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David Robinson: SolarCity likes our lower costs

One of Dan Harvey’s first jobs, as head of SolarCity’s hiring efforts in Buffalo, will be to convince a cadre of 100 to 200 engineers to come work at the company’s solar panel factory in Buffalo.

A natural starting place for that hunt is in the Silicon Valley, where engineers with experience in semiconductor and solar technology are plentiful.

But why would anyone give up the excitement of a technology hotbed to come to a gritty industrial city known for its snowy winters?

Harvey thinks he just might get their attention by explaining how much further their money will go in the Buffalo Niagara region.

New data from the federal government shows just what Harvey means.

Compared with the Silicon Valley, a dollar in the Buffalo Niagara region goes about 27 percent further – and that price disparity is a great equalizer that more than overcomes the lower incomes here.

That might not seem readily apparent at first, when you consider that the per capita personal income in the Silicon Valley, at $53,322, is more than $9,000 higher than it is in the Buffalo Niagara region, where average incomes are just $44,178.

But that’s only part of the story. Prices in the Silicon Valley are about 21 percent higher than the national average, largely because of sky-high rents that are almost double the U.S. norm. In contrast, prices in the Buffalo Niagara region are roughly 6 percent lower than the national average.

That’s important because most middle- and lower-class Americans use the bulk of their incomes to buy the things they need to maintain their lifestyle.

We notice the difference when we go to the gas station and pay $2.85 a gallon instead of the $3.37 that drivers pay in the Silicon Valley.

We notice it when we pay $129,000 for a typical home in the Buffalo Niagara region, while half the homes in the Silicon Valley sell for more than $860,000, while half sell for less.

Here, just under three of every 10 households devote more than 30 percent of their incomes to housing – a level where researchers at Harvard University say housing costs become a burden on monthly budgets. Across the country, housing is a burden for a little more than one in three households. In the Silicon Valley, almost two of every five households who are burdened by housing costs, even with their higher average incomes, according to a new report by Harvard’s Joint Center for Housing Studies.

So the purchasing power of what we earn is a big deal.

In Buffalo, because our cost of living is a little lower than average, we can stretch our dollars a little further. For someone with a $44,178 average income, that’s almost like getting an extra $3,000 in purchasing power – the equivalent of $47,098 – according to an analysis based on data from the federal Bureau of Economic Analysis.

In contrast, the high prices in the Silicon Valley work the other way. While average incomes are among the highest in the nation, so is the cost of living. All things being equal, that means someone earning the $53,322 average income in the San Jose, Calif., metro area really has the purchasing power to buy stuff valued at $43,959 – more than $9,300 less than their actual pay. In Buffalo, the purchasing power of someone with an average income is about $3,100 more than that same consumer living in the Silicon Valley.

That, of course, is an extreme example, comparing the Buffalo Niagara region with one of the most expensive places to live in the country, behind only New York City and Honolulu. But it does illustrate an important point. Cost of living does matter.

It really matters. And that’s a big selling point for the region.

Canisius College economist George Palumbo points out that financial services companies like Citibank and HSBC USA have bulked up their back office financial services operations here, largely because costs in the Buffalo Niagara region – both labor and operating – are lower than they are in bigger cities.

Even SolarCity executives have said the region’s lower costs were a positive for them as they planned their solar panel factory here.

Don’t get me wrong, though. I’m not saying Buffalo is a cheap place to live. In fact, the federal data shows that we’re solidly in the middle of the pack when you compare the nation’s 381 biggest metropolitan areas. Smaller metro areas, along with rural parts of the country, tend to be among the cheapest places to live.

Overall, the 6 percent purchasing power advantage that the Buffalo Niagara region has over the average U.S. metro area ranks 212th. In other words, more than half of the nation’s biggest metro areas have even lower costs than the Buffalo Niagara region, from Indianapolis and Oklahoma City to Louisville and St. Louis.

But we have significant cost advantages over many of the nation’s biggest cities. People who live in the Buffalo Niagara region have at least 20 percent more purchasing power than folks in Seattle, Denver, Boston, Chicago, Miami, Philadelphia and Washington, D.C., to name a few.

And that says nothing about the lack of traffic jams and our 20 minute commutes.

“This is a great place to raise a family,” Harvey said.

Yet another selling point.