After renting for my entire adult life, I decided to buy my own home. At the end of the summer, I will be moving into a lovely condo just a half-mile from my office on campus.
In a certain sense, the move to the condo seems like a downgrade. The building is older than my current apartment (built in 1984 as opposed to 2022). While the soon-to-be-previous owner did significant upgrades in the past few years, it still has fewer amenities than my current place: no garbage disposal, no electric fireplace, no pool. But for me, these “downgrades” are really upgrades to me. The Economic Way of Thinking helps us see why.
As a renter, I did not face the full marginal cost of repair should an appliance break. The only cost to me was a phone call to the landlord. Having fancy appliances was thus relatively cheaper: I got all the benefit and very little cost when they break.[1]
As a owner, where now I face the full cost of repair (both the phone call to a repair person and the monetary cost of the repair), it changes the decision calculus. The marginal benefit of a garbage disposal is the same, but the marginal cost of repair has risen considerably. The garbage disposal has become relatively more costly. And, in my eyes, the benefits were now less than the cost. It’s just one more thing to break; I opted for a home with no disposal.
I also need to buy a washer and dryer for the first time in my life. My current apartment has a washer/dryer supplied by the landlord. They’re nice units. Fancy. But what I am buying is a basic washer/dryer set. Just knobs. No fancy electric screen, no Bluetooth connection to the phone, no fancy water temperature controls that adjust the ambient temperature of the tap water to just the right temperature for the right load. Just dials and knobs. Again, this reduces the marginal cost of ownership. Fancy electronics are just one more thing to break and require fancy repairs (made all the more expensive because of these foolish tariffs). Dials and knobs are so easy to replace that even I, a man with all the mechanical abilities of a worm on a sidewalk, can replace them.
Costs are always and everywhere subjective in economics. As we are looking into the future, one’s position in time matters in determining what the relevant alternatives (and thus costs) are. This simple fact can explain a lot of decisions that people make that seem counterintuitive at first.
[1] Some may argue that my statement isn’t correct: the expected cost of repairs are incorporated into the rent price. It’s true that the expected monetary price of repairs are incorporated into the rent. But when the decision comes to repair the appliance, they are a sunk cost and thus irrelevant to the decision. The cost to me that matters is what resources I would have to give up in order to repair the appliance. The only cost to me as a renter was the 30 second phone call.
