Real Estate
The Cost of Living in Alaska
The single number that doesn’t exist
By Rachael Kvapil
aerial view of Alaska

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 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, Juneau, and Kodiak as 126.8 percent, 129.1 percent, and 126.6 percent of the national average, respectively.

While Alaska cities are more expensive than average, they are far more affordable than the country’s largest urban areas. Manhattan, San Francisco, and Honolulu top the COLI, with the after-tax cost of living for the professional-class household at double the national average. Seattle’s index rating of 152.7 puts the Emerald City in 9th place. The least expensive of the 266 cities measured is Kalamazoo, Michigan at 75.7, followed by similar Fairbanks- and Juneau-sized cities in Texas, Oklahoma, and Mississippi.

Both Fried and Popp agree that identifying a singular cost of living number for all of Alaska is impossible. First, each household varies in size and prioritizes spending differently. A household with school-age children will spend in categories that a household without children may not. Likewise, living in rural Alaska often requires additional expenses to fly in goods and services. They also pay more for utilities and communications.

“Even if it isn’t 100 percent accurate for remote areas, the C2ER Cost of Living Index still provides a good comparison,” says Popp. “But getting an accurate view of the cost of living in remote areas will require a consumer to do additional research.”

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.
‘Living’ Requires a Place to Live
In the past two years, the average price of a home in Alaska has risen to $421,438, up 5.8 percent from 2020. Dar Walden, owner and CEO of the Dar Walden Team, Keller Williams Realty Alaska Group, compares this to last year’s average sale price of $396,726. A buyer can typically find an 1,800-square-foot home with an additional 500-square-foot two-car garage for $420,000. However, many factors ultimately determine the cost of a home, including the home’s condition, location, amenities, interest rates, and supply and demand. Currently, the latter factor affects the cost of Alaska homes most.

“There is a much stronger demand for a limited number of houses currently for sale,” says Walden. “Previous to COVID, people across the nation started downsizing as a way to limit the amount spent on utilities and other variable costs. Once COVID hit and people started working from home, they realized their homes weren’t big enough to work from home with kids running around. A lot of people upgraded at that point so they would have room for an at-home office.”

In 2020, Alaska still had a greater supply of larger homes. Buyers could better afford down payments and closing costs due to Paycheck Protection Program relief funds and extra personal income as they spent less on fuel and entertainment. Since then, the inventory of larger homes has decreased. Likewise, potential sellers aren’t listing their homes for fear that they won’t find another one without paying way more than the asking price. At this point, not much can change this situation. Walden says builders are increasing the number of homes in some areas, such as the Matanuska-Susitna Borough, which has plenty of land. However, for cities like Anchorage, minimal buildable land remains. Increased prices of building materials have also become a nightmare for new builds due to an unpredictable supply chain. Walden says builders hesitate to list the price for a newly constructed home until it is complete because the likelihood that materials costs might increase mid-build is almost a certainty.

“Real estate licensees are working harder looking for available properties for their clients,” says Walden. “We are constantly contacting people in a specific area looking for a seller with a home that meets the specific criteria of a buyer.”

Walden says this trend is the same throughout the state. With real estate licensees in Anchorage and Fairbanks, Walden says the lack of inventory disrupts the market. A licensee might make four or five offers on a property before one is accepted. The final price is often significantly higher than the asking price, which leads to disgruntled buyers who think their agent is not doing their job. Walden says realtors end up taking the brunt of negativity with buyers switching licensees, hoping to find one that is more “aggressive.”

The Dar Walden Team of Keller Williams Realty Alaska Group, like other real estate brokers, has noticed buyers paying more than asking price because of competition for scarce housing inventory.

Dar Walden Team

The Dar Walden Team of Keller Williams Realty Alaska Group, like other real estate brokers, has noticed buyers paying more than asking price because of competition for scarce housing inventory.

Dar Walden Team

The Dar Walden Team of Keller Williams Realty Alaska Group
A lack of homes isn’t only causing a bidding war; it also stokes a generational conflict. Millennials and Gen Z commonly post on social media about the difficulties of buying homes in Alaska because they don’t have the purchasing power of Boomers and Gen X. Popp says this is true in some ways, but not true in others. Despite inflation, income for younger generations has increased in several professions. Although a fair amount of housing inventory is indeed held by older generations, the population of Boomers is declining as they reach the end of their lifespan. That puts younger generations on the verge of the most significant transfer of wealth in human history.

“It’s true that younger generations have not had the same opportunity to grow wealth over time,” says Popp. “But at the same time, older generations are retiring with disposable income they can use without taking jobs from younger generations. The opportunity for younger generations to save enough money for a home is on the horizon.”

Walden adds that spending priorities also factor into the younger generation’s ability to buy a home. Compared to Boomers and Gen X, Millennials and Gen Z are making a higher starting wage in nearly every profession, even with inflation. She says it is now easier for younger generations to qualify for low interest rates and afford down payments and closing costs than previous generations. However, she sees many purchasing decisions by Millennials and Gen Z that move them away from their financial goals.

“Ordering take-out every day through DoorDash isn’t going to save money,” says Walden. “A lot of young people will say it’s expensive to live in Alaska, but a lot of that is relative to a person’s income and their expenditures. Sure, it might be cheaper to live in Mississippi, but people there are making only $6 per hour. I often advise young people to change the way they look at things, and the results will ultimately change.”

For those who feel like they really can’t afford a home, Walden says there are several things they can do while saving money. First, she recommends connecting with a lender who will provide a realistic insight into what kind of house they can afford. Walden says it isn’t unusual for first-time homebuyers to start the buying process before understanding the numbers. A lender will review credit scores and advise ways to improve them. Ultimately, Walden says the housing market will play a big hand in how quickly younger generations can afford a home.

“Right now, it’s hard to compete in Alaska for under $400,000,” says Walden. “If you can’t hit that mark, don’t get discouraged. Work with a lender and follow their advice. Save the money necessary for a down payment and closing cost. It may be that you are not financially ready to purchase a house, which is totally fine. If you start now, you will be much closer when the opportunity to purchase eventually opens up.”