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Commuting Is So 20th Century – Investing for Tomorrow’s Commute-Conscious Renters

Sure, there is plenty to complain about in the 21st Century, but one positive social, economic and environmental trend has been the reurbanization movement in America.  As larger US cities continue to revitalize (an ongoing opportunity for savvy real estate investors), a major factor has been the growing understanding of the true costs of commuting.

In the second half of the 20th Century, middle- and upper class Americans fled major cities, pouring into suburbs and embracing the “keeping up with the Joneses” mentality of uniformity, size and consumerism.  And it was not without advantages; many baby boomers have fond memories of growing up with large backyards, crime-free neighborhoods and a baseball diamond within a 10 minute walk.

The Leave It to Beaver era in American suburbanism came at some heavy costs however.  To begin, the outflow of wealth from cities left many cities with a vacuum of both money and stability, as all the best educated citizens left.  Remember the high crime rates and urban decay of the 1980s and early ‘90s?  That was the culmination of decades of wealth- and brain-drain from America’s major cities.

That was the sociological cost, but there was also a specific cost to individuals: commutes.  Many Americans are conditioned to think of any commute less than 45 minutes as “not so bad”, but the true cost of commuting is actually shockingly high.

First consider the financial cost, because it’s the easiest to quantify.  The most recent IRS valuation for mileage is 57.5 cents per mile, which includes all of the costs of driving, from gas, maintenance, insurance and other ownership costs.  In a given year, there are roughly 250 work days, not including the 10 federal holidays.  Say a commute is 15 miles; that means 30 miles every work day, or 30 x 0.575, which equals $4,312.50/year in commuting costs, before factoring in the cost of buying and insuring the car.

But commuting costs more than just expenses of driving.  If a commute is a half hour, that comes to 250 hours every year spent unproductively, alone and usually in misery.  Imagine how much extra money the average American would earn every year for an additional 250 hours of work?  If the average American earns roughly $25/hour, then that’s the equivalent of $6,250 in unpaid extra work every year for the individual, and on a societal level it’s time subtracted from economic productivity.

Alternatively, consider how valuable an extra 250 hours with family or friends would be.  That’s the equivalent of working an extra five hours every Saturday, in addition to a full time Monday-Friday job.

Then there is the environmental impact.  According to Carbonify,com, a commute of 15 miles adds about four tons of carbon dioxide to the atmosphere annually; how much of a problem you believe that to be is your own judgment.  Environmental damage aside, smog is causatively linked to higher asthma rates and long-term lung damage, and even those least interested in environmentalism would agree that less smog would be better.

Consider for one moment a person who lives and works a few blocks apart, and walks to work.  They take that saved $4,312.50 and invest it at 8% interest for 10 years, and they would have an extra $62,473.32 (quite a dent in their children’s college education, or their retirement).  To take the numbers even further, imagine instead of commuting they worked an extra hour every day, earning an extra hour’s pay.  Instead of an extra $4,312.50/year, they now have an extra $10,562.50 every year.  Invested for 10 years at 8%, that comes to an extra $153,014.63.

Reurbanization can be measured, in the growth rates of cities versus suburban areas.  Suburban growth rates have declined for years, and in 2011 city growth rates have surpassed suburban growth rates.  Millennials in particular are eschewing the long commutes in favor of living close to work, and are in many cases remaining downtown even after having children.  Consider the benefits for America as a nation if everyone lived close to where they worked: a halt in suburban sprawl, a boost in economic productivity, increased time spent with family, less foreign oil consumed, less environmental impact, less smog, and less money and time wasted daily by hundreds of thousands of people.

Like all trend shifts, this means opportunities for real estate investors, as long-ignored urban neighborhoods begin to see new investment and rejuvenation.

Commuting is sooo 20th Century.

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