R E A L E S TAT E
The Cost of Living in Alaska The single number that doesn’t exist
C
ost of living seems like a simple calculation. Alaskans have an intuitive sense of paying more for necessities than households in the Lower 48 do. Off the road system, stickers that would shock an urban shopper are an everyday feature of store shelves. City dwellers, too, have long known that Alaska is a frontier when it comes to affordability, with extra expenses for home heating and for buying food shipped from Tacoma. Yet the historic “end of the road” is getting a little closer to market. Despite a jump in the nationwide consumer price index (CPI) of 7.9 percent in the last twelve months, Alaska is a much less expensive state to live in, compared to the Lower 48, than it used to be. To measure cost of living, economists define necessary expenditures and sort them into broad categories: transportation, groceries, healthcare, housing, utilities, and miscellaneous goods and services. Data collected on those expenditures are sorted into several indexes. According to Neil Fried, an economist with the research and analysis section of the Alaska Department of Labor and Workforce Development, there are two aspects to cost of living: tracking it in one place over time (inflation) and comparing it in different places at the same time. Either measurement has different applications. “The numbers are the most practically used in long-term real estate rental contracts, annual adjustments
26 | May 2022
By Rachael Kvapil to the state’s minimum wage, child support payments, and budgeting,” says Fried. “The Alaska Permanent Fund Corporation uses these numbers to inflation-proof the fund, and Social Security payments are adjusted based on this information.”
How to Measure the Impossible To determine the cost of living in one place in Alaska over time, Fried says state economists rely on the CPI for Urban Alaska. The index is a result of detailed surveys of consumer spending habits conducted by the US Bureau of Labor Statistics. These surveys are a “market basket” of everyday items, to which the Bureau of Labor Statistics assigns location-specific weights to determine how people spend their money. Fried explains that this CPI can only track costs over time in one area and can’t compare costs between places. As Fried wrote in the July 2021 issue of Alaska Economic Trends, published by Alaska Department of Labor and Workforce Development, the national index was 258.8 while Alaska was 226.153, which means prices have increased faster nationally since the early ‘80s than they have in Alaska cities—but that does not necessarily mean that the cost of living in the United States was higher. Measuring the cost of living in different places at the same time requires a broader range of sources and different methodologies. When comparing costs between locations, Fried says one of the
most-used sources is the Cost of Living Index (COLI), published quarterly and annually by the Council for Community and Economic Research (C2ER). Based on detailed surveys of 266 cities, including four in Alaska, the survey covers fifty-seven specific items in categories such as groceries, housing, utilities, transportation, and healthcare. It assumes a consumption pattern based on a professional and executive household in the top income quintile. Anchorage, Fairbanks, and Juneau have regularly contributed to this index, and Kodiak returned in 2021 after being absent from the survey for several years. This index does not measure the change of prices over time but rather the relative cost of living compared to the national average. Bill Popp, president and CEO of the Anchorage Economic Development Corporation (AEDC), says his organization uses the C2ER COLI data to compare the cost of consumer goods and services in Anchorage versus other cities within the state and nationwide. For instance, AEDC’s 2021 Year-End COLI publication reported Anchorage’s overall index in 2021 was 126, or 26 percent more expensive than living in the average American city. That makes Anchorage the 21st most expensive city of the 266 cities that participated in the 2021 COLI survey. Though AEDC’s Year-End report does not report the overall indexes for other participating Alaska cities, the COLI spreadsheet lists the overall index for Fairbanks,
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