A question that's puzzled me for a while is why home buyers focus on price/sqft so much more than renters. I asked around for what other people thought and got some interesting answers, so I decided to write up my takeaways.

I. Investments demand legibility
Homeownership is an investment and consumption good, while renting is just a consumption good. As a result, buyers are forced to think of it in more legible ways as opposed to just an amenity bundle.

For buyers, a house serves as both a personal residence and also an asset that can be sold for a profit later on. As as a result, buyers tend to be more concerned with how the market values the property, and how much it might be worth when it comes time to sell.

The mechanics of buying and selling homes basically force you to consider price/sqft:
  • When you sell, the realtor you hire will figure out how much it can sell for buy looking at "comps", comparisons to similar properties that have sold in the area.
  • When you buy, the bank will determine how much to lend you based on an appraisal, which in turn is done in terms of comps and price/sqft.

Realtors, banks, institutional investors, and appraisers do this because they need a way to understand where the house sits as fungible asset among the market. Price/sqft makes a home more abstract and fungible, enabling them to boil down a unique asset to a small set of dimensions that can be sorted in a spreadsheet.

Renters generally care only about how much they personally value the property, rather than its long-term value or how others will perceive its value. They are focused on finding a place that meets their immediate needs and budget and tend to think about a property as a total amenity bundle: how many bedrooms/bathrooms, how close to work, whether there's a balcony, how nice the kitchen is, etc. They do care about spaciousness, but it's one of many aspects of the property that they look at.

II. Owners renovate more than renters
Homebuyers see square footage as a blank canvas that can be transformed to fit their needs and preferences, while renters are less able or willing to renovate their space. Landlords tend to be conservative about how much a tenant can change their space, so having extra square footage that's poorly used doesn't add much value to the renter. Even if the landlord is open to the tenant modifying the unit, renters are less motivated to invest as much in renovations since the value goes back to the landlord rather than to the renters themselves.

Side note: This dynamic is totally different in commercial leasing. In that context, tenant buildout and modification of the space is often taken as a given, and the price/sqft is often the headline advertised number. When the market is soft, commercial lease negotiations can even include concessions from the landlord to pay for some of the improvements chosen by the tenant.

III. Sqft is less accurate for rentals
Square footage is a more reliable metric for measuring the usable space of single-family houses, whose layouts tend to have fewer constraints. It is not as accurate for measuring the usable space of rental units because they tend to have more irregular floor plans. This is especially true for apartments, which may have odd shapes or unusable space due to the need to fit a large number of units into a small area or because they are located in a converted building.

IV. Rentals rarely list square footage, while sales listings almost always do
Another reason why renters might pay less attention to price/sqft is because rental listings rarely list it. Meanwhile, sale listings almost always include price/sqft. Of course the causality may run the other way – maybe the listings don't include those metrics because people don't care – but I'm sure that if landlords started highlighting price/sqft, renters would pay marginally more attention to those metrics.

V. Renters are more likely in survival mode
People who are just trying to survive are more likely to rent than to buy, because they tend to have less access to capital and cash flow. This means they are going for whatever they can afford, not trying to optimize. Meanwhile buyers are considering between different investments. Buyers also likely have more options to begin with, and metrics like price/sqft are only really useful as a comparison point between multiple options.

VI. Renting just isn't as important a decision as buying
The simplest answer might just be that renting just isn't such a big deal, while buying a home is often the single biggest financial decision a person will make in their their life. Renting is typically just a 6-18 month lease, while buying ties you to the asset until you can sell. As a result, you just don't take the decision as seriously and thus look at fewer metrics.

People are even less likely to look at the price/sqft of a hotel rooms, because it's a much lower impact decision in the first place if you're only there for a few days. Some renters know the price/sqft, but I've never heard of any travelers cite the nightly price/sqft of a hotel room.

Thanks to everyone who responded to my Twitter thread, especially Brian Potter for spending extra time talking me through some of these ideas.