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June 16, 2008

« Putting the Buff in Tor-Buff-Chester | Main | The End of Bohemia? »

Real estate economist, Richard Green thinks rising gas prices will have significant impact on real estate markets and geographic patterns (via Mark Thoma):

Over the past six years, the price of gasoline has risen about $2 per gallon. What does this mean for relative urban land prices?

Let's say the average household makes five one-way trips per day--for work, shopping, entertainment, etc. Let's also say that the average car gets 20 mpg in city driving. Each mile of distance to work, shopping, etc. is therefore now 50 cents per day per household more expensive than before. A household living immediately adjascent to work and shopping should then be willing to pay $5 per day more in rent than a household 10 miles away compared with six years ago, all else being equal. This becomes $150 per month, or $1800 per year. Assuming a five percent cap rate for owner occupied housing, this translates to $36,000 in relative change in value. Given that the median house price in the US is about $220k, this is kind of a big deal.

The assumptions here are pretty crude (particulalry the ceteris paribus assumption), but if gas remains at its current real price, we will see the shape of US cities change.

Separately, the Washington Post reports that the real estate crunch is already limiting geographic mobility.

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Comments

scott

This is beyond conjecture at this stage in the game. Fact is, modern metros in the USA were built FOR the automoble, and the sprawl post '50 was just a kicking into overdrive of the same phenomenon, with the interstate highway system the ultimate enabler.
Now, the system cannot function without cheap gas and easy finance for homebuilding and retail growth The suburban sprawl phenomenon has just been hot with a two-pronged double whammy.
Energy is no longer cheap, and finance is no longer easy. Simply
the foundations of sprawl itself have been totally underminded.
Where to go from there? Not had to envision developments far from
enployment, and/or most lacking in retail access, to die on the vine. After WW2, many country estates in the outlying London suburbs were abandoned.......while this might be somwhat extreme, still hard to say what super-sized paradigms may be given up permanently, in many quarters, as finance and energy become rarer
and dearer.

Whitney Gunderson

I agree that this is beyond conjecture. Just about the time we all get our scenarios prefected that show exactly how housing prices and the value of living in an urban area actually are dependant on the price of fuel, we stumble upon the realization that fuel prices have always been factored into modern housing values and that the value of living in an urban area increases along with the price of fuel. Hopefully, sustanability will take the place of high, discomforting fuel prices, but this does not have to happen. Household budgets could be adjusted to accomodate higher fuel prices. But man, it just makes more sense to be sustainable.

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