When economic comparisons are made between the regions of Spain, it is common to highlight that the highest average salaries are in Madrid , Barcelona or the Basque Country.
These territories also tend to have a lower average unemployment rate than the whole of Spain and more job or educational opportunities. However, the other side of the coin is usually less documented (although it is well known): living in Barcelona or Madrid is up to 30% more expensive than in the ‘cheapest’ urban areas of Spain.
On average, the cost of living in Madrid and Barcelona is 20% higher than in other Spanish cities (urban areas), which drastically reduces the differences in wealth between regions that appear with the data on GDP per capita or wages nominal, according to a new report published by the Bank of Spain.
The work by the BdE reveals that the cost of living varies in different urban areas can reach a difference of up to 31% when comparing the most expensive cities, Madrid and Barcelona, and the cheapest, Elda-Petrer (a conurbation that it is located in the interior of Alicante and exceeds 90,000 inhabitants).
Housing is behind a good part of this phenomenon, as has been documented in other studies that analyze the cost of living in the regions of Spain and GDP in purchasing power parity (it eliminates the distortion generated by precisely those costs of living so different).
Price differences in urban areas of Spain
To compile the price index for urban areas, the price levels of the different goods and services are calculated in each geographic unit and added on the basis of their importance in the household spending basket.
These differences in the cost of living are not reflected in the usual regional GDP per capita statistics, but the truth is that they greatly reduce the inequality of real purchasing power between the regions of Spain.
Housing is everything
This difference, moreover, has been increasing over time, so that the extra cost of living in an urban area with respect to another with half the population has gone from 2% in 2004 to 3.1% in 2020.
In this way, in 2020 the cost of living in Madrid and Barcelona was 20% higher than the average in the rest of the country’s urban areas, mainly due to the price of housing, as well as, to a lesser extent, services such as hospitality or health. These last services depend to a large extent on the cost of labor (wages) , which, since they are higher in large cities, are transferred to final goods and services (drinks in bars or health care).
The Bank of Spain explains that housing makes the difference in the cost of living both due to the greater weight of the cost of rent over total expenses and because of the higher price of this – in 2020 the rent of housing was 82% more car or in Madrid and Barcelona than in the rest of urban areas-.
However, the Bank of Spain also notes that private sector salaries were 45% higher in Madrid and Barcelona in 2018 than in other urban areas.