Today, the Washington Post (free registration) has a good article about the costs of buying a place in the suburbs and having a long commute versus buying a place in the city and having a short commute. The article is based on a report by the Center for Housing Policy. As some of you know, I moved from Gaithersburg, a Washington suburb, into the city because of the hassles of commuting. But the expenses of commuting are real as well. At the time, parking in the city cost $6 to $8 a day (now it costs $10 or $11). My car was a beater, so there were maintenance costs. Gasoline was an additional expense. I no longer own a car and have a 10 or 15-minute walking commute.
Barbara J. Lipman, an author of the study, said that people tend to focus on all the zeroes that differentiate the price of a closer-in house from one in the outer suburbs, but they don't realize how much they're spending on commuting costs, such as gas, tires and insurance.
"Even if you save a couple of hundred dollars a month on your mortgage, it doesn't nearly outweigh the costs of the cars you are driving," she said.
The average cost of owning a 2006 Toyota Camry and driving it 15,000 miles a year with gas at $2.40 a gallon works out to $7,967 a year, according to AAA.
The $7,967 annual expense for commuting via a Toyota Camry seems a little high, but not by too much. Also, I chuckled while reading the quote about saving "a couple hundred dollars a month" by commuting. Four or five years ago, you might have been saving only a couple hundred dollars a month by commuting from the suburbs, but in the meantime, prices for real estate in the city have mushroomed such that the differential in carrying costs (mortgage, insurance, etc.) between the suburbs and the city has grown substantially. Furthermore, the marginal price of buying space in the city does not decrease quickly -- e.g., you do not get much of a discount per square foot for buying a 3 bedroom condo versus a 1 bedroom condo. This might factor into housing decisions made by families, especially large families.
Interestingly for personal finance, the article ends with the following...
"A three-car family puts a lot of money into depreciating assets, instead of into mortgages and college educations," [Stewart Schwartz, executive director of the Coalition for Smarter Growth] said.
This is a very important fact. Cars last much longer than they used to, but after a decade or so of use, a car is ready to be shipped to Africa. Land is a perpetual asset and does not depreciate. A house is useful for 75 years or longer and a college education is useful for 50 or 60 years. Inasmuch as a household has enough cash flow to maintain the monthly carrying costs and has enough assets to cushion a cash flow shock, it is much better to spend on assets with longer useful lives.
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