ASRS 2100022

I was instructing a commercial pilot applicant at around XA:30 in the afternoon. Clear day, winds gusting from the south at about 20 knots. We took off with 15 knot winds. Turbulent below 4000 feet MSL. Since the student pilot was near a checkride, I, as the instructor, was doing a "mock" checkride and was evaluating the student. I was not manipulating the flight controls. First, after taking off from MDH, we climbed to 4,500 MSL to do our at altitude maneuvers. After these were completed, the student and I descended down to pivotal altitude. I as the IP (instructor pilot), remarked to myself that we were close to a town and wanted to see what the SP (student pilot) would do. The student pilot picked his first pylon about a mile and a half south of this town. Our ground tract took us just south of the town, away from flying over a congested area (we were above 1000 AGL). It was about a quarter through the turn that I noticed an unmarked tower near our point. I called this out to the student pilot and he said that he had it in sight. It was no factor through our first complete turn. I then turned my attention to his altitude, airspeed, and coordination, trying to evaluate his maneuver. For reference, the ground level was about 500 feet above sea level. During the second half of the turn, with strong 15-20 knot winds (resulting in a high variance of pivotal altitude), Aircraft X was about to descend past 500 feet AGL in order to maintain pivotal altitude, but as IP (Flight Instructor), I stopped him from doing so. After reaching the completion of the Eights On Pylon maneuver, I asked the student if he wanted to try the Eights on Pylons again. Looking back on the question, I should have prefaced the question with my intention of moving away from the town and unmarked tower. I did not want my student to try Eights on Pylons again being close to a congested area and a tower we were not familiar with. My student said yes to a retry and immediately turned left to start again, this time about 200 feet lower. With us being so close to the congested area, I immediately started a climb while we were in the bank to the left. At this point, I had momentarily forgot about the unmarked tower. The unmarked tower has no marked altitude height, but I can estimate that we climbed just west to the tower about 1000-1250 feet, and 800-1000 feet vertical clearance. While there was no collision imminent, the decision to turn left resulted in a loss of adequate separation with the tower. We climbed to 1700 feet MSL and proceeded farther southwest to continue our practice of Eights on Pylons. Here, the ground elevation rose about 30-50 feet, and neither I nor the student pilot realized it. We, without realizing, accidentally descended below 500 AGL with this new rise in field elevation, about 30-50 feet. I checked the field elevation during the maneuver, and I realized this during the maneuver. Since we were on the climbing part of the maneuver, I allowed the student to finish after climbing back to 500 AGL, and went back to the airport to land without incident. Looking back, I made several errors. 1. I should have forced the student to pick a different area. While his initial point was legal, it should not have been so close to a congested area. 2. I lost situational awareness due to my monitoring of the student's maneuver. I needed to make decisions as PIC and not as a flight instructor. 3. While flight instruction is important and trying to evaluate the student's performance is needed at times, the PIC must take control of the situation and not let students make a choice not conducive to safety of flight. In the future: 1. I will be enforcing a 3 mile no-fly radius around congested areas for ground reference maneuvers. 2. I will not allow flight instruction to overshadow my duties as PIC. 3. Make sure to double check the field elevation in the area before starting Eights on Pylons.