Tradeoffs in where we live

The television program House Hunters on HGTV follows first-time homebuyers in their quest to find the perfect home. Host Mary Walden asks her husband NC State economist Mike Walden, “Besides being entertaining, are there some good economic lessons in this show?”

Mike Walden: “Mary, I think the biggest lesson that these house hunters find is that there is a major tradeoff in real estate that they need to be aware of. Usually these shows start with folks writing down on their wish list in terms of size of home they want a big yard, they want a certain number of bedrooms, bathrooms, etc. And, they want to be close to work, close to shopping, etc. And, the real estate agent shows some homes, and usually they’re going to be way over-priced. And, the problem is they’re not aware of this trade off. The buyers aren’t, but the real estate agent is.  That is to say, very simply, that the closer the home you’re looking [at] .  .  .  or apartment,  too .  .  .   is to places that people want to go to – shops, work, school, etc. – the more expensive that house is going to be per square foot.   The further away you move, the less the price is going to be per square foot. I call this the “Iron Law of Real Estate,” and it should make sense in the sense that if you’re close in, you’re going to save on your driving costs, you’re going to save on your gas costs. So lots and locations that are closer to these centers of this kind of activity make more sense that they are more expensive. So, anyway, as the show evolves, the buyers realize this trade-off, and it’s very interesting to see how they solve it. Where do they live? Do they choose more space? Lower square footage, but further travel to centers of activity? Sometime during the program they have to confront this big trade-off.”