Housing Bubble Popped by Spike in Fuel Costs, New Analysis Shows
Published by Staff on April 28, 2008
A new analysis by Oregon economist Joe Cortright shows that high gas prices are not only implicated in the bursting of the housing bubble, but that the higher cost of commuting has already re-shaped the landscape of real estate value between cities and suburbs. Housing values are falling fastest in distant suburban and exurban neighborhoods where affordability depended directly on cheap gas.
Mr. Cortright will be speaking at the Lane County Moving Forward Together™ conference on June 11.
Read the press release below from CEOs for Cities, or read the full report.
FOR IMMEDIATE RELEASE
Media Contact:
Sheila E. Redick, 901.412.4351
org/ceosforcities!sredickHousing Bubble Popped by Spike in Fuel Costs, New Analysis Shows
Outlying Suburbs Hardest Hit with Devalued Real EstateCHICAGO—While predatory lending and sub-prime mortgages have taken the blame for the dramatic decrease in housing prices and the glut of foreclosures nationwide, a new analysis shows that rising fuel costs played a significant role in the collapse of America’s housing bubble.
That’s according to a new report released today by CEOs for Cities titled Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs, by economist Joseph Cortright.
“The popular narrative on the collapse of housing prices has only blamed exotic lending practices,” said Cortright, “but the much more important story is about how higher gas prices have re-drawn the map of urban real estate values. Vibrant central cities just got a whole lot more valuable.”
The analysis found that while there is overall weakness in housing prices, price declines are generally far more severe in far-flung suburbs and metropolitan areas with weak central cities. The reason for this shift is rooted in the dramatic increase in gas prices over the past five years. Cities and neighborhoods that require lengthy commutes and provide few transportation alternatives to the private vehicle are falling in value more precipitously than more central, compact and accessible places, the study shows.
In fact, growth in housing prices was fueled by low and stable gas prices from 1990 through 2004. 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. The decline in housing markets is strongly correlated with auto dependence.
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.
The study looked at housing values in five cities in both close-in and distant neighborhoods and found that in each case, housing prices fared worse in the more distant neighborhood. For example, the average house in the 60618 zip code in Chicago (5.6 miles from the downtown loop) appreciated from $374,000 to $410,000 (an increase of $36,000) between the fourth quarter of 2006 and the fourth quarter of 2007. A house in suburban Buffalo Grove (60089) that sold for the same price in 2006, declined by $30,000 over the course of the year.
The run-up in gasoline 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 and have therefore taken the biggest hit to their budgets. As a ### result, they have less income to spend on housing. Second, there has been a price effect: because living in distant suburbs requires more driving, potential buyers are now willing to bid less for houses at the suburban fringe.
“These changes will not be short-lived, and they can’t be addressed with short-term fixes,” said Carol Coletta, President and CEO of CEOs for Cities, a national network of urban leaders, which commissioned the study. “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. In this new world of high gas prices, strengthening the urban core is not only a matter of civic pride. It makes financial sense for America’s families.
The report concludes with five policy implications:
- The relative decline in prices in sprawling suburbs is likely to persist because of the continued high price of gas, and governments should plan accordingly.
- The market for higher density and redevelopment in close-in neighborhoods is likely to grow stronger, and local land use plans should accommodate this shift.
- Government can help families save money by making it easy and convenient to live in mixed-use, close-in neighborhoods served by transit.
- Reducing vehicle miles traveled not only saves families money, households that drive less have more to spend on other things, stimulating the local economy. Additionally, reducing oil consumption not only cuts greenhouse gas emissions but lowers the trade deficit.
- Many distant exurban developments may no longer be economical, and propping up building and homeownership in these areas encourages unsustainable settlement that makes families even more vulnerable to future gas price increases.
About CEOs for Cities
CEOs for Cities is a cross-sector network of urban leaders from the civic, corporate, academic, and philanthropic sectors in partnerships around urban strategy. At CEOs for Cities, we believe that cities are the solution to many of today’s challenges. If you are concerned about climate change, access to job and education opportunities, poverty, obesity, productivity, our innovation capability, or our ability to learn to live with people of different ethnic or religious backgrounds, you have to be concerned about cities. The city is the only place these problems can be solved.
About Joseph Cortright
Joe Cortright is an economist with Impresa, a Portland consulting firm specializing in regional economic analysis, innovation and industry clusters. Joe is also a non-resident Senior Fellow at the Brookings Institution and is the chief economic analyst for the Oregon Business Plan, a multi- year, private sector-led effort to develop the state economy and for CEOs for Cities, a national organization of urban leaders. He has served as an advisor to state and local governments, private businesses, foundations and advocacy groups in more than a dozen states, Canada and Europe.
For a digital copy of Driven to the Brink, email org/ceosforcities!sredick
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5 Responses to “Housing Bubble Popped by Spike in Fuel Costs, New Analysis Shows”
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Paul on 30 Apr 2008 at 7:40 am #
How do changes in housing prices in Oregon and especially in Lane County compare to elsewhere in the nation?
Karl Eysenbach on 23 May 2008 at 6:31 pm #
I need to have a better idea of the topics and workshops that are scheduled. Can you supply this now?
Staff on 24 May 2008 at 1:15 am #
Have you looked at our About and Speakers pages, which provide more info about the conference?
In brief, our opening speaker will be regional planner John Fregonese. We will have panels on 1) housing and Smart Growth, 2) economics, 3) communities collaborating, and 4) transportation. Our keynote speaker will be former Maryland Governor Parris Glendening. Finally, we will have a “Next Steps” panel consisting of local elected officials.
Reading the bios of the speakers will give you a better sense of the kinds of topics features. But a more detailed program is not yet available.
Lorette Waggoner on 06 Jun 2008 at 12:48 pm #
I’ve been a Realtor in Lane County for 14 years now. I continue to be frustrated by “experts” from Chicago (and other places) who comment on “national trends,” but no one looks at our trends. The R-G is great for printing Copley New Service stories, but they are from the mid-west and do not usually reflect our market and community.
In Lane County, the assumptions by Cortright do not hold true. Areas within the Urban Growth Boundary are dropping in value or barely holding their own. The areas showing increase in median sales price in April 2008 were: McKenzie Valley, Veneta/Elmira, Junction City, Thurston, Springfield and Mohawk Valley. East Eugene & River Road showed slight increases, all other areas decreased. I’d be happy to send the Market Watch report by the RMLS and the annual median price graphs by area to anyone who wants to study them.
While holding our urban growth boundary tightly, we have had a much better housing market than most of the US. That said, we also have a much higher ratio of housing prices compared to income. We are rapidly making home ownership un-reachable by many of our community, even in the outlying areas.
Housing in the core is a major problem here.
Our continued view that downtown revitalization will occur by helping businesses to locate there overlooks one major component … who’s going to shop there? Without providing owner-occupied housing in the down-town core (for long term support of business, rather than the more transient support a renter might bring) we will never see a revitalization. Ask any real estate broker and they’ll tell you that people want housing downtown, where they can walk to shop, the arts, etc. They need good, reasonably priced options. Several of the recent apartment developments should have been moderately priced condos (Charnelton & 8th and the highrise on High & 10th). Right now we have either very small, older units (Willamette Towers, High St Row houses) or high-end units (The Tate, Lincoln Terrace). Encouraging current apartment owners to convert to condos and to encourage developers to build condos or row houses into their projects … again at moderate prices and finishes … will do more the help the downtown than any business development.
I am looking forward to attending the conference and hearing what others have to say about where we are going as a community. I just hope that they will be using our data and statistics, not numbers and trends from a city 2000 miles away.
Lorette Waggoner
Prudential Real Estate Professionals
541-302-4480
Staff on 08 Jun 2008 at 9:00 pm #
Dear Lorette,
Thank you very much for you comment.
We can’t speak for our various panelists. But speaking on behalf of the committee organizing the conference, we have been consistent all along in wanting to benefit from outside knowledge as it applies to Lane County.
Thus, for example, every panel is being moderated by someone with local, on-the-ground knowledge. Housing advocate (and LCDC chair) John VanLandingham is moderating one panel, Lane Metro Partnership executive director Jack Roberts another, and LTD board president Gerry Gaydos yet another. A big part of their role will be to provide a “reality check†on what we might hear from out of town.
We have also been encouraging our speakers to orient their comments to Lane County. Yes, unlike much of the country, Oregon has UGBs. And within Oregon, the market in Lane County is different from, say, around Portland or Bend.
In particular, the panel with Joe Cortright and Terry Moore will probably talk about what is happening elsewhere in the country to provide context, but then move to looking at what is happening in Lane County, and how that might be changing.
Please come to the conference with your concerns, questions and an open mind.