Wednesday, October 9th, 2019 October9th2019

Sell for More News: Low cost-of-living cities are overrated

Published on October 9th, 2019

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

 

Cities often tout their low cost of living as a tool for attracting new residents. On the face of it, that would make sense.

The big difference in cost of living between places is in housing prices. The biggest cause of home-price differences is not regulation or taxes, but on the quality of the neighborhood in which the home is located. While different tax rates or housing restrictions might change the value of a home by 10% or 15%, the quality of the neighborhood can change home prices by several hundred percent.

The value of two identical homes will vary by as much as 25% given the quality of the local schools. This is one part of a neighborhood’s conditions that influence home prices. The reason for this is that consumers bundle together the attributes of a neighborhood, including schools.  Livable communities, good schools, safe neighborhoods and other attributes tend to cluster together.

Every family makes these decisions, and there is very strong evidence that even poor households with limited location choices value better local services.  Affluent households typically have more choice in where they live, but the dynamics of location choice matter to most families.

This “voting with your feet” is an important aspect of any regional economy, and brings us back to the risk of selling a low cost of living as an important factor in a region’s attractiveness. While many households will be attracted to a location where they can get a bigger or better house for the same price, there is always an underlying reason for this.

The primary difference in the total cost of living between two places is the value of the local community. The prices of most goods are very similar, so it is really down to tax differences and the price of housing. Households make rational decisions as they compare the higher cost of taxes with the greater benefit of good schools and nice neighborhoods.

As with every purchase, value rather than price determines family location decisions.

Be cautious when you boast about the low cost of living in your community. You might really be admitting your community has problems that reduce home prices. That isn’t really a long-term winning strategy for any neighborhood, and it isn’t anything to boast about.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com