The Housing Chronicles Blog: Study shows higher gas prices helped bust the housing market

Friday, June 6, 2008

Study shows higher gas prices helped bust the housing market

For several years I've been including the question of higher gas prices when studying new development in outlying areas, arguing that infill projects will hold up better in a downturn if they're located closer to employment centers and/or offer access to convenient public transit. A recent study by the group CEO for Cities and profiled on has confirmed this, which I think will prove to be a huge trend for the homebuilding industry moving forward:

In a new study released by CEO for Cities, gas price increases in the last five years are cited as a factor in declining home values and loan defaults in distant suburbs and metropolitan areas with weak central cities.

The study, called “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” measured the change in housing prices between the fourth quarter of 2006 and the fourth quarter of 2007, as well as foreclosures and delinquencies, in 20 major markets.

Five markets -- Los Angeles, Chicago, Tampa, Pittsburgh, and Portland, Ore. – were examined in detail. In all five markets, neighborhoods within three miles of the central business district held their home values better than neighborhoods that were 10 miles further out.

CEOs for Cities is a Chicago-based network of corporate, academic, civic, and philanthropic leaders focused on urban strategies for addressing societal issues...

The study also found a “very strong correlation between how strong central cities are and overall economic success,” Cortright says. Core vitality ratings use an index of the concentration of education levels of residents of close-in neighborhoods; a rating of 100 percent on the core vitality index means that the educational level of adults living in neighborhoods within five miles of the center of the central business distract was the same as the education level of the entire metropolitan area, according to the study. New York, Chicago, Seattle, and Portland, markets with strong central cities, were least affected by the housing downturn, with the lowest rate of price decline and delinquency, he says.

From a development perspective, Cortright says the study suggests that it will be much harder to turn a profit on projects in the distant suburbs, and conversely, there will be “much more consumer interest in those closer-in projects.”

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