How fuel prices popped the housing bubble

Fuel prices pop the bubble

Courtesy morguefile

 

A new report shows that rising fuel costs played a significant role in the collapse of America’s housing bubble. According to “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” the recent decline in housing markets is directly related to our dependence on automobiles.

The report, commissioned by CEOs for Cities and written by economist Joseph Cortright, found that the a rise in gas prices from less than $1.10 in early 2002 to nearly $4 in 2008 dealt a major blow to consumer purchasing power and weighed most heavily on those metropolitan areas and suburbs where residents have to drive the farthest.

By looking at housing values in five cities—in neighborhoods closer to the urban core and in more distant suburban neighborhoods—Cortright was able to determine that in each case, housing prices fared worse in the more distant neighborhoods, while values in neighborhoods closer to the urban core, especially those offering alternative forms of transportation, have held up better, and that in some cases have continued to increase in value. Cortright’s analysis concludes that:

  • Because the era of cheap gas is over, demand for development on the distant suburban fringe will continue to fall. Market potential now lies in developing and redeveloping neighborhoods closer to the urban core.
  • Cities that offer attractive, mix-use urban living are likely to be more affordable and economically successful than places that continue to support sprawling development patterns.
  • Not only does reduced automobile travel save families money, but households that drive less have more money to spend on things that stimulate the local economy.
  • Reductions in oil consumption by residents would not only lower our nation’s trade deficit, but would go a long way toward enabling us to reduce our country’s greenhouse gas emissions.  

To read the full report, see http://www.ceosforcities.org.

Published August 2008