflation.
“You kind of had a perfect storm in South Florida,” Anderson said, “so that just led to a lot of spending.”
Investment firms also started snatching up homes and paying for them with cash, then renting them or flipping them. Anderson, the bank chief financial officer, said when he moved here in 2020 and made one offer on a house, it received five other bids in cash above the asking price.
Housing is the key factor driving higher cost of living in Miami, even as the number of home sales declined last year.
The shelter index in the latest Consumer Price Index report rose 17.2% over the past year in the Miami metro area. That figure nationally was less than half, at 7.5%. Average rent of a primary residence in South Florida was up 18.6%.
“Any time you get a large number of new residents in an area and you bring a lot of income into the area without increasing the supply of the things people need, then prices are going to go up,” Altman said.
Many of the new arrivals are putting money into the local economy by dining at restaurants or going out on Saturday nights. “Those higher income jobs are also generating a higher level of spending that ends up being somebody else’s income,” said McBride of Bankrate.com.
But supply of houses, condominiums and apartments is not keeping up with demand, particularly in housing even as cranes and construction sites dot Wynwood and downtown Miami.
“Most of the building that takes place in South Florida tend to be higher-end properties,” McBride said.
Availability is minimal for moderate- to low-income households, the individuals who would likely be first-time home buyers. “The supply issue continues to be a real issue under $500,000 price points. That’s a problem that has perpetuated for years,” he said.
Anderson, of U.S. Century Bank, concurred. “If you have been here and are working in a low- to middle-income job, it is very challenging to afford housing, to afford rent,” the economist said.
And so, even relative newcomers wonder how many jobs they will need to keep up. Kolcheuskaya, the waitress, said, “I’m feeling a bit stressed, because it’s a concern how much we have to work to live a normal, good life here.”