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December 31, 2007

Are the best things in life free?

The holiday period is a time to contemplate what's important in life. An old saying states, "The best things in life are free." As an economist who deals with costs and prices, do you agree? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I certainly agree that concepts like love, compassion, honesty, etcetera are probably very much the most important traits in life. And certainly it's hard to put a dollar value or price on these, so to that level, I would agree with the statement. But on the other hand, when you get into economics and you talk about typical goods and services, I think most of us would think, gee, wouldn't it be great if we had free gasoline or free food or free clothes. Well, there are actually a couple of problems with this. One is that if it's costly to produce, for example, gasoline or clothes or food and, for example, the government said, 'Well, those things have to be free,' there would be no motivation for any person to produce those things. In other words, you need the attraction of a price that covers cost to get those products in the market place.

"Secondly, studies show that people put a value - a dollar value, if you will - often times on a good or service commensurate with the price. And if the price is very low, they will tend perhaps to not pay attention to how much they use. They will perhaps waste that product or service. I think a good example now is water, which is becoming increasingly scarce in North Carolina. If water were free or very low priced, we wouldn't worry about using it. We would be frivolous in using it. As the price goes up, that gets our attention, and we have to be more frugal about our use. So prices do play a very important role in making sure we that we use resources efficiently."

Posted by Dave at 08:00 AM

December 28, 2007

The housing crunch in North Carolina

Although the housing and construction slowdown has now come to North Carolina, a new national study shows adverse impacts are expected to be less in our state than in others. What is keeping housing stronger in most of the North Carolina market? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Several reasons. I think number one, North Carolina in recent years has had a stronger job market: more people coming here for jobs, more creation of jobs. That's helped keep the demand for homes higher perhaps than in many states in the country. We've had stronger in migration. We are still a place that attracts folks from out of state, perhaps coming here to retire.

"We're also a state that has geographical room to expand, especially in the interior of our state, where the majority of the population is. The importance here is that if you do have geographical elbow space, that allows builders to build more homes, and that keeps housing prices more moderate. And then working together with that factor is the fact that we've had slower increases in housing prices. Less speculation has been here, and it's really the big speculation in housing prices nationwide that eventually led to the crash. So, I think for all these reasons - of course, we are seeing some slowdown - but for all these reasons, the slowdown is less dramatic in North Carolina than in the nation.

Posted by Dave at 08:00 AM

December 27, 2007

The declining divorce rate

The divorce rate has been dropping. In fact, the divorce rate is at its lowest level since 1970. What's behind this good news? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, both economists as well as sociologists have been looking at this good news, and they say that many factors are behind the trend. First of all, people are waiting longer to marry, and perhaps that means they're more mature. They make better decisions about marriage, and that could be helping lower the divorce rate. Secondly, people - families - are waiting longer to have children, perhaps when they are more financially ready. And so, again, that contributes perhaps less tension in the household. Another factor is the increasing educational level of women that's giving them more financial security, and perhaps for some women, that means less of a need to marry just for financial survival and more of an inclination to marry someone they are compatible with. And finally, family planning is more possible today. So perhaps the number of unplanned children, which could be a source of tension in the household, has fallen. So I think all these factors combine to lead to what many don't know: the good news on the lower divorce rate."

Posted by Dave at 08:00 AM

December 26, 2007

Visible and invisible taxes

There are many ways to describe taxes - what is taxed, what the rate is, and who pays the tax - but there's another way. Some taxes are visible, and some are invisible. Here's a look at visible and invisible taxes. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Let me give you an example using toll roads. I think most people know, toll roads are probably in North Carolina's future. Tolls can be paid visibly, when you drive up to a tollbooth and throw your money in or your bills in, then you go on your way. Or, on many new toll roads, tolls are being paid invisibly. That is, there is an electronic system where you don't even have to stop at a booth or anything. You just whiz by and there is some electronic indicator that maybe picks up a number on your car or license plate, and later on, you are assessed a fee. Now, a new study shows that when the toll is directly paid - when you stop at the tollbooth and throw your coins in the bin or you pay the person - drivers are more resistant to increases in the toll. However, in contrast, the same study found that when the toll is electronically assessed, people don't see the toll - they do get a bill, but they don't see it when it's assessed - drivers are tolerant of bigger increases in the rate. So what you don't see - out of mind, out of sight, you don't think about it - the same applies here with taxes. If you don't see yourself being taxed, you don't know, perhaps, you're being taxed, you're less resistant to a higher tax rates. So how a tax is paid can be an important factor in the ultimate size of the tax.

Posted by Dave at 08:00 AM

December 25, 2007

Where did those extra pounds come from?

It's well known that more and more people are overweight, and this is a trend not just in our country but in most developed countries. Have researchers been able to discover some factors behind the added pounds? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well of course added pounds can come about either because of people exercising less, or people taking in more calories. One thing the researchers did - and again you emphasized this is a research project based on looking at people from around the world - is they tried to figure out between those two factors, which is more important? And they clearly found that most of the additional pounds that the average person around the world has gained have been due to taking in more calories. In fact 93 percent of weight gain has been associated with more calories, 7 percent with less activity.

"So the question is, why are people taking in more calories? Well, one factor is simply lower food prices. Worldwide, food prices are down 12 percent since 1990. A rule of thumb in economics: when something gets cheaper, you use more of it, so food is cheaper, and people are eating more. Secondly, there is an increase in the number of people working away from home. That has been found to be associated with more calorie intake, perhaps because people are eating certain kinds of food, food that they don't cook, food that's prepared by someone else. And thirdly, greater urbanization. More people are living in cities around the world, and researchers think that has given them access to a wider variety of food.

Posted by Dave at 08:00 AM

December 24, 2007

Reverse mortgages

There’s a type of mortgage that pays the homeowner and allows the homeowner to stay in the home while someone else slowly buys it. Just how does this type of mortgage work, and who is it right for? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, these are called reverse mortgages. These are mortgages not like the kind we typically think of, where you take out a mortgage to buy a house. These are mortgages used by people who already own their home, and, in fact, they own their home free and clear of a normal mortgage. So you are usually talking about some older person. They want to stay in the house but perhaps they are short on money. So what they would like to do is slowly use the equity in their home. And so what they do is they contract with a financial institution to actually sell the home to that institution. However, instead of in the typical case where you sell, get the money and move out, here you stay in the house and the institution slowly pays you a monthly amount. Now these can be set up to expire in a certain period of time, when the owner would have to move out. Or they can be set up to last as long as the owner lives. And then when either the owner leaves or passes on, the house gets turned over to the financial institution. They take possession of it and use it as they wish. Now what the owner, of course, gives up here is the right to will the house to one of their descendants, but this is a great plan. It's becoming more and more popular for folks who live in a home free and clear of a mortgage and need to have some additional cash."

Posted by Dave at 08:00 AM

December 21, 2007

Approaches to health care

Once again, health care is a major issue in the presidential campaign. Every candidate has his or her own plan. Can we put these plans into some basic categories? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think we can, and I'm going to call the categories the 'top down' and the 'bottom up' approaches. The top down approach I think is best indicated by what is called a single-payer plan. This would be a government-run health care plan. Everyone would be insured. Everyone would be guaranteed care. And this plan would be financed by taxes of some kind. The issue is because you don't have prices to motivate people to use and not use, the government would probably have to set up some rules in order to determine who gets care and who doesn't get care and when they get care.

"The alternative approach, I'll call the bottom up. This is a consumer-driven plan. First of all, what you would do is you would require that everyone have health insurance. If someone can't afford it, vouchers would be provided to enable a person to buy health insurance. On the supply side, we would ease up on the regulations in order to encourage more competition in order to get more providers out there. This plan relies on consumers having a lot of information and knowing how to make their best choices."

Posted by Dave at 08:00 AM

December 20, 2007

Economic policy choices

Many people think the economy faces some degree of danger today, especially from imbalances in the housing market, but also from oil prices and the lower-value dollar. Some want the government to do something to reduce these dangers while others think the best approach is a hands-off policy, letting the market correct itself. Here's some perspective on these alternative points of view. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"You’ve really hit upon a very long-time controversy. I mean, this really goes back to the beginning of our country, but it really got heated in the 20th century. And that is, what role should the government play in the economy in terms of trying to move the economy one direction or the other? On the one hand, you have, I'll call them activists, who say that if there is an economic problem - like in the housing market now - we want the government to do something to ease that problem. So, for example, these people would want the Federal Reserve to lower interest rates. They would want government to help people that have foreclosed loans.

"Other folks who oppose this say, 'Look, although those actions may have good short-run benefits, they can have adverse consequences in the long run.' For example, lower interest rates may spark inflation and cause the dollar's international value to go down. And if the government helps out people who have had bad loans, that may send a message to people that 'Hey, don't worry about getting a risky loan. If it bombs, the government will come in and help you.' So this is really a clash between the short-run and long-run concerns. It's something that is going to go on forever, but again people, as citizens, should be aware about it."

Posted by Dave at 04:18 PM

December 19, 2007

International test scores

It's well known that competencies in math and science are becoming more important in our increasingly technical world. Also, in today's globalized economy, it's important that students in any country perform well in math and science. How well are U.S. students doing?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Periodically we have studies that come out that answer this question. We now have a new study - brand new study just released - that looked at how well U.S. students are doing on math and science compared to students in other areas. And the other areas are England, Italy, Japan, Russia, Scotland - of course, Scotland is part of the UK with England – and, of course, the U.S.

"The study looked at competencies at three levels of math and science. And what I'm going to give you is the U.S. ranking on these competencies. And again, there were six countries, so when I give you the ranking, you can perceive where the U.S. ranks.

"For low levels of competencies, U.S. students ranked third in math and second in science. For medium levels of competencies, U.S. students ranked fourth on math and third on science. For high levels of competencies, U.S. students ranked fourth on math and third on science.

"So I think the general conclusion here is that U.S. students are ranking about in the middle. We're not the lowest; we're not the highest. We're right there in the middle. The big issue though is whether this is going to be enough. We all know that math and science jobs pay very well, so countries want to have them. If we want to get our share, maybe we have to do better."

Posted by Dave at 08:00 AM

December 18, 2007

Haggle-free car buying

Bargaining over the price of a car or truck is almost as American as baseball and apple pie. But more and more vehicle dealers are moving away from haggling to a set price. Many people think give and take over a car price is actually kind of fun. Why the change? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the issue here is that those people who like to haggle are becoming the minority. Surveys show that the majority of people would actually rather have a haggle-free price, a set price when they go to buy a car. This is even more the case for women, and women now buy over half the vehicles sold. Young buyers, so called gen-x and gen-y buyers, also; surveys showed they don't want to spend their time haggling. They have better things to do with their time. And another final factor is the Internet. The Internet has shifted the negotiating power more to the consumer, and so the consumer can come into a dealership and have a lot more information. So there is not as much haggle room.

"So what this means is that many dealers are going to a haggle-free price. They actually have found they can save money on personnel and on advertising. So if you want to make a deal for a car, you still can, but the number of dealerships that are going to do that is falling."

Posted by Dave at 08:00 AM

December 17, 2007

The price of what we eat

Food prices are rising in the United States, but they're also increasing across the world. In fact, an index of world food prices is up 20 percent in the past year. In contrast, food prices trended downward in the world during the 1980s and 1990s. What's happened here? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Economists who have looked at this say that the biggest change is in the composition of food that is eaten, especially around the world. The rest of the world is really catching up with the U.S., primarily in meat consumption. Used to be that the U.S. was the big meat-eating country, and the rest of the world, which was a lot poorer, ate grains. Now, as the rest of the world is seeing it's standard of living going up, we're seeing meat consumption go up. And meat is more expensive per calorie, and so that's causing their food prices to go up. For example, meat consumption in China is up in the last decade 50 percent. In South Korea, it's up 25 percent. Saudi Arabia, it's up 18 percent. In contrast, in the U.S., meat consumption in the last decade is up only 10 percent. Now, recently of course, we've had some issues with meat cost because you need grains, primarily corn, to feed to livestock. Corn prices have been going up because of the move toward ethanol. And so we have seen a big jump in meat prices. And again, if you are a country where meat consumption is going up, if meat prices are going up, you are going to see your overall food price jump."

Posted by Dave at 08:00 AM

December 14, 2007

The dollar and oil prices

Oil prices have been rising while the dollar's international value has been falling. In fact, both recently set records, with oil establishing a record high and the dollar's value hitting a 4-year low. Some people say there's a connection between the two. Is there? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The alleged connection is this: They say that since much of the world uses the dollar as a defacto currency, and, in fact, in many countries, many in the Middle East, the currency is tied to the value of the dollar. As the dollar's value has gone down, that makes the revenues that they are getting from selling oil, for example, lower, and they have had to increase the price of oil to compensate. And so the connection, therefore, is that as the dollar's value is down, oil prices are up, and it is really the lower valued dollar that's really pushing oil prices up.

"Now, if we look at the facts though, the facts don't really bare that out. For example, since late August when we had the big surge in oil, oil prices are up 40 percent, but the value of the dollar against major currencies is only down 9 percent. Or another statistic, since the late '90s, oil prices are up 900 percent, but the dollar's value against major currencies is only down 33 percent. So I think the answer here is that, yes, the lower value dollar can play some role in causing oil prices to go up, but there are many, many other factors that are much more important."

Posted by Dave at 08:00 AM

December 13, 2007

Is spending more on health care bad?

Health care and health care spending is already one of the big issues in the runup to the presidential primaries. Our country collectively spends more than $2 trillion on health care each year, and that spending is a higher percentage of our total income than many other countries. Some use these statistics as evidence that major changes are required in our health care system. Is this a valid conclusion? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is an enormously complicated issue. I mean, health care is a big, big system; a big, big sector in our economy, as you said, over $2 trillion spent. It's really hard, I think, to distill some of the issues in health care down to a few statistics. Now, the data you cite certainly are correct. But a lot of elements can affect that.

"For example, it may be that U.S. consumers spend more on health care simply due to our characteristics, due to our health status, due to our age, due to the availability of health care. Also, and this is a factor that the economists stress, it may also be due the fact that we want more health care. A study showed that as the standard of living of a country goes up, or as the income of a country goes up, people want to use more health care. And of course, the U.S. is one of the richest countries in the world on a total, or even a per capita basis. So we may expect that as our country has developed and as our incomes have gone up, we have simply wanted to spend more on health care, and that could be a major reason why we do spend more on health care relative to other countries."

Posted by Dave at 08:00 AM

December 12, 2007

People versus place development

Economic development is a big issue in North Carolina, especially in rural and slow-growing counties. There are two fundamental approaches to improving economic development. One focuses on places and the other targets people. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There is actually a long history in the economic development literature. And the two approaches are the people approach and the place approach.

"The people approach says that to get economic development what you need to do is empower people. You have to give people the training, you have to give them the education, the leadership, the entrepreneurial skills - all those characteristics that people need to be economically successful. And if the people in an area are successful, so will the area be. So that's the people approach.

"The place approach says that you want to focus on getting the good paying jobs to come to the region. You're not ignoring the characteristics of people, but your focus is on going after companies, going after businesses to come into a region that perhaps does not have enough jobs.

"Now of course these two approaches can and do work together. In North Carolina, for example, the best example of a people strategy is education. We spend the biggest part of our state budget on education, everything from K through 12 to the community college system to higher education. One disadvantage that some see in the people approach is that if you are worried about developing a particular area and you get folks empowered with training and education, they may leave. And that is a big issue in many rural counties. Folks who attain educational standards and move up the educational ladder simply move to the big city.

"Now the place strategy we implement with, for example, building roads, building water and sewer facilities and with the very controversial aspect of incentives. So both of these strategies can work together; however, there are some issues with each."

Posted by Dave at 08:00 AM

December 11, 2007

Will overseas investors cash in?

Some people worry foreign owners of United States government securities could use their stockpiles of U.S. bonds in a form of financial blackmail where they threaten to dump those bonds if U.S. policy isn't positioned in a certain way. What's the likelihood of this happening? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, that would make a great backdrop for a novel. In fact, maybe there is an idea for us to write a novel about this, a suspense thriller. But in reality it's likely not going to happen.

"Now, a little background here. Of course, the reason foreigners have bought so many bonds is that we sell bonds; the U.S. government sells bonds when we run a budget deficit. And foreign countries, particularly China as a good example, have been, as many people know, industrialized, and their economy has been growing, so their government has amassed money, funds, and they are looking for investments. U.S. government bonds are very good, very sound investments. So the Chinese have been accumulating a lot of our U.S. government bonds.

"Now, if the Chinese were, for example, to say, we're going to dump all these bonds (which is another way of saying they're going to sell them) if you, the U.S. government, doesn't do something we want you to do, people think, yeah that's going to hurt the U.S. But it would also hurt the Chinese because if they were to sell their bonds, the value of the bonds would go down, and they would actually get less money for them. So levelheaded economists don't see this as a big issue. Of course, there is the wider issue of our U.S. debt and our borrowing. But we really don't see foreigners owning U.S. bonds using them as a form of financial blackmail. That just is not going to happen."

Posted by Dave at 08:00 AM

December 10, 2007

Will $100 oil spark a recession?

There seems to be no end in sight to rising oil prices, which are now impacting the cost of driving. With prices at the pump rising to above $3 a gallon, is this the final straw that will push the economy into a recession? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it's certainly not helpful, but right now we have got two big negatives in the economy. The biggest negative is the imbalance in the housing market and the related problems in the credit and mortgage market. These problems are reducing economic growth; economists estimate by 1.5 percentage points. Now, the latest increase in oil and gas prices is expected to shave another .3 percentage points off economic growth. So in total these two issues we have in the economy are causing the economy to decline (just those two factors) by about 2 percentage points, which means that if the rest of the economy, outside of these two problems, is growing at say 3 percent, then we are still going to see the overall economy grow. Because you have 3 percent growth outside of these problems, you shave off roughly 2 percent due to the housing and oil situation; you are still left with the 1 percent growth.

"That is still very tepid, and in fact that is not high enough to prevent the unemployment rate from rising. And it also makes us vulnerable to some other shock or some other problem, a triple threat if you will, that would come and we're not expecting it. So the consensus view among economists right now is that the economy can withstand these two negatives as long as something else doesn't come down the road. We will, however, see slower growth, probably higher unemployment until, importantly, we get the balance in the housing market worked out. That's the big thing we have to see improve. The gas and oil prices are probably going to remain high, but if we can get that housing market situation settled, that will dramatically improve the prospects for the economy."

Posted by Dave at 08:00 AM

December 07, 2007

The economics of hybrid vehicles

With gas prices past $3 per gallon and probably going higher, interest in hybrid cars should skyrocket, but what about the dollars and cents of hybrids? When looked at strictly in terms of a person's wallet, is a hybrid car a wise buy? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is very apropos for now. With gas prices going higher and people looking at how can they save money driving? So we have a recent analysis that's very interesting. They compared eight different auto models. Each of those models had a hybrid version and a regular gas version. So you were comparing apples to apples. Now in each of those models, the hybrids cost more up front. So that's the additional cost of the hybrid, you are usually going to pay more money up front to buy the vehicle, but you are going to save money down the road in terms of fuel, and you potentially get a tax credit.

"So the analysts went through and grinded out the numbers, and what they figured out was how many years it would take to recoup that additional upfront cost. That is, when you got your annual savings, how many years of annual savings would it take for you to at least equal the extra amount of money you paid to buy the hybrid in the first place? And the answers they got were very interesting. The range was for only two years on the low side, but for one model it was up to 18 years. But most of the models, in fact four of eight, were in a middle range of about three to five years. So the answer there would be that if you are planning to keep your hybrid at least three to five years, usually you will pay for the additional up front cost.

"Now I should make a note here that the analysis was done when gas prices were $2.80 a gallon, so as gas prices go up, that will actually shrink the number of years it takes to recoup the additional hybrid costs."

Posted by Dave at 08:00 AM

December 06, 2007

The Social Security tax cutoff

For the first time, the Social Security tax will be applied to annual earnings up to $100,000. Why isn't the Social Security tax applied to earnings of more than $100,000? N.C. State University economist Dr. Mike Walden has the answer. Listen

"This is a very, very common question, and it is actually fairly confusing from the point of view of Social Security. But here is the deal: Of course when they're working, people (workers) put money into the Social Security system. Then - the way the system works - when you retire, you get money out," says Walden, North Carolina Cooperative Extension economist and professor of agricultural and resource economics.

"So, money in, money out," Walden adds. "There is a limit on the amount of your earnings that are taxed when you are paying tax in. And that limit right now is $100,000. In other words, if you earned $100,000, you would pay Social Security tax on all of that.

"If you earned $150,000, you would still only pay Social Security tax only on the first $100,000. You wouldn't pay it on your other $50,000. So there is a limit there; that limit actually changes a little every year," Walden explains. "The limit's there, however, because there is a limit on the payout side. That same worker who earns $150,000 when he or she retires, however, will get paid a pension from Social Security based not on the $150,000 but on $100,000. So the two are similar, they are symmetric. You're limited on the tax you pay in, but you are limited on the pension you get when you take money out. There have been proposals - and these are proposals to make Social Security more solvent - to take away the cap on the pay-in side, but not take away the cap on the pay-out side."

Posted by Dave at 08:00 AM

December 05, 2007

What's behind superstar salaries?

Some people earn salaries that are difficult to comprehend, salaries of tens or hundreds of millions of dollars per year. Why are the salaries of these superstar entertainers, athletes or business people so high? N.C. State University economist Dr. Mike Walden explains. Listen

"There are two factors behind these high salaries," says Walden, North Carolina Cooperative Extension economist and professor of agricultural and resource economics. "First of all, the person who is earning those high salaries has to have a talent that is not easily duplicated, that is fairly unique and, therefore, is in very short supply.

"This can be an entertainer, someone whose acting ability, singing ability or entertaining ability people love and adore - and people say we have to see that person, there is no replacement. It can be a professional sports player who is at the top of their game in their sport, and there are no replacements. Or it can even be in the business community, a very successful executive - a CEO who is able to take companies and improve their bottom line. So that's one factor, you have to have this unique talent.

"The second factor is that the person has to operate in a large marketplace, either a national marketplace or, in fact, a worldwide marketplace, where their talents are in demand on a large stage," Walden adds.

"When you put those two factors together - unique talent operating in a large marketplace - you're gong to get very, very big salaries, which you term the superstar salary," he explains.

Posted by Dave at 08:00 AM

December 04, 2007

Rent gradients and real estate

An economic concept called the "rent gradient" relates housing prices to distance. N.C. State University economist Dr. Mike Walden explains. Listen

"I think anyone who is in the real estate market - let's say as a buyer, they are looking to buy a home or actually looking to rent - will quickly find out that there is a relationship between the price you are going to pay per square foot, either in buying a house or renting, and how far you are away from things that people want to be close to," says Walden, North Carolina Cooperative Extension economist and professor of agricultural and resource economics. "And the relationship is that the farther away you are from centers of economic activity - cultural centers, employment centers - the lower the price per square foot is going to be. The reason for that, of course, is that a benefit of being close to employment centers, for example, is people save time and money in commuting. Those savings, however, are going to be reflected in the fact that the value of that house or apartment is going to be higher. So you are going to pay for, in essence, that proximity through higher rents and higher housing prices.

"Conversely, if you live farther out in a rural area, and you have a longer commute, you don't have that proximity advantage. And so your price for your real estate is going to be lower. And so people always in the real estate market face this trade off. Do they live closer in and save on commuting costs and yet they are going to have to pay higher housing costs? Or do they live farther out, where they can afford to buy a bigger house more square footage, yet their commuting costs are going to be much higher?"

Posted by Dave at 08:00 AM

December 03, 2007

Changing road financing

There have been two major changes in the way North Carolina roads may be financed. First, counties are now allowed to build roads, and second, roads may now be built with revenue from tolls. N.C. State University economist Dr. Mike Walden talks about what's behind these changes. Listen

"I think what's behind it is the fact that if you drive around North Carolina - and North Carolina, of course, is a very fast growing state - and particularly if you drive around in urban areas, you see congestion; you see perhaps roads not maintained to the level we would want. And of course this all comes down to money and resources," says Walden, a North Carolina Cooperative Extension economist and professor of agricultural and resource economics. "One problem with road construction and maintenance is that road costs have been increasing very fast. There is an oil component there that people may not realize in asphalt. Everything to do with construction has been going up because of the worldwide construction boom. So the cost of building and maintaining roads has been going up. And the revenues, primarily through the gas tax, have not been going up at the same rate. So there is a money crunch there. And the state has been dealing with this, and in fact, there is a new state commission that will be looking at this."

Walden adds, "But you’re right, two things have changed in the recent years that may change the way roads are done in North Carolina. One is: now for the first time counties - if they want to, they will have to decide to do this - may be able to build roads. They would have to go to their taxpayers and ask for a revenue source - perhaps in property tax - but they can build roads if they want to.

"And then secondly, North Carolina does have a toll road commission. We haven't built a road yet using tolls, but of course a toll road is a road where people who directly use that road, pay for it. So I think all of this is suggesting that we may see big, big changes down the road in how we build roads."

Posted by Dave at 08:00 AM