Why Kevin O’Leary Left Boston for Florida — Which Would Be Cheaper for You?

Kevin O’Leary recently went on the Fox Business show “Maria Bartiromo’s Wall Street” to discuss the cost of housing, interest rates and taxes. He claimed that he could no longer afford to live in Boston and that he and many of his neighbors in Florida had moved from Boston because of taxes in Massachusetts.

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Here’s what he had to say about his reasons for moving and how they can affect you.

Also see O’Leary’s advice on when to buy a house.

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Why Did Kevin O’Leary Move From Massachusetts to Florida?

O’Leary said he moved to Florida from Massachusetts — which he called “Taxachussets” — because of the state’s high taxes.

In 2022, Massachusetts residents approved a ballot measure that increases taxes on incomes of more than $1 million annually. Every dollar over $1 million would be taxed at 9% instead of 5%. According to the state government, that tax brought in an additional $1.8 billion and has been earmarked for investment in transportation and education, including giving a free school lunch to all middle-schoolers in the state.

In contrast, Florida has no state income tax, which means that by moving there O’Leary can save an additional 9% of his income. Of course, with his reported net worth, O’Leary can afford to live comfortably anywhere he wants. However, taxes, rising home prices, high interest rates and other factors he mentioned in his interview can affect the affordability of housing for many U.S. residents.

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Is Housing in Boston No Longer Affordable?

Buying a home or renting in Boston has become increasingly challenging for many residents. The city is known for its high cost of living, and the housing market is no exception. The average home price in Boston has continued to rise, up over 4% in the last year, making it difficult for the average earner to afford a home.

According to O’Leary, when deciding how much to spend on housing, you should not let your monthly mortgage or rent be more than a third of your take-home pay. This rule helps ensure that you have enough money left each month to cover other expenses without feeling financially strained. In cities such as Boston, where housing prices are skyrocketing, sticking to this rule can be challenging.

The median annual salary in Boston is $89,212 per household, or around $7,434 per month, according to U.S. Census data. After state and federal taxes, this comes out to a monthly take-home paycheck of around $5,540. This means that, according to the one-third rule, Boston residents should not spend more than $1,846 on their mortgage or rent payments.

However, according to the latest data from real estate site Zillow, the median rent for an apartment in the city is $3,300. This means that the average rent for an apartment costs 78.8% more than what a Boston resident should spend.

While the 5% state tax the average Massachusetts resident pays on income does have an effect on how much taxpayers have left over to spend on housing, rising home costs have become a nationwide crisis.

In Miami, which has no state income tax, the median annual income is $54,858, or around $4,571 per month. After taxes, that comes out to $45,960, or $3,830 per month. This means a Miami resident should not spend more than $1,276 per month on their rent or mortgage. However, according to Zillow, the median rent in Miami is $3,200. This means a Miami resident needs to spend 150.8% more than recommended on rent. According to O’Leary’s metric, the average Miami resident is worse off than they would be in Boston.

How High Interest Rates Affect Home Buying

In his interview, O’Leary mentioned how current high interest rates have a direct impact on the affordability of buying a home. This is very true for anyone buying a home at the same time as rates are raised — as rates rise, so do the monthly payments on new mortgages.

However, the economics might not always be that simple in the long run. According to experts, higher rates can lead to a fall in the value of homes over time. As interest rates climb, reduced demand can put downward pressure on home prices, as sellers may need to lower prices to attract buyers. Thus, while monthly payments might be higher due to increased rates, it’s possible that the overall cost of purchasing a home will decrease.

Why Are Interest Rates High Right Now?

Interest rates are one of the only direct tools governments have to lower inflation. When the Federal Reserve raises interest rates, borrowing money becomes more expensive, which can slow down spending and investment. This cooling effect helps bring inflation back to a more manageable level. While raising rates and keeping them high has historically stopped runaway inflation, it also usually has a negative effect on the market in the short term.

This article originally appeared on GOBankingRates.com : Why Kevin O’Leary Left Boston for Florida — Which Would Be Cheaper for You?