Gas Prices, Housing and the Slow Economy

Saturday, November 24, 2012

By Marshall Kaplan from his article in the OC Register:

Several respected analysts theorize that increased commuting costs generated the collapse of housing markets in the latter part of the last decade and fueled (excuse the pun) the five-year-long economic malaise in the United States.

Steven Sexton and his colleagues at the University of California's Center for Energy and Environment Economics suggest that low energy prices during the housing boom, in combination with lax lending practices and new mortgage products, made suburban houses affordable to a new class of homeowners with low incomes, high leverage, low credit worthiness and long work commutes.

While cheap fuel prices lead to urban sprawl and the expansion of homeownership, dramatic increases in fuel prices disproportionately impacted suburban homeowners. High commuting costs decreased home values. Mortgages became unaffordable for some households and imprudent for others, leading to unavoidable and strategic defaults.

While predatory and subprime lending have been blamed for the housing crisis and certainly contributed to the problem, another economic factor has been almost entirely overlooked in the timing and the geography of the nation's housing market implosion. The rise in gas prices during the last decade dealt a major blow to consumer purchasing power and weighs most heavily on people who have to drive the farthest.

The analytical trifecta linking three real economic variables — increased costs of gas, the end of the housing bubble and the crisis in the national economy — should generate intellectual curiosity. Gas spikes have occurred at the same time as the recent decline in house values and the down economy. But before we accept the assumed relationships, more analysis is needed. The data suggests a correlation but not yet causation.

Clearly, there are more powerful variables than gasoline prices driving the slow economy, among them the collapse of subprime mortgages and related problems in mortgage-backed securities and the decline in purchasing power related to unemployment and underemployment.

While the price of gasoline may have affected housing values and certainly affects household budget decisions, the impact of both on household location decisions will require more knowledge. Clearly, analysts need to link different household and housing characteristics to urban employment patterns, including the suburbanization of employment. In this context, it's too early to conclude that continued high gas costs will lead to a revival of central cities and a corollary decline of the suburbs.

More likely, continued high gas costs will directly reduce the housing and job choices of the poor, near poor and moderate income groups. Over time, this will lead to increased market and geographic segmentation of housing and jobs. It sounds like America might be on its way back to the future. I hope not.

Orange County has a stake in the outcome of the gas-price, housing-value hypothesis. The county's current land use patterns suggest a suburbanization of upwardly mobile jobs and an urbanization of poverty. My informal interviews with a small number of low-income residents in Santa Ana suggest that the high costs of gasoline restricts job choices and requires a relative large percentage of income for fuel, restricting their choices of basic goods and services.

For many Americans, the choice between "gas, gas and gas" at most fueling stations has become part of our genetic structure, as well as an addiction. We have no real choices at the pump. Consumer costs are real. America's costs are real.

We don't have to wait on new studies to measure the negative impact of America's dependence on imported oil on the economy, the environment and security. We can do better. We must do better. Congress and the Obama Administration are weighing new open fuel standards and environmental regulatory reforms that would open up restricted transportation fuel markets to competition from alternative fuels such as natural gas, methanol and ethanol. Flex-fuel automobiles should become a common sight and flex-fuel choices should become standard at fuel stations.

Marshall Kaplan is an adviser to Fuel Freedom Foundation. You can email him at


Post a Comment

Subscribe to the RSS Feed

Subscribe to Email Updates

Enter your email address:

Delivered by FeedBurner

Like us on Facebook

  © Blogger template The Professional Template II by 2009

Back to TOP