Higher Gas Prices Lower Exurban Home Values
Rising prices for gasoline have lowered the price of houses distant from the center of densely populated cities. Will the rural housing market suffer in a time of high gas prices?
The high price of gasoline is changing real estate values. Simply, the farther your house is from an urban area, the greater the decline in the price you will receive for your home.
"The collapse of America’s housing bubble—and its reverberations in financial markets—has obscured a tectonic shift in housing demand," writes Portland, Oregon, economist Joe Cortright. "Although housing prices are in decline almost everywhere, price declines are generally far more severe in far-flung suburbs and in metropolitan areas with weak close-in neighborhoods." (Cortright wrote this report, Driven to the Brink, for the non-profit CEOs For Cities.)
(A report issued Tuesday showed housing prices in 20 metro areas dropping 14.4 percent below prices from a year ago, the largest drop in seven years.)
The reason for the shift in housing prices is the rapidly increasing cost of fuel. Houses in areas that require long commutes to work or are far away from shops or other amenities have prices that are falling further and faster than homes close to the center of densely populated cities.
"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," Cortright finds.
In early 2004, gas prices stood at $1.17 a gallon, rising to nearly $4 a gallon today. City residents buy less gas than those who live in the suburbs or exurbs. A typical city family buys 200 fewer gallons of gas a year than the typical suburbanite. " For some families living on the urban fringe, the burden is even higher," Cortright finds. "A household with two or more cars living in an exurb could easily have a gas bill exceeding $500 per month." The Census Bureau reported in 2004 that 3.4 million Americans have "extreme commutes" of more than 90 minutes in one direction.
One study found that in exurban areas of Minnesota, families were spending almost a third of their income on transportation. More urban residents spent 20 percent.
Those costs are being factored in to housing prices. Cortright mapped how housing prices have changed over the last four to five years. He found that homes in compact cities with greater population density held on to their value better than those cities that have sprawled.
And he found that as homes got farther away from the central city, their values were declining at increasing rates.
All things (school quality, house and lot size) being equal, a house one mile closer to the center of Austin, Texas, was worth $8,000 more than a house a mile farther out. Each minute shaved off commuting time in Austin raised the price of a house by $4,700.
Cortright found that houses priced the same in 2006 ago but in different parts of a city were selling for dramatically different amounts a year later depending on their distance from the center of town. In Pittsburgh, close-in houses gained $12,000 in value while in the distant community of New Kensington, the average house lost $16,000 in value.
The high price of gasoline is changing how people think about where they live, decisions that will change the nature and economy of rural life. The number of miles traveled per person each day rose for the last two decades, as the real cost of driving a car declined. In the last three years, however, those trends reversed. The cost of driving increased and Americans began driving less. Nearly three out of ten Americans told the Harris Poll in 2005 that they were looking for a place to live closer to work. Ten percent of Americans told Gallup last year that they changed jobs in order to be closer to work.
"While it may be premature to predict that the nation’s suburbs will become ghost towns or slums," Cortright wrote, "it seems clear that the trend toward ever increasing sprawl is ebbing."
Rural areas are already trying to adjust to higher land prices, driven up by farm subsidy payments. In Minnesota, some of the counties with the highest foreclosure rates are in rural parts of the state.
Meanwhile, the miles Americans are traveling each days continues to drop. The U.S. Department of Transportation reported Tuesday that the total number of vehicle miles traveled in March of this year was 4.3 percent lower than in March of 2007.