June 25, 2008
Exurbs Fall Out Of Favor Due To High Fuel Costs
People with longer commutes from outer suburbs get more heavily hit when gasoline prices rise. High oil prices impact housing prices of outer suburbs more than in towns near urban cores.
In Atlanta, Philadelphia, San Francisco and Minneapolis, homes beyond the urban core have been falling in value faster than those within, according to an analysis by Moody’s Economy.com.
In Denver, housing prices in the urban core rose steadily from 2003 until late last year compared with previous years, before dipping nearly 5 percent in the last three months of last year, according to Economy.com. But house prices in the suburbs began falling earlier, in the middle of 2006, and then accelerated, dropping by 7 percent during the last three months of the year from a year earlier.
Of course, if you have the ability to telecommute then wait a few more years for even better deals on big houses on the exurban fringe. Though if you live in an area with extremes in temperatures the telecommuting won't let you escape the cost of heating and cooling. Still, that too will drive down the prices of houses. Bone up on ground sink heat pumps, types of insulation, and other ways to cut heating and air conditioning costs and you might find aways to make that country mansion affordable.
People who do not have to commute by car have experienced less of a hit from higher oil prices. Suburbanites have less money to spend on everything else when gasoline prices rise. Everything else includes housing.
Basic household arithmetic appears to be furthering the trend: In 2003, the average suburban household spent $1,422 a year on gasoline, according to the Bureau of Labor Statistics. By April of this year — when gas prices were about $3.60 a gallon— the same household was spending $3,196 a year, more than doubling consumption in dollar terms in less than five years.
I know people whose gasoline costs have gone up by four to five thousand dollars per year in the last decade. That they can manage to drive 60 or 70 or more miles each way in their commutes just amazes me. Their options for cutting their gasoline bills in half are pretty limited. For someone who is already getting 20 mpg only a couple of hybrids (the Toyota Prius and Honda Civic Hybrid) will at least double the mpg and cut their bills in half. Curiously, the Honda Civic CNG will cut costs more than the hybrids since natural gas is so cheap compared to gasoline. But a shorter range means very frequent fill-ups for high mileage drivers.
A lot fewer can move closer to work than want to do so. The high oil prices that spur people to move also reduce the value of their dwellings and so make it harder for them to buy something closer to work.
But moving isn't necessarily the right answer, especially now. The outlying communities where commuting costs are hitting hardest are also experiencing a larger decline in real estate values. Closer-in communities have fared better in the slump. For those looking to relocate, that would mean less money for the home they're selling and more money for the one they would buy.
Close-in communities also often have higher property taxes, and the act of moving is an enormous and expensive undertaking.
As a result, the adjustments in residence addresses will come slowly. Still, people do move. In the United States about 40 million people move per year according to the US Census Bureau. That's over 13% of the population.
Other options for reducing energy usage in order to cut costs can be done much more rapidly. People are cutting way back on discretionary travel and the tourist industry is going to take big hits as a result.
The chairman of the Caribbean Tourism Association says the airlines' moves are putting thousands of regional jobs and billions of dollars of investment at risk. Caribbean markets are especially susceptible to the cuts, he says, because struggling American Airlines handles a majority of traffic into the region. American recently announced that it's cutting its daily flights at its San Juan hub from 93 to 51 and will no longer serve Santo Domingo, Antigua, St Maarten, Aruba, or Samana from San Juan.
We can change how much we use cars faster than we can change the fuel efficiency of the cars in existence. We can drive less in many ways. We can move closer to work or choose a job closer to home. We can try go get permission to work from home at least part of the time or work longer hours fewer days of the week as a way to reduce distance driven to and from work. We can also car pool, ride in commuter vans, take mass transit such as buses or trains, or walk or bicycle or buy a scooter. We can also reduce optional driving and try to stop at more places on each errand run to reduce the number of errand trips we take.
What I wonder: Will employers do some of the adjusting for higher commuting costs by moving offices closer to the exurbs? Does it really make sense to move everyone closer to urban cores? Do all those jobs need to get concentrated in dense places? Or can businesses move at least some of their operations to office buildings closer to where people live?
What I also wonder: How fast will car fuel efficiency rise? If a Prius can get 45 mpg highway then why can't a subcompact hybrid get 55 or 60 mpg? Or why can't a 3 cylinder subcompact with direct injection on each cylinder get 45 to 50 mpg? Do safety standards preclude this in the United States due to weight needed to meet the safety standards? We used to have subcompact cars that fuel efficient back in the 80s and early 90s.
My advice: Get ahead of the changes driven by high fuel costs. Make decisions and make adjustments before you have to. Reduce your risks from high oil costs.
Update: The outer counties around Washington DC also saw a much larger decline in prices than the areas closer to DC.
The analysis found that the steepest declines in home sale prices, between April 2007 and April 2008, occurred in the outer suburban ring, defined as Loudoun, Prince William and Frederick counties. The average price there dropped by $110,900, or 25 percent. The inner ring, Fairfax, Montgomery and Prince George's, had a decline of 3.2 percent. The core, defined as the District, Arlington County and Alexandria, experienced an increase of 3.4 percent.
Getting out in front of the trend also saves you money when certain commodities get their prices bid up, as we see happening in the car market for efficient cars.
Dense urban cores are more efficient in almost every respect than suburbs or exurbs.
"[E]ven the maximum Energy Star savings was beaten by moderately-dense development of 12 housing units per acre. At 48 units per acre -- a moderate apartment or condominium complex -- the energy savings were double that of maximum Energy Star."
And that was written in 2005, when oil was in the $50~60 range.
Cheap cars with the kind of fuel efficiency you're talking about have already been made long ago. They were just discontinued due to lack of interest.
Here's a page devoted to a 1989 Geo Metro which got over 50 mpg stock and was converted to get over 70.
I bought a car recently, and one of the models we were interested in was the Honda Fit, one of the new compact hatchbacks. The Fit is inexpensive, gets (IIRC) nearly 40 mpg, is reasonably safe, and is really cute. Unfortunately, none of the Honda dealers in the area had one, and they weren't expecting to get any for almost two months. There's huge demand right now for small cars, so I assume that within a few years we'll be seeing new cars that are much like the Geo Metro (tiny car, tiny engine, 50+ mpg), except with modern safety features and design. I think they'll sell like hotcakes.
On the other hand, lower housing density allows a homeowner to collect more solar energy for electricity generation and space heating, as well as producing some biomass. Another thing: as a homeowner, I can insulate my house better - I can add 3 ft thickness of insulation if necessary. In a city, you'll have to use your neighbor's property or sidewalk space. Insulating a high-rise building - even one set back from street and adjacent buildings - might prove impossible: on the outside, you cannot do much, as the materials need to be strong and heavy, and the house wasn't designed to carry that load; on the inside, you'll be eating up the valuable interior space, and - at least in America - there isn't much of it to begin with.
Another problem: heating a multi-family residential house is done "as a whole": the heat consumption by each unit is usually not metered. And when one's usage (of whatever) is not metered, incentive to save doesn't really exist.
When it IS metered, it does not always do it fairly. One of my friends used to live in a building where each unit had an individual heat pump; his apartment was in the middle of the building, so he had only one exterior wall, and, since he prefers around 18C inside, and his neighbors liked ~20-21C, he didn't need to turn the heat in winter at all - except for really cold days... In summer he did a bit worse, though :-( .
Another advantage of a single family house is that it often has access to ground water as a source of heat and cold - and a way to dispose of that water once the heat is extracted from (or loaded into) it.
Yeah, got to love the efficient of violence in the inner city too.
Just a hop skip and jump for the criminals!
Anyone living in the northern states, especially in the northeast and northwest, could easily pick up a small compact or subcompact in Canada. I just checked out a few Honda dealership websites in the Montreal region and there are all kinds of new and used Honda vehicles for sale. I expect you would find similar numbers at Toyota, Mazda or one of GM dealerships too. Of course the vehicles have daytime headlights on all the time. Gas prices have been significantly higher in Canada than in the US for at least two decades so Canadians in the urban centers have been buying proportionally more small cars for 20 years.
I remember reading a piece in one of the auto magazines several years ago where the author wondered why this was the case. Apparently the author never thought of checking gas prices. I was in Montreal for the Grand Prix earlier this month. Gas prices were $1.52/liter (5.754/US gallon) and a Honda Civic was a big car.
"People with longer commutes from outer suburbs get more heavily hit when gasoline prices rise."
This is clear, but again, the size of the impact is not at all clear.
"High oil prices impact housing prices of outer suburbs more than in towns near urban cores."
Again, that's not proven - most of the effect is probably a much greater bubble in the suburbs. Much of this article isn't new. The only thing I saw that was new was the survey of realtors. The article also says: "Most experts do not share such apocalyptic visions", and check the Denver Mayor's quote:“It’s not going to be the dagger in the heart of suburban sprawl, but there’s a certain inclination, a certain momentum back toward downtown.”
I'm struck by the anecdote at the beginning of the article: the guy is driving a pickup!!! How can he complain about high fuel costs???
"if you live in an area with extremes in temperatures the telecommuting won't let you escape the cost of heating and cooling. "
I haven't seen any evidence that suburban housing is less energy efficient per sq foot. Sure, attached housing has shared walls, but design is more important: townhouses can lack insulating crawlspaces/basements and attics, and condo's/apartments can have huge windows. Suburbanites may have an advantage: they have more control, sunlight, and land.
"Their options for cutting their gasoline bills in half are pretty limited. For someone who is already getting 20 mpg only a couple of hybrids (the Toyota Prius and Honda Civic Hybrid) will at least double the mpg and cut their bills in half. "
What about a Corolla, with 40 MPG highway? They can get a reliable 10 year old for $3K.
"the tourist industry is going to take big hits"
Destinations dependent on airlines, like islands, will be hurt. Others will just reshuffle their customers - people will go to places closer to home.
"can businesses move at least some of their operations to office buildings closer to where people live?"
Sure. Much of this is cultural. Of course, the simplest thing would be telecommuting with high-quality video (HQ video optional).
"why can't a subcompact hybrid get 55 or 60 mpg?"
The Honda Insight - it did even better, I believe.
"Get ahead of the changes driven by high fuel costs. "
Excellent advice. You can still pick up a used Insight for $10K, and a used Corolla for $3K. Eventually these prices will jump.
has a post on Case-Shiller Tiered Home Price Indices. The low end areas saw the most appreciation, and have seen the fastest price declines. Part of the faster price decline in suburbs is just because they were lower priced houses.
But as I point out: The Geo Metro faced easier safety regulations. Can car companies build non-hybrid 50 mpg cars today while satisfying safety regulations?
Someone who drives 35k miles per year (and I know a guy who does that) can't buy a 10 year old car. He needs to start with 0 to low miles. I've started talking to high mileage drivers. Some have specialized jobs and can't get equivalent jobs closer to home. Some commute to areas with much higher housing costs. They are in a jam.
As for the supply of old high efficiency cars: It is shrinking.
One guy I know can only cut his monthly $750 gasoline bill in half 3 ways: Toyota Prius, Honda Civic Prius, or Honda Civic CNG. The CNH yields the biggest savings. But how often would he have to fill it and where? Also, what happens once gasoline hits $6 per gallon? Lots of commuter vans I suspect.
Energy efficient suburban housing: Houses got bigger during the housing boom. Also, those TV programs on how to improve the resale value of your house rarely showed people getting advised to improve their insulation or install a heat pump.
It is a lot easier to build with thicker walls in the first place. Have you actually priced getting thicker walls for an existing house? A friend did and the cost was in the tens of thousands of dollars.
If carpooling and commuter vans aren't reasonable choices, and ultra-high-efficiency cars are too expensive, there are always motorcycles and scooters...
As for insulation: it is easier to build thicker walls to begin with. But if you have a house out in the boonies (like me), there are a lot of options, some of which are very cheap. For example, natural insulation (earth berms).
"Someone who drives 35k miles per year (and I know a guy who does that) can't buy a 10 year old car. He needs to start with 0 to low miles. "
I'm assuming the concern is reliability. They could get a 7 year old Corolla with 50K miles, and drive it for another 100k miles, and it would be very reliable. Or, they could buy newer than that, in return for a (very) little bit more reliability.
When you talk to them, I'd be curious to ask: have they requested telecommuting? Have they really considered carpooling? Have they actually looked into buying a used Insight, Prius, Corolla or Civic? Or do they need a used car? Why haven't they bought something more efficient, already? I'm puzzled.
"As for the supply of old high efficiency cars: It is shrinking."
True, but it hasn't really shrunk that much yet, has it? Have you seen really dramatic price rises, as we would expect eventually?
"One guy I know can only cut his monthly $750 gasoline bill in half 3 ways: Toyota Prius, Honda Civic Prius, or Honda Civic CNG."
hmmm. What about the 40 MPG Corolla (I've hear of people doing better than that, BTW)? That MPG is highway, but surely most of this guy's driving is on the highway. Again, why hasn't he ordered one of them, already?
"Houses got bigger during the housing boom"
True. That suggests that newer suburban homes might suffer more than older ones.
I do not understand why some people I know haven't changed cars already. I think they have uncertainty (is this a blip?) and also inertia. We know gas prices aren't just in a short term blip. But the pain has to get pretty high for some people to basically recalculate their assumptions. They need to hear other people tell them that, yes, we are going thru a change in the energy markets that will last for years.
A lot of them do not want to car pool or ride commuter vans. A guy tells me one commuter van starts out 60 miles away and gets to a parking lot in here (where one needs a second beater car to take you to work) shortly before 8 AM and then leaves at 4:30 PM. Well, hard to get in enough hours. You need a beater car on each side to get to the pick-up point on each side.
People do not want to come and go at car pool times either.
Corolla: On autotrader.com lmost all the 1998-1999 Corollas for sale in SoCal have 120k+ miles. I found one with 68k miles for $5k that is in San Diego. Another with 87k miles for $5k in LA. They seem like slim pickings given the size of the area I'm searching over. Up in Santa Cruz a 99 Corolla with 34k miles goes for $8k. Seems pretty pricey. Note that the "Public Motors" ads have lower prices. But those are starting bid prices.
Coffins in cemeteries are much more efficient even than the urbs, but I wouldn't want to reside in either.
"They need to hear other people tell them that, yes, we are going thru a change in the energy markets that will last for years."
Yeah. We seem, just this last year or so, to be at a point where a lot of people are deciding it's longterm.
"A lot of them do not want to car pool or ride commuter vans. "
Shared activities are inherently less convenient, but a critical mass of users, and creative communications & software should solve most of that.
Basically, as a country, we're only now just barely starting to get serious about dealing with oil, energy, and climate change. I think many people greatly underestimate what we can do if and when we do get really serious. How much pain we'll have to be in to get really serious is the $64K question.
I showed a friend today that he can cut his commuting bill to a quarter of its current level by getting a Honda Civic CNG car. He's going to seriously investigate. He can pay the monthly payments and still save a few hundred a month. He's a long distance driver.
Shared activities: Car pooling makes more sense for poorer people because their time is worth less per hour. Ditto bus riding. The poor folks will shift to less convenient forms of transportation.
"a Honda Civic CNG car."
That's great. I'm not really familiar with how that works. Do you need special refueling stations, like H2 does? Does it look like there are enough of them? I wonder how widespread that is. Seems like every large local government (like Sheriff's & police depts) should look into them - they tend to have their own pumps, anyway.
"poor folks will shift to less convenient forms of transportation."
Yes. I think the poorest 20% mostly has - it's a question of the next 1 or 2 quintiles.
Perhaps really good organization might make carpooling OK, or even fun - that's the premise of these people: http://www.goloco.org
You give up most of the trunk for the CNG tank. But it is worth it for high mileage commuters since the price of natural gas is less than half that for an energy equivalent amount of gasoline.
A limited number of car and truck models have EPA certified conversion kits to make them run off of CNG.
Natural gas prices vary greatly. Why is Utah so cheap while SoCal is so expensive?
Filling up on natural gas: You can get a home fill-up kit. Not sure on the cost.
"it is worth it for high mileage commuters since the price of natural gas is less than half that for an energy equivalent amount of gasoline."
This isn't always true. It was true before about 1992, and then gas prices jumped because of more efficient NG electrical generation. Occasionally NG has been more expensive per BTU. Very recently it became true again since oil prices really jumped. See http://www.rice.edu/energy/publications/docs/natgas/ng_relationship-nov07.pdf , Figure 1.
I think that coal substitution helps keep down the cost of NG, so it's a pretty good bet, but it's not a sure one.
"Why is Utah so cheap while SoCal is so expensive?"
I would guess distribution/transportation costs.
The Baker Center at Rice University produces useful info about energy. I also saw a CSPAN-2 lecture at the Baker Center by a BP executive about their world energy report last week.
1 barrel of oil contains 6119 megajoules whereas 1000 cubic feet of natural gas contains 1080 megajoules. Well, the barrel is costing about $142 while the natural gas is at $13 per 1000 cubic feet. So 2.3 cents per megajoule with oil versus 1.2 cents per megajoule for the natural gas.
Of course, that doesn't exactly translate into retail prices for the oil or the natural gas. A gallon of gasoline might be (depending on season and amount of dilution by ethanol) about 120000 BTU or 127 megajoules. At $4.60 per gallon that is 3.6 cents per megajoule.
I'm having a hard time coming up with advice for my friend about whether to get a natural gas vehicle. I have a better understanding of the relationship between the whole oil price and the retail gasoline price. But I do not know how to compare current retail utility natural gas prices with likely future natural gas prices. Maybe the local natural gas utility is due for a big increase that a regulatory agency hasn't approved yet. Since the natural gas utilities sell at regulated prices there's a lag between wholesale and retail prices. As a result I can't project what retail prices will be 6 months from now even if wholesale prices remain the same.
Here one can see average US retail natural gas prices over time. But I'd like to see how Henry Hub natural gas prices SoCal PG&E retail prices vary by time. What's the mark-up from Henry Hub to my retail price? How connected are they?
I see that you can take the dollars per barrel of oil, lop off a digit, reduce by another 5%-10% and get wholesale Henry Hub natural gas prices approximately. Will that ratio hold going forward? Will natural gas lose more of its advantage? US natural gas production might start declining and then US natural gas prices might rise up to imported LNG price levels.
As a result of this it is hard to tell someone in SoCal how much he'll save per month over a period of 3-4 years by switching to a natural gas vehicle. The call would be a lot easier to make if we lived in Utah. The advantage of natural gas is so huge there that it is a no brainer to switch to natural gas if you drive long commuting miles in Utah.
If you have any idea about useful info for how to figure it out I'd appreciate hearing about it. Otherwise, a Prius seems a more certain pay-off, at least in SoCal. For Utahns I'd say drive with natural gas.
One other consideration: resale value. I'd expect the Prius to be easier to unload. Though if natural gas retains its advantage a lot of people will want a used natural gas vehicle. For for a high mileage driver the car won't even get sold until it hits 200000 miles - unless it doesn't last that long.
So another consideration: which will go to higher miles, the Prius or the Civic CNG?
There are so many suppositions in this article that claiming any general result from the data is ridiculous. The data simply say that city prices have remained more stable than suburban prices. Well, for one thing, has it occurred to anyone that suburban prices are more likely to have been "normalized" because they are newer and people move in and out of them more frequently than in city prices, where people tend to be long time residents? Another fallacy is that because suburband land values are falling, somehow people will then move into more expensive cities?! Ridiculous....far more likely is that the continuation of exurbian centers where new businesses can cheaply set up shop and have great access to transportation and lower cost housing for their employees. Third, all the car companies will have plug in hybrids on the market in 2010. These cars get 150mph -- and that's when they actually need to use gas! If your commute from your suburban home to your exurbian business center is less than 20 miles than you can use pure electricity. If your employer allows you to charge up as a "perk" in their parking lot, then you can go 40 miles each way without using a drop of gasoline! The best times are just beginning for the exurbs...
"If you have any idea about useful info"
First, I'd think in terms of BTU's, if I were you. NG pricing is specified that way, so things are much easier - for instance, currently on the NYMEX NG is at about $12.75/MBTU. Of course, joules are very close, but still, it will make the comparisons easier to think about.
2nd, in my experience NG prices are simply passed through to retail NG consumers. Look at your gas bill - I suspect you'll see a supply charge, and a distribution charge, as well as miscellaneous charges and taxes. The distribution charge is regulated, but the supply charge likely isn't - it should float with the market,or whatever contracts your NG has in place.
Finally, relative to the relationship between NG and oil prices, refer back to my last comment: The current discount existed before about 1992, and then gas prices jumped because of more efficient NG electrical generation. Occasionally NG has been more expensive per BTU. In the last couple of years the discount came back again since oil prices really jumped. See http://www.rice.edu/energy/publications/docs/natgas/ng_relationship-nov07.pdf , Figure 1, for a good graphic showing the varying relationship.
I think that coal substitution helps keep down the cost of NG, so it's a pretty good bet that the discount will continue, but it's not a sure one - there's just no way to predict whether the discount will continue, given the wide range of possibilities for both supply and demand in both markets.
Safety in small cars has come a long way since the Geo metro days.
Also, it's maybe worth considering that as the average vehicle size drops over time (fewer people driving SUVs), and as more shipping shifts to rail (fewer large trucks on the road), it should become less unsafe to drive a small car. It seems that the real threat to small cars isn't so much crashes per se, but rather crashes vs. vehicles with much larger mass. Corolla vs. Prius, with the standard six air bags and a well-designed passenger cage, everyone walks away; Corolla vs. Expedition, not so much.
Actually, as I write this, I'm wondering whether higher gas prices means many fewer fatalities generally: cars will be less massive on average; the gradual death of the SUV means many fewer rollover deaths; increased use of safer mass transit; and even more people walking and biking (which should become safer if it becomes more common, and especially if cities build more bike paths). I don't know whether I'm right here, or whether it would be significant even if I am, but it seems like an interesting possibility.
Yes, fewer cars and trucks on the road combined with smaller cars will make the road safer. It'll also cut back on traffic jams.
Declining oil production probably will cut road fatalities unless more people shift to motorcycles.
The 2010 Honda Insight hybrid consists of a gasoline-powered 1.3-liter four-cylinder and a battery, along with a nickel-metal hydride. The gasoline engine is good for 88 horsepower and 88 lb.-ft. of torque, while 13 horsepower electric motor and 58 fleas foot-pounds. Because the variable peak power, the combined maximum power of 98 horsepower and 123 lb.-ft of torque. In our test track, the Insight zip from zero to 60 mph in 10.9 seconds - a few tenths slower than the Prius, but substantial, 2.6 seconds faster than the Civic Hybrid.