American Houses and the Oil Denominator

If there’s one asset the world has little use for, it’s an American single family home priced above 250K, reachable only by car. The great, post-war buildout of America’s suburbs relied upon the continuance of a favorable arbitrage between rising wages, and low transportation costs. Now that this profitable scheme has come to an end, it should be no surprise that Robert Shiller remarked this week that housing “may not recover in our lifetime.” While some stabilization has been seen since the start of the US housing bust, Case-Shiller data showed this week that many cities hit new price lows. Interestingly, Robert Shiller is now himself noting the energy and transport cost pressure on US housing, and used the phrase “walkable cities.”

To illustrate how I see the future price path of homes in non-walkable cities, I made up the following graphic:

 

Walkable cities are very nice indeed, and I’ve been fortunate to live in several of them: Boston, New York, San Francisco and now my present city, Portland. But the majority of American homes, in order to capture any future increase in value, will need to benefit again from rising wages and flat to falling energy costs. At the current juncture, those are two trends unlikely to appear any time soon. Advantages will accrue, therefore, to US residential real estate near rail lines. Cities that wish to thrive will need to face up to these realities soon by halting all investment in roads and highways, diverting transport funding to rail and BRT (Bus Rapid Transit), and by extending these transport networks further into residential communities through walking and bike paths.

–Gregor

  • Alex Kalinin

    Why give up on electric cars? Wouldn’t it be easier to invent a better storage battery than relocate 100 million people?

  • http://twitter.com/greenbang Greenbang

    Absolutely the right call, Gregor — BRT’s the most affordable, quickest way to jump-start mass transit. I’ve been a big fan of that approach since first reading about it: http://www.greenbang.com/are-buses-the-key-to-efficient-green-city-transit_21295.html

  • ericcb

    In my community, it is difficult to get trails safely placed where they would do the most good.  Too thinly populated for mass transit/rail, too rich to want to get out of their cars.  Here, moms sit in their massive SUV’s at the mouth of the subdivision to await little Johnny or Jane to get off the bus to be carried home in said SUV  to inside the subdivision.

     The good news is, is that the power company is heaving up the grid so electric cars won’t over load the system.

  • http://www.facebook.com/people/Ron-Shook/1492658712 Ron Shook

    Gregor,

    A remarkably concise macro look at things.  I’m gonna pick a little at your final conclusion, but don’t imagine that I don’t appreciate the effort.

    You write at the end, “Advantages will accrue, therefore, to US residential real estate near rail lines. Cities that wish to thrive will need to face up to these realities soon by halting all investment in roads and highways, diverting transport funding to rail and BRT (Bus Rapid Transit), and by extending these transport networks further into residential communities through walking and bike paths.”  Bear with me as I lay out a slightly different scenario, that I believe, rightly or wrongly, to be considerably cheaper, more in tune with our personal desires, and more likely to develop.

    The car culture developed at its most basic because of our desires as individuals to be able to move faster, further and with more comfort and convenience than walking or horse conveyance.  Most of the rest of that car culture is relatively trivial oneupsmanship except for safety concerns.  We want to be able to move on our own personal schedule, at least within a limited radius of where we live, where most of our lives take place, where our immediate day to day needs of employment, food & other shopping, entertainment, schooling and the like are centered.  It’s my contention that we can do this without massive investment beyond maintenance in transport funding for public transport networks and the road infrastructure.

    The key is several new classes of personal transport vehicles that are closer to bicycles than automobiles.  Vehicles that we have only seen intimations of thus far.  E-vehicles that are less than, to at the most, twice the weight of what they are designed to carry but using 1/20th to 1/5th the energy of cars, albeit somewhat, but not remarkably slower.  These vehicles will be in almost all cases more sippy of energy than even the best public transport for anything under say 50 miles round trip, much faster to roll out for current infrastructure, could be far more locally manufactured and distributed, and all the while would remain PERSONAL.  It’s the comfort part of the equation that just has to be innovated, along with the far better energy density transport batteries that are coming down the pike.

    While we are distributing solar and wind energy at a furious pace, we simply won’t have the capital for expanding the public transport network significantly, so let’s engineer what we’ve got to work much more comprehensively by as you say halting all investment in new roads and highways, but as automobiles as we have known them become too expensive to support and cars are removed from the roads by economics, let’s start opening separated bike lanes on one side of the street where cars used to park or some similar kind of maintenance with tiny vehicle lanes for these new vehicles and bicycles, so that current public trains can gain ridership from housing 10 or 20 miles away, and bus use can explode for commuting riders with 30 lb. brief case folding e-bikes from residences up to 5 miles away.  We can do this transition without massive infrastructure investment beyond mostly maintenance on what we already have.

    I know whereof I speak.  I have no car, do most of my transport year round in Chicago with a 125lb e-trike at almost negligible costs, on average as quick as with a car, use public transit very sparingly, and I’ve gotta tell ya, have no interest in being forced to public transit alone.  I can be at most destinations with no parking hassles in the time it takes to walk to bus or subway, wait and step on one these honkin’, high infrastructure vehicles.  The main con of my approach is comfort in inclement weather and that will be fixable over time with current technology.  See my “e-bike Shopping in Winter” video here:  www.etrikebikes.com  I’ve done video all my life, so it’s a competent video and lays out a lot in 5 minutes. 

  • David Cass

    ssfdafds

  • Bill Rattner

    A startup in Seattle has latched on this very concept: http://www.walkscore.com/

  • no_cnbc_cretin

    Personally, I housing market is toast. It’s just most don’t know it just yet. As for electric cars, when people bring up EV’s they just don’t get where the world is headed.

  • roberthurst157

    Why not just ride a bike, and receive the critical benefit of exercise along with your transportation? You’re almost there.

  • gregor.us

    Atlanta is one of the better cities to see these effects, as its broad suburban layout and automobile dependency will create a long term limit to housing prices. Recent data shows that Atlanta housing market(s) did terribly in the past year, for example: http://www.doctorhousingbubble.com/crashing-us-housing-metro-areas-atlanta-home-values-post-bubble-low-las-vegas-reos-foreclosures/

    G

  • http://www.facebook.com/fugk.yuo Fugk Yuo

    When a gallon of liquid fuel (I prefer Diesel #2 for the OM616 and EL-300) is $10, or more reasonably 90 minutes of low-skill employment, all cities will be “walkable”. 

    One of the biggest problems I encounter in Portland Oregon while bicycling is that stupid/unskilled/careless/distracted (any and or all, your choice) drivers of cheap-but-huge 10+ year old SUV’s don’t have any concern for my life while “sharing” the road. They demonstrate this with horns, tailgating, and illegal passing while I ride at the posted speed limit in the lane as allowed by ORS. I pull over to let them pass, or turn-off, if a few pile up. If they are the least bit patient, and I’m not an ass, we all get to sleep at home tonight.  Many of these beasts are 2nd or 3rd family cars with much deferred maintenance, especially brakes and tires (big tires are big $$$!), but still have lots of V-8 power/air conditioning/high driver isolation from everything.  Bus drivers are more skilled, but equally as careless around bicycles or pedestrians so they can meet the schedule (or get back to the bus barn for lunch). 

    Expensive fuel, by whatever means, will reduce large vehicle traffic.  I am completely unconcerned about the effect on “drive to work, work to drive” suburban people.  They should get bikes, too, and work closer to home.

  • http://www.facebook.com/fugk.yuo Fugk Yuo

    Unless an “electric car” is more like an electric bicycle with an umbrella, and a lot less like a Nissan Leaf, it’s not going to work. 

    Inexpensive liquid fuel is what makes 3500 pound cars possible and practical. For example, in 2002 I worked a crumby job with average-low pay and earned over 12 gallons of premium fuel per hour. Life was good!  That same job pays less than 3 gallons per hour in 2012. Not so good. 

    I can’t consider any kind of “magical” solution, and that’s what a significantly better storage battery is.  My solution is to drive WAY-LESS and get a closer job that doesn’t pay as much, but has (essentially) no monetary commuting cost.  My life is not as good as when fuel cost less and I had more income to enjoy the cheap fuel in my car.  I suspect all kind of marginally-productive and “nice to have” activities have just plain been deleted from American life, except in memory.  For elites, the memory of better times is far more dangerous than any current difficulty that mostly affects the lower and middle classes. 

    Cheers. 

  • http://www.facebook.com/fugk.yuo Fugk Yuo

    +1.  Even in places that are not over-populated, reasonably less-corrupt, and didn’t boom so much, housing is much slower to turn over than the happy-talk on MSM (radio real estate talk shows) would seem to indicate.  

    All real estate agents and brokers agree that it’s a great time to buy or sell. 

    I see my neighborhood people hanging on to their houses month-by-month, and walk-aways getting extensive rehabilitation by the mortgage holder before re-placing the house on the market (at a higher-than-ever price due to huge upgrades installed).  Some houses sit empty, but unsold/unlisted houses don’t affect the statistics.  It’s not quite a Potempkin Village, but there is deception to reel in the unwary buyer at an inflated-sustained price.  $350K (even at 0.0% interest) is a heck of a lot of money for a 50×100 lot with a chipboard/Tyvek no-basement house when regular people are making $16/hr. 

    House is a consumer durable, like a refrigerator.  Property is a speculative asset that has a price that goes both up and down, while obligating the “owner” to pay a fortune in school taxes.  Do we need to go into how paying over $12K per “student” in government schools that fail to do more than indoctrinate and account for children is insane? In-fill construction in my neighborhood is, almost without exception, really-big houses on small lots or insta-ghetto duplexes as part of a City “Density Plan”. Postage-stamp front and rear yard, 80%+ coverage of the lot by roof with legal minimum offset from property line on at least 2 sides, and pavement over half of what’s left to park some cars.   This is going to be a problem when we need victory gardens. Cheers.