With the price of gasoline hovering anywhere between an arm and a leg these days, making the commute from the far-flung 'burbs to an office tower downtown is getting awfully expensive. Driving from say, Rochester or Northville into town, with gas nearing the once-unheard-of $4 a gallon mark, can easily cost more than $10 a day, $250 a month, just to get to work and back.
As if the monthly gas-card bill wasn't bad enough, now there's a new study that suggests that the value of suburban homes is dropping fast, partly because it's such a long, expensive drive to work. The group CEOs for Cities, which advocates for revitalizing our core urban areas, just released a white paper that links plummeting suburban home values to the spike in gasoline prices. That, in turn, has made investment in a home in the city more attractive, the study says.
Smart city leaders should take advantage of this opportunity and work to revitalize transportation, schools and security, critical assets that are needed to bring middle-class families back to the cities, says Carol Coletta, president of CEOs for Cities. "We see this as a historic opportunity for cities to improve their position," she says.
Make no mistake - the study isn't laying the blame for the bursting of the housing bubble solely on $3.65-a-gallon gas. The predatory and exotic lending practices that, for years, encouraged homebuyers to purchase more than they could afford is no doubt the chief culprit for the housing market bust, it says. But the study's author, Portland, Ore. economist Joseph Cortright, argues that the tipping point was the rapid rise in the price of gasoline. "The much more important story is about how higher gas prices have redrawn the map of urban real estate values," Cortright says.
Pumped up commutes, declining real estate
As housing prices dropped nationwide over the last year, distant suburbs saw the largest declines, while values in close-in neighborhoods have held up better, and in some cases continued to increase, Cortright's analysis found. That's good news for urban dwellers, he says. "Vibrant central cities just got a whole lot more valuable."
It was low gas prices that helped power the housing boom in the first place, Cortright says. From 1990 to 1998, the price of a fill-up stayed pretty stable, with gas hovering around $1.50 a gallon, adjusted for inflation, each of those years, give or take a few cents. In 1998 and 1999, prices actually dropped, getting as low as $1.10 a gallon. With gas relatively cheap then, its cost didn't really factor into the decision to buy a big house out in the growing 'burbs, Cortright argues.
Families, in particular, saw the opportunity to buy affordable McMansions in good school districts in neighborhoods they perceived to be safe and kid-friendly. If it meant spending 90 minutes a day in traffic traveling back and forth to work, well, so be it. The cost of commuting was rarely even considered. But the 1999 price of a gallon seems like pocket change now, of course. Beginning in 2002, the cost began its climb to where we're at today – record levels of $3.85 or so a gallon. The price of gasoline's raw material, a barrel of crude, has smashed through levels previously unthinkable - first $70 a barrel, then $80, $90, $100, $110 and $120 -- a pretty good indication that prices won't be coming down anytime soon.
The run-up in gas prices has changed the economics of buying and maintaining a house by taking a big bite out of the family budget, particularly in suburban households. It's also diminished the value of homes on the suburban fringe because potential buyers are now willing to bid less for those houses because it will cost them so much to get to work, Cortright says.
He examined housing values in five cities (Chicago, Los Angeles, Pittsburgh, Portland and Tampa) in both close-in and distant neighborhoods and found that in each case, housing prices fared worse in the more distant neighborhood. As an example, the average house in a Chicago zip code only five miles from the downtown loop appreciated from $374,000 to $410,000 between the fourth quarter of 2006 and the fourth quarter of 2007. A house in the Chicago suburb of Buffalo Grove that sold for the same price in 2006, declined by $30,000 over the course of the year, the study found.
That's partly because of the additional cost of living in the suburb, Cortright says. Because they travel shorter distances to work, shop and play, urban residents end up spending less on gas. Cortright cites a 2008 study that found that in the nation's 10 largest metropolitan areas, the typical city household buys about 200 fewer gallons of gas per year than its suburban counterparts. At $3.65 a gallon, that's $730 a year. "For some families living on the urban fringe, the burden is even higher," the report says. "A household with two or more cars living in an exurb could easily have a gas bill exceeding $500 per month."
The livin' is eas(ier)
Not everyone's buying into the theory, however. Critics point out that there are plenty of people who both live and work in the suburbs, making their inter-suburban commute times relatively short. Birmingham, Ann Arbor, and Royal Oak are among the residential communities in Metro Detroit that are also home to many workplaces. Not coincidentally, however, all three communities boast vibrant downtowns that are attracting a healthy mix of business, retail and residential space.
"I just love living downtown. My husband and I can walk everywhere: To the Power Center to the theater to football games to dinner. It's delightful." says Jane Kaufer, who with her husband, bought a building in downtown Ann Arbor in 2000.
Though far from a 24 hour downtown, the university town's urban core is constantly growing its amenities and residential options. "We use the car for groceries, trips and twice a week for work --my husband's a physician at Ann Arbor's VA hospital-- but otherwise we walk everywhere because we can. If someone would put in a medium size grocery store and a pharmacy [downtown] we'd walk there too. "
While suburban commuters suffer four dollar gas prices, Kaufer doesn't worry about rising fuel costs. Since she and her husband bought their car eight years ago they've put less than 38, 000 miles on it.
This new calculus of home economics is here to stay, Coletta says, and urban leaders and advocates need to make plans to address the reality. "These changes will not be short-lived, and they can't be addressed with short-term fixes," Coletta says. "Public policy must recognize the new realities by changing land use planning and investment to encourage re-use of existing urban land and less driving."
She's calling on planners and policy makers to encourage expansion of public transit to make it easy and cheap (light rail); to encourage development that allows people to get around by walking, biking and busing, and to make long-term plans to revitalize urban schools. Urban leaders "have to plan for this and manage for it," she says. "If they will be intentional about these things, cities can begin to win the battle for families with kids."
And strengthening the core of a metropolitan region is not only good for the city, but good for the suburbs too.
David Holthaus is a Cincinnati-based writer who contributes to Metromode's sister publication, Soapbox.
Photos:
At the gas pump
Downtown Detroit traffic
Walkable Royal Oak
Photographs by Marvin Shaouni
Marvin Shaouni is the managing photographer for Metromode & Model D.