Living in Madrid and Barcelona is, on average, 20% more expensive than living in other Spanish urban areas. They are the two conurbations with the highest cost of living in the country, according to a study by Bank of Spain posted this monday. The authors, Víctor Forte-Campos, Enrique Moral-Benito and Javier Quintana, have developed an index based on rental prices and those of other goods and services such as transport, education, leisure and culture, food, health and hospitality.
The following classification is extracted from the index. It is led by Madrid, with a 1: from there, everything is cheaper. The Elda-Petrer conurbation, in the province of Alicante, is the cheapest in Spain: living there costs 31% less than in Madrid. The information belongs to the period 2004-2020 and the information for the Basque Country and Navarra is missing due to the absence of data on their rental prices.
Urban areas are, according to the INE’s definition, cities with nearby municipalities that form their workplace influence environment. It is understood that a locality belongs to the area of influence of a city if more than 15% of its employed population travels to it to work. The urban areas selected in the study, which account for 68% of the Spanish population, are the defined in 2008 by the former Ministry of Housing, today the Ministry of Transport, Mobility and Urban Agenda (MITMA).
The authors explain that, since in international comparisons, income levels are adjusted by its purchasing power. It is advisable to do the same between the different regions of a country. “This allows a more precise assessment of the territorial differences in the levels of well-being derived from income differentials,” they argue. On the other hand, it is useful for evaluating public policies “that set uniform amounts of certain incomes for the national group.”
For example: a minimum vital income of 469 euros in Valencia, the third most expensive city in Spain, is not the same as in Utrera (Seville), the third cheapest. Nor does the minimum wage of 900 euros make the same difference in the urban area of Aranjuez (which does not belong to the Madrid conurbation, according to MITMA, but is independent) than in the capital itself. In practice, we have seen differences in the amount of certain public aid such as those of the previous state housing plan, whose rental assistance program set a general ceiling of 600 euros extendable to 900 euros in certain areas.
Spending on rentals is the main cause of these vast differences. For two reasons: one, it is the item with the greatest weight over the total cost of living (on average, 25%). And two, it is the game in which the greatest disparity is observed. According to the authors, the cost of rent in Madrid and Barcelona was 82% higher in 2020 than the average for other urban areas.
There are also differences in the prices of some services, such as hospitality or healthcare. “The provision of these includes a very important component of labor and, therefore, their costs are influenced by the cost of living faced by workers in these branches,” the report describes. That is to say: unlike food, clothing or footwear, which do not have to have been produced in the urban area in which they are consumed, the price of services is conditioned by the cost of living in that place.
The cost of living standards is closely linked to wages, which tend to be higher in the most expensive areas. In addition, as the authors indicate, salaries adjusted for their purchasing power (that is, what gives a salary according to where you live) are a fundamental factor in understanding migration. People take that, the employment rate and the cost of housing into account when deciding where to move.
Thus, although salaries in the urban areas of Madrid and Barcelona were almost 45% higher in 2018 than the average for the rest of urban areas, how expensive these two cities and their metropolitan areas are means that, in real and adjusted terms at the cost of living, they are “only” 21% higher. According to this index, a 10% increase in the nominal wage (the money that reaches the worker’s account at the end of the month, without taking into account other factors) represents a 1.9% increase in the cost of living.