How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs

[w¡n9Nµ7 §£@¥€r 123]

This is a very interesting read, I'm pasting the Executive Summary below. The actual paper has a lot of interesting information backing up the conclusions made in the summary. Enjoy.

Executive Summary

The collapse of America’s housing bubble—and its reverberations in financial markets—has obscured a tectonic shift in housing demand. Although housing prices are in decline almost everywhere, price declines are generally far more severe in far-flung suburbs and in metropolitan areas with weak close-in neighborhoods. The reason for this shift is rooted in the dramatic increase in gas prices over the past five years. Housing in cities and neighborhoods that require lengthy commutes and provide few transportation alternatives to the private vehicle are falling in value more precipitously than in more central, compact and accessible places.

The gas price spike popped the housing bubble. Growth in housing prices was fueled by low and stable gas prices from 1990 through 2004. In early 2004, in inflation-adjusted terms, gas prices were lower than they had been in 1990.

The higher price of gas has most affected suburban housing values. As measured by the change in housing prices over the last year, distant suburbs have seen the largest declines, while values in close-in neighborhoods have held up better, and in some cases continued to increase.

Those metropolitan areas with the strongest core neighborhoods, measured by our index of relative core vitality, have seen the smallest declines in housing values at the metropolitan level.

Vehicle miles traveled—a key driver of energy demand and greenhouse gas emissions—are down, reversing a 20-year upward trend.

The new calculus of higher gas prices may have permanently reshaped urban housing markets. Now that the era of cheap gas is over, demand for development on the fringe is down, and consumer interest and market potential lie in developing and redeveloping neighborhoods closer to the urban core. This trend could lower vehicle miles traveled, reducing spending on energy, stimulating local economies, reducing the trade deficit, and ultimately enabling the nation to meet greenhouse gas goals. This is a huge opportunity for urban economic development if public policy responds. Land use planning that accommodates more mixed-uses in existing neighborhoods and transportation investments that provide people with more alternatives to auto travel can help accommodate these new market realities. Indeed, the regions with these characteristics, in the form of strong urban cores, have been the ones that have weathered the downturn in housing markets best.

For decades, the growth of suburban housing was predicated on cheap gas. In effect, the low price of gas made sprawl economical. While predatory and sub-prime lending have been blamed for the housing crisis and have certainly contributed to the problem, another economic factor has been almost entirely overlooked in the timing and the geography of the nation’s housing market implosion. The rise in gas prices from less than $1.10 in early 2002 to more than $3 today has dealt a major blow to consumer purchasing power and weighs most heavily on those metropolitan areas and those suburbs where people have to drive the farthest. Indeed, the decline in housing markets is strongly correlated with auto dependence.

The run-up in gas prices has re-written the calculus of suburban housing economics in two key ways. First, there has been an income effect. Suburban households spend more of their income on transportation, and gas in particular, and have, therefore, taken the biggest hit to household budgets from gas price increases. As a result, they have less income to spend on housing. Second, there has been a price effect. Because distant suburban housing requires more driving, potential buyers are now willing to bid less for houses at the suburban fringe.

Many of the hallmarks of the current housing crisis will gradually fade in the months ahead. States and the federal government are already enacting curbs on the worst predatory practices and providing some relief to the hardest hit homeowners. The process of foreclosures, though painful now, will run its course. In contrast, the rise in gas prices has fundamentally altered the landscape of urban housing markets in a way that will not quickly be undone, barring an unforeseen collapse in oil prices.

The new landscape of housing prices and high fuel costs has important implications for public policy. Cities that offer attractive urban living opportunities in close-in neighborhoods, enabling people to drive shorter distances and make convenient use of alternatives to car travel, are likely to be more affordable and economically successful than places that continue to follow sprawling development patterns. Working to promote land use patterns that enable mixed-use development and provide more bikeable, walkable neighborhoods served by transit will provide multiple benefits, including cutting gas bills, reducing the trade deficit and reducing global warming.

http://www.ceosforcities.org/newsroom/pr/f...ink%20FINAL.pdf

[w¡n9Nµ7 §£@¥€r 123]

Another excerpt I found interesting....

Metropolitan Areas with Strong Cores Have Been Less Affected by Declines

At the metropolitan level, those regions with vital urban cores have been far less affected by the decline in the housing market than those with weak cores. We measured core vitality using an index of the relative concentration of education levels of residents of close-in neighborhoods of large metropolitan areas. A rating of 100 percent on the core vitality index means that the educational level of adults residing in neighborhoods within 5 miles of the center of the central business district was the same as the educational level of the entire metropolitan area. Areas with core vitality ratings of less than 100 percent have relatively less well-educated residents in their close-in neighborhoods; areas with ratings over 100 percent have relatively better educated residents living in close-in neighborhoods.

For each metropolitan area, we computed the change in housing prices between the fourth quarter of 2006 and the fourth quarter of 2007. Those metropolitan areas with the strongest urban cores had the smallest decline in housing prices region-wide. Metropolitan areas with the weakest core neighborhoods had the largest declines in region-wide housing prices. For example, while Detroit, Phoenix and Las Vegas have relatively weak cores and weak price appreciation, Chicago, New York, Seattle and Portland all have strong cores and relatively much better housing price performance over the past year.

[mawilson 2,133]

Makes sense. I knew it was the Ayrabs.

[rebeccajo 14]

When we were trying to sell our house in the 'burbs last year, the commute and gas prices were definately a factor in our price.

I often wonder about the poor dude and his family that bought the property and what it's costing them daily just to drive into town.

[AlHayatZween 2]

This trend could lower vehicle miles traveled, reducing spending on energy, stimulating local economies, reducing the trade deficit, and ultimately enabling the nation to meet greenhouse gas goals. This is a huge opportunity for urban economic development if public policy responds. Land use planning that accommodates more mixed-uses in existing neighborhoods and transportation investments that provide people with more alternatives to auto travel can help accommodate these new market realities. Indeed, the regions with these characteristics, in the form of strong urban cores, have been the ones that have weathered the downturn in housing markets best.

http://www.ceosforcities.org/newsroom/pr/f...ink%20FINAL.pdf

Interesting read, Troll.

But another thing i took from it, is that IF in fact this is the case, and we are re-developing the urban scheme...

it means a lot more small business owners are going to be booted by the big banks, big pharmacies, big chain stores...

i hate it when us small people finish last.

interesting read.

hz

[w¡n9Nµ7 §£@¥€r 123]

IF in fact this is the case, and we are re-developing the urban scheme...

it means a lot more small business owners are going to be booted by the big banks, big pharmacies, big chain stores...

i hate it when us small people finish last.

Efficiencies of scale are a b1tch

[Imua 0]

This trend could lower vehicle miles traveled, reducing spending on energy, stimulating local economies, reducing the trade deficit, and ultimately enabling the nation to meet greenhouse gas goals. This is a huge opportunity for urban economic development if public policy responds. Land use planning that accommodates more mixed-uses in existing neighborhoods and transportation investments that provide people with more alternatives to auto travel can help accommodate these new market realities. Indeed, the regions with these characteristics, in the form of strong urban cores, have been the ones that have weathered the downturn in housing markets best.

http://www.ceosforcities.org/newsroom/pr/f...ink%20FINAL.pdf

Interesting read, Troll.

But another thing i took from it, is that IF in fact this is the case, and we are re-developing the urban scheme...

it means a lot more small business owners are going to be booted by the big banks, big pharmacies, big chain stores...

i hate it when us small people finish last.

interesting read.

hz

It's been happening in a number of Manhattan neighborhoods like the Upper West Side in particular a lot of long time small boutiques, restaurants, delis, etc. are gone but there is a bank or a Duane Reade drug store on every corner - it was one reason I moved out.

[rebeccajo 14]

This trend could lower vehicle miles traveled, reducing spending on energy, stimulating local economies, reducing the trade deficit, and ultimately enabling the nation to meet greenhouse gas goals. This is a huge opportunity for urban economic development if public policy responds. Land use planning that accommodates more mixed-uses in existing neighborhoods and transportation investments that provide people with more alternatives to auto travel can help accommodate these new market realities. Indeed, the regions with these characteristics, in the form of strong urban cores, have been the ones that have weathered the downturn in housing markets best.

http://www.ceosforcities.org/newsroom/pr/f...ink%20FINAL.pdf

Interesting read, Troll.

But another thing i took from it, is that IF in fact this is the case, and we are re-developing the urban scheme...

it means a lot more small business owners are going to be booted by the big banks, big pharmacies, big chain stores...

i hate it when us small people finish last.

interesting read.

hz

It's been happening in a number of Manhattan neighborhoods like the Upper West Side in particular a lot of long time small boutiques, restaurants, delis, etc. are gone but there is a bank or a Duane Reade drug store on every corner - it was one reason I moved out.

??

And there are small businesses in the burbs?

I think you are far more likely to find a mom and pop business in the city center than you are in suburbia - land of strip malls, WalMart and McDonalds.

[pedroh 21]

word.. love living inside charlotte now.. walking around, don't need to drive anywhere, best of all, don't even need to speak english! lolol

[w¡n9Nµ7 §£@¥€r 123]

suburbia - land of strip malls, WalMart and McDonalds.

There are plenty of small businesses in my area. They're almost all restaurants though. At this moment I can't think of any that are not.

And they all rock!! The ones that don't.... go away.

Edited May 13, 2008 by VJ Troll

[w¡n9Nµ7 §£@¥€r 123]

word.. love living inside charlotte now.. walking around, don't need to drive anywhere, best of all, don't even need to speak english! lolol

You're turning this thread into VJ-Minutemen bait.

[rebeccajo 14]

suburbia - land of strip malls, WalMart and McDonalds.

There are plenty of small businesses in my area. They're almost all restaurants though. At this moment I can't think of any that are not.

And they all rock!! The ones that don't.... go away.

When we lived in the burbs it was also only restaurants that were Mom and Pop owned.

There sure weren't any boutiques or fun little businesses like you find in a city center.

[w¡n9Nµ7 §£@¥€r 123]

When we lived in the burbs it was also only restaurants that were Mom and Pop owned.

I have no problem with small businesses and big chains coexisting. The big chains don't offend me. They serve a certain type of demand, as evidenced by the fact that the Applebee's near me has an hour wait on Friday nights.

My wife and I like the little Indian and Italian places. Dinner for two in less than $20! And it's mmmm.

[Imua 0]

This trend could lower vehicle miles traveled, reducing spending on energy, stimulating local economies, reducing the trade deficit, and ultimately enabling the nation to meet greenhouse gas goals. This is a huge opportunity for urban economic development if public policy responds. Land use planning that accommodates more mixed-uses in existing neighborhoods and transportation investments that provide people with more alternatives to auto travel can help accommodate these new market realities. Indeed, the regions with these characteristics, in the form of strong urban cores, have been the ones that have weathered the downturn in housing markets best.

http://www.ceosforcities.org/newsroom/pr/f...ink%20FINAL.pdf

Interesting read, Troll.

But another thing i took from it, is that IF in fact this is the case, and we are re-developing the urban scheme...

it means a lot more small business owners are going to be booted by the big banks, big pharmacies, big chain stores...

i hate it when us small people finish last.

interesting read.

hz

It's been happening in a number of Manhattan neighborhoods like the Upper West Side in particular a lot of long time small boutiques, restaurants, delis, etc. are gone but there is a bank or a Duane Reade drug store on every corner - it was one reason I moved out.

??

And there are small businesses in the burbs?

I think you are far more likely to find a mom and pop business in the city center than you are in suburbia - land of strip malls, WalMart and McDonalds.

Not in the burbs, but in other parts of the 5 boros such as Queens, the Bronx or Brooklyn. I love all the ethnic neighborhoods in Queens in particular.

[rebeccajo 14]

When we lived in the burbs it was also only restaurants that were Mom and Pop owned.

I have no problem with small businesses and big chains coexisting. The big chains don't offend me. They serve a certain type of demand, as evidenced by the fact that the Applebee's near me has an hour wait on Friday nights.

My wife and I like the little Indian and Italian places. Dinner for two in less than $20! And it's mmmm.

AJ, all I'm saying (by joining in this discussion) is that I don't think a return to urban living is going to kill Mom and Pop biz ownership.